##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-33676
 ENCORE ENERGY PARTNERS LP
  Delaware
    
    20-8456807(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 777 Main Street, Suite 1400, Fort Worth, Texas
    
    76102(Address of principal executive offices)
    
    (Zip Code)
 (817) 877-9955
 Not applicable
 þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
 Number of common units outstanding as of May 5, 2010
    
    
    45,341,597




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##### 



ENCORE ENERGY PARTNERS LP
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of March 31, 2010 and December 31, 2009
    
    
    1Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009
    
    
    2Consolidated Statement of Partners Equity and Comprehensive Income for the three
months ended March 31, 2010
    
    
    3Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009
    
    
    4Notes to Consolidated Financial Statements.
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 6.
    
    Exhibits
    
    
    30EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1
  CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  i




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ENCORE ENERGY PARTNERS LP
 GLOSSARY
  
    
    Bbl.One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil
or other liquid hydrocarbons.
    
    Bbl/D. One Bbl per day.
    
    BOE.One barrel of oil equivalent, calculated by converting natural gas to oil
equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil.
    
    BOE/D. One BOE per day.
    
    Completion.The installation of permanent equipment for the production of hydrocarbons.
    
    Council of Petroleum Accountants Societies (COPAS). A professional organization of
petroleum accountants that maintains consistency in accounting procedures and
interpretations, including the procedures that are part of most joint operating agreements.
These procedures establish a drilling rate and an overhead rate to reimburse the operator
of a well for overhead costs, such as accounting and engineering.
    
    Development Well. A well drilled within the proved area of an oil or natural gas
reservoir to the depth of a stratigraphic horizon known to be productive.
    
    Dry Hole.An exploratory, development, or extension well that proves to be incapable of
producing either oil or natural gas in sufficient quantities to justify completion as an
oil or natural gas well.
    
    Denbury.Denbury Resources Inc., a publicly traded Delaware corporation, together with
its subsidiaries.
    
    EAC.Encore Acquisition Company, together with its subsidiaries. EAC merged with and
into Denbury on March 9, 2010.
    
    ENP. Encore Energy Partners LP, a publicly traded Delaware limited partnership,
together with its subsidiaries.
    
    Exploratory Well. A well drilled to find a new field or to find a new reservoir in a
field previously producing oil or natural gas in another reservoir.
    
    FASB.Financial Accounting Standards Board.
    
    FASC. FASB Accounting Standards Codification.
    
    Field. An area consisting of a single reservoir or multiple reservoirs, all grouped on
or related to the same individual geological structural feature and/or stratigraphic
condition.
    
    GAAP.Accounting principles generally accepted in the United States.
    
    Gross Acres or Gross Wells.The total acres or wells, as the case may be, in which an
entity owns a working interest.
    
    Lease Operating Expense (LOE).All direct and allocated indirect costs of producing
hydrocarbons after the completion of drilling and before the commencement of production.
Such costs include ad valorem taxes, labor, superintendence, supplies, repairs, maintenance, and direct
overhead charges.
    
    LIBOR.London Interbank Offered Rate.
    
    MBbl.One thousand Bbls.
    
    MBOE.One thousand BOE.
    
    Mcf.One thousand cubic feet, used in reference to natural gas.
    
    Mcf/D.One Mcf per day.
    
    MMcf.One million cubic feet, used in reference to natural gas.
    
    Natural Gas Liquids (NGLs).The combination of ethane, propane, butane, and natural
gasolines that when removed from natural gas become liquid under various levels of higher
pressure and lower temperature.
    
    Net Acres or Net Wells.Gross acres or wells, as the case may be, multiplied by the
working interest percentage owned by an entity.
    
    NYMEX.New York Mercantile Exchange.
    
    Oil.Crude oil, condensate, and NGLs.
    
    Operator.The entity responsible for the exploration, development, and production of a
well or lease.
    
    Production Margin.Wellhead revenues less production costs.
    
    Productive Well.A well capable of producing hydrocarbons in commercial quantities,
including natural gas wells awaiting pipeline connections to commence deliveries and oil
wells awaiting connection to production facilities.
    
    Proved Developed Reserves.Proved reserves that can be expected to be recovered from
existing wells with existing equipment and operating methods or in which the cost of the
required equipment is relatively minor compared to the cost of a new well.
    
    Proved Reserves.The estimated quantities of hydrocarbons, which, by analysis of
geoscience and engineering data, can be
 ii




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ENCORE ENERGY PARTNERS LP
 estimated with reasonable certainty to be economically producible from a given date forward
from known reservoirs under existing conditions and operating methods.
    
    Proved Undeveloped Reserves.Proved reserves that are expected to be recovered from new
wells on undrilled acreage for which the existence and recoverability of such reserves can
be estimated with reasonable certainty, or from existing wells where a relatively major
expenditure is required for recompletion. Includes unrealized production response from
enhanced recovery techniques that have been proved effective by actual projects in the same
reservoir or an analogous reservoir, or by other evidence using reliable technology
establishing reasonable certainty.
    
    Recompletion.The completion for production from an existing wellbore in another
formation from that in which the well has been previously completed.
    
    Reliable Technology.A grouping of one or more technologies (including computational
methods) that have been field tested and have been demonstrated to provide reasonably
certain results with consistency and repeatability in the formation being evaluated or in
an analogous formation.
    
    Reserves.Reserves are estimated remaining quantities of oil and natural gas and
related substances anticipated to the economically producible, as of a given date, by
application of development projects to known accumulations. In addition, there must exist,
or there must be a reasonable expectation that there will exist, the legal right to produce
or a revenue interest in the production, installed means of delivering oil and gas or
related substances to market, and all permits and financing required to implement the
project.
    
    Reservoir.A porous and permeable underground formation containing a natural
accumulation of producible hydrocarbons that is confined by impermeable rock or water
barriers and is individual and separate from other reservoirs.
    
    Working Interest.An interest in an oil or natural gas lease that gives the owner the
right to drill for and produce hydrocarbons on the leased acreage and requires the owner to
pay a share of the production and development costs.
    
    Workover.Operations on a producing well to restore or increase production.
 iii




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 ENCORE ENERGY PARTNERS LP
CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,382
    
    
    $
    1,754Accounts receivable:Trade
    
    
    22,931
    
    
    
    24,543Affiliate
    
    
    3,316
    
    
    
    8,213Derivatives
    
    
    15,725
    
    
    
    12,881Other
    
    
    482
    
    
    
    857Total current assets
    
    
    51,836
    
    
    
    48,248Properties and equipment, at cost  successful efforts method:Proved properties, including wells and related equipment
    
    
    852,617
    
    
    
    851,833Unproved properties
    
    
    48
    
    
    
    55Accumulated depletion, depreciation, and amortization
    
    
    (222,755
    )
    
    
    (210,417
    )629,910
    
    
    
    641,471Other property and equipment
    
    
    863
    
    
    
    863Accumulated depreciation
    
    
    (475
    )
    
    
    (419
    )388
    
    
    
    444Goodwill
    
    
    9,290
    
    
    
    9,290Other intangibles, net
    
    
    3,240
    
    
    
    3,316Derivatives
    
    
    12,960
    
    
    
    13,423Other
    
    
    3,042
    
    
    
    3,459Total assets
    
    $
    710,666
    
    
    $
    719,651LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable:Trade
    
    $
    773
    
    
    $
    577Affiliate
    
    
    1,431
    
    
    
    2,780Accrued liabilities:Lease operating
    
    
    5,546
    
    
    
    4,157Development capital
    
    
    1,031
    
    
    
    1,484Interest
    
    
    411
    
    
    
    429Production taxes and marketing
    
    
    11,970
    
    
    
    10,218Derivatives
    
    
    10,109
    
    
    
    9,815Oil and natural gas revenues payable
    
    
    2,634
    
    
    
    1,598Other
    
    
    1,633
    
    
    
    1,632Total current liabilities
    
    
    35,538
    
    
    
    32,690Derivatives
    
    
    11,613
    
    
    
    13,401Future abandonment cost, net of current portion
    
    
    12,708
    
    
    
    12,556Long-term debt
    
    
    250,000
    
    
    
    255,000Total liabilities
    
    
    309,859
    
    
    
    313,647Commitments and contingencies (see Note 11)Partners equity:Limited partners  45,341,597 and 45,285,347 common units issued and
outstanding, respectively
    
    
    403,563
    
    
    
    409,777General partner  504,851 general partner units issued and outstanding
    
    
    506
    
    
    
    (353
    )Accumulated other comprehensive loss
    
    
    (3,262
    )
    
    
    (3,420
    )Total partners equity
    
    
    400,807
    
    
    
    406,004Total liabilities and partners equity
    
    $
    710,666
    
    
    $
    719,651
  1




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ENCORE ENERGY PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
  Three months endedMarch 31,2010
    
    
    2009 *Revenues:Oil
    
    $
    39,953
    
    
    $
    22,898Natural gas
    
    
    8,622
    
    
    
    3,231Marketing
    
    
    70
    
    
    
    170Total revenues
    
    
    48,645
    
    
    
    26,299Expenses:Production:Lease operating
    
    
    11,619
    
    
    
    12,157Production taxes and marketing
    
    
    5,066
    
    
    
    3,220Depletion, depreciation, and amortization
    
    
    12,851
    
    
    
    14,509Exploration
    
    
    21
    
    
    
    22General and administrative
    
    
    3,728
    
    
    
    3,015Derivative fair value gain
    
    
    (5,413
    )
    
    
    (10,907
    )Total expenses
    
    
    27,872
    
    
    
    22,016Operating income
    
    
    20,773
    
    
    
    4,283Other income (expenses):Interest
    
    
    (3,359
    )
    
    
    (2,216
    )Other
    
    
    25
    
    
    
    10Total other expenses
    
    
    (3,334
    )
    
    
    (2,206
    )Income before income taxes
    
    
    17,439
    
    
    
    2,077Income tax provision
    
    
    (26
    )
    
    
    (1
    )Net income
    
    $
    17,413
    
    
    $
    2,076Net income allocation (see Note 8):Limited partners interest in net income
    
    $
    17,221
    
    
    $
    4,499General partners interest in net income
    
    $
    192
    
    
    $
    69Net income per common unit:Basic
    
    $
    0.38
    
    
    $
    0.14Diluted
    
    $
    0.38
    
    
    $
    0.14Weighted average common units outstanding:Basic
    
    
    45,299
    
    
    
    33,078Diluted
    
    
    45,324
    
    
    
    33,081Cash distributions declared per common unit
    
    $
    0.5375
    
    
    $
    0.5000
 
 *
    
    Recast as discussed in Note 2.  2




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ENCORE ENERGY PARTNERS LP
CONSOLIDATED STATEMENT OF PARTNERS EQUITY AND COMPREHENSIVE INCOME
 AccumulatedOther
    
    
    TotalLimited Partners
    
    
    General Partner
    
    
    Comprehensive
    
    
    PartnersUnits
    
    
    Amount
    
    
    Units
    
    
    Amount
    
    
    Loss
    
    
    EquityBalance at December 31, 2009
    
    
    45,285
    
    
    $
    409,777
    
    
    
    505
    
    
    $
    (353
    )
    
    $
    (3,420
    )
    
    $
    406,004Owner contributions
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    935
    
    
    
    
    
    
    
    938Non-cash unit-based compensation
    
    
    
    
    
    
    898
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    906Vesting of phantom units
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash distributions to unitholders ($0.5375 per unit)
    
    
    
    
    
    
    (24,341
    )
    
    
    
    
    
    
    (271
    )
    
    
    
    
    
    
    (24,612
    )Components of comprehensive income:Net income attributable to unitholders
    
    
    
    
    
    
    17,226
    
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    17,413Change in deferred hedge loss on interest rate swaps,
net of tax of $17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158
    
    
    
    158Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,571Balance at March 31, 2010
    
    
    45,342
    
    
    $
    403,563
    
    
    
    505
    
    
    $
    506
    
    
    $
    (3,262
    )
    
    $
    400,807
  3




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ENCORE ENERGY PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedMarch 31,2010
    
    
    2009*Cash flows from operating activities:Net income
    
    $
    17,413
    
    
    $
    2,076Adjustments to reconcile net income to net cash provided
by operating activities:Depletion, depreciation, and amortization
    
    
    12,851
    
    
    
    14,509Deferred taxes
    
    
    (11
    )
    
    
    37Non-cash unit-based compensation expense
    
    
    906
    
    
    
    137Non-cash derivative loss (gain)
    
    
    (3,700
    )
    
    
    12,944Other
    
    
    1,366
    
    
    
    216Changes in operating assets and liabilities:Accounts receivable
    
    
    6,556
    
    
    
    (534
    )Current derivatives
    
    
    
    
    
    
    (1,214
    )Other current assets
    
    
    141
    
    
    
    86Long-term derivatives
    
    
    
    
    
    
    (21
    )Other assets
    
    
    (15
    )
    
    
    Accounts payable
    
    
    (1,153
    )
    
    
    (352
    )Other current liabilities
    
    
    4,167
    
    
    
    2,616Net cash provided by operating activities
    
    
    38,521
    
    
    
    30,500Cash flows from investing activities:Acquisition of oil and natural gas properties
    
    
    (292
    )
    
    
    Development of oil and natural gas properties
    
    
    (989
    )
    
    
    (2,053
    )Net cash used in investing activities
    
    
    (1,281
    )
    
    
    (2,053
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    5,000
    
    
    
    51,000Payments on long-term debt
    
    
    (10,000
    )
    
    
    (16,000
    )Deemed distributions to affiliates in connection with acquisitions
    
    
    
    
    
    
    (46,421
    )Cash distributions to unitholders
    
    
    (24,612
    )
    
    
    (16,791
    )Other
    
    
    
    
    
    
    (612
    )Net cash used in financing activities
    
    
    (29,612
    )
    
    
    (28,824
    )Increase (decrease) in cash and cash equivalents
    
    
    7,628
    
    
    
    (377
    )Cash and cash equivalents, beginning of period
    
    
    1,754
    
    
    
    619Cash and cash equivalents, end of period
    
    $
    9,382
    
    
    $
    242
 
 *
    
    Recast as discussed in Note 2.  4




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Description of Business
  
    
    the Big Horn Basin in Wyoming and Montana;
    
    the Permian Basin in West Texas and New Mexico;
    
    the Williston Basin in North Dakota and Montana; and
    
    the Arkoma Basin in Arkansas and Oklahoma.
 EACs Merger with Denbury
  Note 2. Basis of Presentation
      Reclassifications
  5




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  New Accounting Pronouncements
 Fair Value Measurements and Disclosures.
 Subsequent Events.
 Note 3. Proved Properties
  March 31,
    
    
    December 31,2010
    
    
    2009(in thousands)Proved leasehold costs
    
    $
    609,922
    
    
    $
    609,692Wells and related equipment  Completed
    
    
    242,607
    
    
    
    241,953Wells and related equipment  In process
    
    
    88
    
    
    
    188Total proved properties
    
    $
    852,617
    
    
    $
    851,833
 Note 4. Fair Value Measurements
  March 31, 2010
    
    December 31, 2009Book
    
    Fair
    
    Book
    
    FairValue
    
    Value
    
    Value
    
    Value(in thousands)Assets:Cash and cash equivalents
    
    $
    9,382
    
    
    $
    9,382
    
    
    $
    1,754
    
    
    $
    1,754Accounts receivable  trade
    
    
    22,931
    
    
    
    22,931
    
    
    
    24,543
    
    
    
    24,543Accounts receivable  affiliate
    
    
    3,316
    
    
    
    3,316
    
    
    
    8,213
    
    
    
    8,213Commodity derivative contracts
    
    
    28,685
    
    
    
    28,685
    
    
    
    26,304
    
    
    
    26,304Liabilities:Accounts payable  trade
    
    
    773
    
    
    
    773
    
    
    
    577
    
    
    
    577Accounts payable  affiliate
    
    
    1,431
    
    
    
    1,431
    
    
    
    2,780
    
    
    
    2,780Revolving credit facility
    
    
    250,000
    
    
    
    245,269
    
    
    
    255,000
    
    
    
    252,047Commodity derivative contracts
    
    
    18,169
    
    
    
    18,169
    
    
    
    19,547
    
    
    
    19,547Interest rate swaps
    
    
    3,553
    
    
    
    3,553
    
    
    
    3,669
    
    
    
    3,669
  6




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Derivative Policy
     Commodity Derivative Contracts
   7




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Oil Derivative Contracts
 Average
    
    Weighted
    
    
    Average
    
    Weighted
    
    
    Average
    
    Weighted
    
    
    AssetDaily
    
    Average
    
    
    Daily
    
    Average
    
    
    Daily
    
    Average
    
    
    (Liability)Floor
    
    Floor
    
    
    Cap
    
    Cap
    
    
    Swap
    
    Swap
    
    
    Fair MarketPeriod
    
    Volume
    
    Price
    
    
    Volume
    
    Price
    
    
    Volume
    
    Price
    
    
    Value(Bbls)
    
    (per Bbl)
    
    
    (Bbls)
    
    (per Bbl)
    
    
    (Bbls)
    
    (per Bbl)
    
    
    (in thousands)Apr.  Dec. 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (4,063
    )880
    
    
    $
    80.00
    
    
    
    
    440
    
    
    $
    93.80
    
    
    
    
    760
    
    
    $
    75.432,000
    
    
    
    75.00
    
    
    
    
    1,000
    
    
    
    77.23
    
    
    
    
    250
    
    
    
    65.95760
    
    
    
    67.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9081,880
    
    
    
    80.00
    
    
    
    
    1,440
    
    
    
    95.41
    
    
    
    
    760
    
    
    
    78.461,000
    
    
    
    70.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760
    
    
    
    65.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    69.652012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,085
    )750
    
    
    
    70.00
    
    
    
    
    500
    
    
    
    82.05
    
    
    
    
    210
    
    
    
    81.621,510
    
    
    
    65.00
    
    
    
    
    250
    
    
    
    79.25
    
    
    
    
    1,300
    
    
    
    76.54$
    (8,240
    )
 Natural Gas Derivative Contracts
 Average
    
    Weighted
    
    
    Average
    
    Weighted
    
    
    Average
    
    WeightedDaily
    
    Average
    
    
    Daily
    
    Average
    
    
    Daily
    
    Average
    
    
    AssetFloor
    
    Floor
    
    
    Cap
    
    Cap
    
    
    Swap
    
    Swap
    
    
    Fair MarketPeriod
    
    Volume
    
    Price
    
    
    Volume
    
    Price
    
    
    Volume
    
    Price
    
    
    Value(Mcf)
    
    (per Mcf)
    
    
    (Mcf)
    
    (per Mcf)
    
    
    (Mcf)
    
    (per Mcf)
    
    
    (in thousands)Apr.  Dec. 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,4473,800
    
    
    $
    8.20
    
    
    
    
    3,800
    
    
    $
    9.58
    
    
    
    
    5,452
    
    
    $
    6.204,698
    
    
    
    7.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.862011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,3503,398
    
    
    
    6.31
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,952
    
    
    
    6.36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.862012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,959898
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,452
    
    
    
    6.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.86$
    18,756
 Counterparty Risk.
 Fair Market Value of
    
    Fair Market Value ofOil Derivative
    
    Natural GasContracts
    
    Derivative ContractsCounterparty
    
    Committed
    
    Committed(in thousands)BNP Paribas
    
    $
    8,270
    
    
    $
    5,085Calyon
    
    
    2,495
    
    
    
    8,980RBC
    
    
    2,476
    
    
    
    3,366
  8




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Interest Rate Swaps
  Notional
    
    Fixed
    
    FloatingTerm
    
    Amount
    
    Rate
    
    Rate(in thousands)Apr. 2010 - Jan. 2011
    
    $
    50,000
    
    
    
    3.1610
    %
    
    1-month LIBORApr. 2010 - Jan. 2011
    
    
    25,000
    
    
    
    2.9650
    %
    
    1-month LIBORApr. 2010 - Jan. 2011
    
    
    25,000
    
    
    
    2.9613
    %
    
    1-month LIBORApr. 2010 - Mar. 2012
    
    
    50,000
    
    
    
    2.4200
    %
    
    1-month LIBOR
 Current Period Impact
  Three months ended March 31,2010
    
    
    2009(in thousands)Ineffectiveness on interest rate swaps
    
    $
    59
    
    
    $
    89Mark-to-market loss (gain)
    
    
    (6,179
    )
    
    
    7,300Premium amortization
    
    
    2,420
    
    
    
    5,555Settlements
    
    
    (1,713
    )
    
    
    (23,851
    )Total derivative fair value gain
    
    $
    (5,413
    )
    
    $
    (10,907
    )
 Accumulated Other Comprehensive Loss
  9




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Tabular Disclosures of Fair Value Measurements
  Asset Derivatives
    
    
    
    Liability DerivativesFair Value
    
    
    
    
    
    
    Fair ValueBalance Sheet Location
    
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    
    Balance Sheet Location
    
    
    March 31, 2010
    
    
    December 31, 2009Derivatives not designated as hedgesCommodity derivative contracts
    
    Derivatives  current
    
    $
    15,725
    
    
    $
    12,881
    
    
    
    Derivatives  current
    
    $
    6,947
    
    
    $
    6,393Commodity derivative contracts
    
    Derivatives  noncurrent
    
    
    12,960
    
    
    
    13,423
    
    
    
    Derivatives  noncurrent
    
    
    11,222
    
    
    
    13,154Total derivatives not designated as
hedges
    
    
    
    
    
    $
    28,685
    
    
    $
    26,304
    
    
    
    
    
    
    
    $
    18,169
    
    
    $
    19,547Derivatives designated as hedgesInterest rate swaps
    
    Derivatives  current
    
    $
    
    
    
    $
    
    
    
    
    Derivatives  current
    
    $
    3,162
    
    
    $
    3,422Interest rate swaps
    
    Derivatives  noncurrent
    
    
    
    
    
    
    
    
    
    
    Derivatives  noncurrent
    
    
    391
    
    
    
    247Total derivatives designated as hedges
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    
    $
    3,553
    
    
    $
    3,669Total derivatives
    
    
    
    
    
    $
    28,685
    
    
    $
    26,304
    
    
    
    
    
    
    
    $
    21,722
    
    
    $
    23,216
  Amount of Gain Recognized in IncomeDerivatives Not Designated as
    
    Location of Gain
    
    Three Months Ended March 31,Hedges
    
    Recognized in Income
    
    2010
    
    2009Commodity derivative contracts
    
    Derivative fair value gain
    
    $
    5,472
    
    
    $
    10,996The following tables summarize the effect of derivative instruments designated as hedges
on the Consolidated Statements of Operations for the periods indicated (in thousands):Amount of Loss Recognized inAccumulated OCI (Effective Portion)Derivatives Designated as
    
    
    
    
    
    Three Months Ended March 31,Hedges
    
    2010
    
    2009Interest rate swaps
    
    
    
    
    
    $
    824
    
    
    $
    715Amount of Loss Reclassified from AccumulatedOCI into Income (Effective Portion)Location of Loss Reclassified from Accumulated
    
    
    
    
    
    Three Months Ended March 31,OCI into Income (Effective Portion)
    
    2010
    
    2009Interest expense
    
    
    
    
    
    $
    982
    
    
    $
    881Amount of Loss Recognizedin Income as IneffectiveThree Months Ended March 31,Location of Loss Recognized in Income as Ineffective
    
    2010
    
    2009Derivative fair value gain
    
    
    
    
    
    $
    59
    
    
    $
    89
 Fair Value Hierarchy
  
    
    Level 1  Unadjusted quoted prices are available in active markets for identical assets
or liabilities.
    
    Level 2  Pricing inputs, other than quoted prices within Level 1, that are either
directly or indirectly observable.
    
    Level 3  Pricing inputs that are unobservable requiring the use of valuation
methodologies that result in managements best estimate of fair value.
 10




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  
    
    Level 2  Fair values of oil and natural gas swaps were estimated using a combined
income-based and market-based valuation methodology based upon forward commodity price
curves obtained from independent pricing services reflecting broker market quotes. Fair
values of interest rate swaps were estimated using a combined income-based and market-based
valuation methodology based upon credit ratings and forward interest rate yield curves
obtained from independent pricing services reflecting broker market quotes.
    
    Level 3  ENPs oil and natural gas calls, puts, and short puts are average value
options, which are not exchangetraded contracts. Settlement is determined by the average
underlying price over a predetermined period of time. ENP uses both observable and
unobservable inputs in a Black-Scholes valuation model to determine fair value.
Accordingly, these derivative instruments are classified within the Level 3 valuation
hierarchy. The observable inputs of ENPs valuation model include: (1) current market and
contractual prices for the underlying instruments; (2) quoted forward prices for oil and
natural gas; and (3) interest rates, such as a LIBOR curve for a term similar to the
commodity derivative contract. The unobservable inputs of ENPs valuation model include
volatility. The implied volatilities for ENPs calls, puts, and short puts with comparable
strike prices are based on the settlement values from certain exchange-traded contracts.
The implied volatilities for calls, puts, and short puts where there are no exchange-traded
contracts with the same strike price are extrapolated from exchange-traded implied
volatilities by an independent party.
   Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    Asset (Liability)
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Oil derivative contracts  swaps
    
    $
    (11,859
    )
    
    $
    
    
    
    $
    (11,859
    )
    
    $
    Oil derivative contracts  floors and caps
    
    
    3,619
    
    
    
    
    
    
    
    
    
    
    
    3,619Natural gas derivative contracts  swaps
    
    
    8,325
    
    
    
    
    
    
    
    8,325
    
    
    
    Natural gas derivative contracts  floors and caps
    
    
    10,431
    
    
    
    
    
    
    
    
    
    
    
    10,431Interest rate swaps
    
    
    (3,553
    )
    
    
    
    
    
    
    (3,553
    )
    
    
    Total
    
    $
    6,963
    
    
    $
    
    
    
    $
    (7,087
    )
    
    $
    14,050
 11




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Oil Derivative
    
    
    Natural GasContracts 
    
    
    Derivative Contracts Floors and Caps
    
    
    Floors and Caps
    
    
    Total(in thousands)Balance at January 1, 2010
    
    $
    8,585
    
    
    $
    8,528
    
    
    $
    17,113Total gains (losses):Included in earnings
    
    
    (4,910
    )
    
    
    115
    
    
    
    (4,795
    )Settlements
    
    
    (56
    )
    
    
    1,788
    
    
    
    1,732Balance at March 31, 2010
    
    $
    3,619
    
    
    $
    10,431
    
    
    $
    14,050The amount
of total gains (losses) for the period included in earnings
attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date
    
    $
    (4,910
    )
    
    $
    115
    
    
    $
    (4,795
    )
   Note 5. Asset Retirement Obligations
  Future abandonment liability at January 1, 2010
    
    $
    13,130Accretion of discount
    
    
    179Revision of previous estimates
    
    
    31Plugging and abandonment costs incurred
    
    
    (20
    )Future abandonment liability at March 31, 2010
    
    $
    13,320
  Note 6. Long-Term Debt
  12




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
     Applicable Margin for
    
    Applicable Margin forRatio of Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans
    
    Base Rate LoansLess than .50 to 1
    

    
    2.250
    %
    
    
    1.250
    %Greater than
or equal to .50 to 1 but less than .75 to 1
    

    
    2.500
    %
    
    
    1.500
    %Greater than
or equal to .75 to 1 but less than .90 to 1
    

    
    2.750
    %
    
    
    1.750
    %Greater than
or equal to .90 to 1
    

    
    3.000
    %
    
    
    2.000
    %
    
    
    a prohibition against incurring debt, subject to permitted exceptions;
    
    a prohibition against purchasing or redeeming capital stock, or prepaying indebtedness,
subject to permitted exceptions;
    
    a restriction on creating liens on the assets of ENP, OLLC, and OLLCs restricted
subsidiaries, subject to permitted exceptions;
    
    restrictions on merging and selling assets outside the ordinary course of business;
    
    restrictions on use of proceeds, investments, transactions with affiliates, or change of
principal business;
    
    a provision limiting oil and natural gas hedging transactions (other than puts) to a
volume not exceeding 75 percent of anticipated production from proved producing reserves;
    
    a requirement that ENP and OLLC maintain a ratio of consolidated current assets to
consolidated current liabilities of not less than 1.0 to 1.0;
    
    a requirement that ENP and OLLC maintain a ratio of consolidated EBITDA to the sum of
consolidated net interest expense plus letter of credit fees of not less than 2.5 to 1.0;
and
    
    a requirement that ENP and OLLC maintain a ratio of consolidated funded debt to
consolidated adjusted EBITDA of not more than 3.5 to 1.0.
   13




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 
    
    failure to pay principal on any loan when due;
    
    failure to pay accrued interest on any loan or fees when due and such failure continues
for more than three days;
    
    failure to observe or perform covenants and agreements contained in the OLLC Credit
Agreement, subject in some cases to a 30-day grace period after discovery or notice of such
failure;
    
    failure to make a payment when due on any other debt in a principal amount equal to or
greater than $3 million or any other event or condition occurs which results in the
acceleration of such debt or entitles the holder of such debt to accelerate the maturity of
such debt;
    
    the commencement of liquidation, reorganization, or similar proceedings with respect to
OLLC or any guarantor under bankruptcy or insolvency law, or the failure of OLLC or any
guarantor generally to pay its debts as they become due;
    
    the entry of one or more judgments in excess of $3 million (to the extent not covered by
insurance) and such judgment(s) remain unsatisfied and unstayed for 30 days;
    
    the occurrence of certain ERISA events involving an amount in excess of $3 million;
    
    there cease to exist liens covering at least 80 percent of the borrowing base
properties; or
    
    the occurrence of a change in control.
  Note 7. Partners Equity and Distributions
 Distributions
   Cash DistributionDate
    
    Declared per
    
    
    
    
    
    TotalDeclared
    
    Common Unit
    
    Date Paid
    
    Distribution(in thousands)2010Quarter ended March 31
    
    
    4/30/2010
    
    
    $
    0.5000
    
    
    
    5/14/2010
    (a)
    
    $
    22,923
    (a)2009Quarter ended December 31
    
    
    1/25/2010
    
    
    $
    0.5375
    
    
    
    2/12/2010
    
    
    
    24,642Quarter ended September 30
    
    
    10/26/2009
    
    
    $
    0.5375
    
    
    
    11/13/2009
    
    
    
    24,642Quarter ended June 30
    
    
    7/27/2009
    
    
    $
    0.5125
    
    
    
    8/14/2009
    
    
    
    23,481Quarter ended March 31
    
    
    4/27/2009
    
    
    $
    0.5000
    
    
    
    5/15/2009
    
    
    
    16,8132008Quarter ended December 31
    
    
    1/26/2009
    
    
    $
    0.5000
    
    
    
    2/13/2009
    
    
    
    16,813
 
 (a)
    
    Represents the date the distribution is expected to be paid and the total amount of the
distribution that is expected to be paid. Note 8. Earnings Per Unit
  14




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Three months endedMarch 31,2010
    
    
    2009(in thousands, except per unit amounts)Net income
    
    $
    17,413
    
    
    $
    2,076Less: net loss for pre-partnership operations of
assets acquired from affiliates
    
    
    
    
    
    
    2,492Net income attributable to unitholders
    
    $
    17,413
    
    
    $
    4,568Numerator:Numerator for basic earnings per unit:Net income attributable to unitholders
    
    $
    17,413
    
    
    $
    4,568Less: distributions earned by participating securities
    
    
    (252
    )
    
    
    (252
    )Plus: cash distributions in excess of
income allocated to the general partner
    
    
    60
    
    
    
    183Net income allocated to limited partners
    
    $
    17,221
    
    
    $
    4,499Denominator:Denominator for basic earnings per unit:Weighted average common units outstanding
    
    
    45,299
    
    
    
    33,078Effect of dilutive phantom units
    
    
    25
    
    
    
    3Denominator for diluted earnings per unit
    
    
    45,324
    
    
    
    33,081Net income per common unit:Basic
    
    $
    0.38
    
    
    $
    0.14Diluted
    
    $
    0.38
    
    
    $
    0.14
 Note 9. Unit-Based Compensation Plans
 Long-Term Incentive Plan
   Phantom Units.
 15




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   WeightedAverageNumber of
    
    Grant DateShares
    
    Fair ValueOutstanding at January 1, 2010
    
    
    56,250
    
    
    $
    18.40Vested
    
    
    (56,250
    )
    
    
    18.40Outstanding at March 31, 2010
    
    
    
    
    
    
    
 Note 10. Comprehensive Income
  Three months endedMarch 31,2010
    
    
    2009(in thousands)Net income
    
    $
    17,413
    
    
    $
    2,076Change in deferred hedge loss on interest rate swaps
    
    
    158
    
    
    
    (713
    )Comprehensive income
    
    $
    17,571
    
    
    $
    1,363
 Note 11. Commitments and Contingencies
   Note 12. Related Party Transactions
 Administrative Services Agreement
    16




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 
    
    beginning on the first day of April in each year by an amount equal to the product of
the then-current administrative fee multiplied by the COPAS Wage Index Adjustment for that
year;
    
    if ENP acquires additional assets, Encore Operating may propose an increase in its
administrative fee that covers the provision of services for such additional assets;
however, such proposal must be approved by the board of directors of the General Partner
upon the recommendation of its conflicts committee; and
    
    otherwise as agreed upon by Encore Operating and the General Partner, with the approval
of the conflicts committee of the board of directors of the General Partner.
   Three Months Ended March 31,2010
    
    2009(in thousands)Administrative fees (including COPAS recovery)
    
    $
    3,060
    
    
    $
    1,662Third-party expenses
    
    
    2,762
    
    
    
    956
  Acquisitions from EAC
   Distributions
  17




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Note 13. Subsequent Events
   18




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ENCORE ENERGY PARTNERS LP
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis contains forward-looking statements, which give our
current expectations or forecasts of future events. Actual results could differ materially from
those discussed in these forward-looking statements due to many factors, including, but not limited
to, those set forth under Item 1A. Risk Factors and elsewhere in our 2009 Annual Report on Form
10-K. The following discussion and analysis should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1. Financial Statements of this Report.
 Introduction
  
    
    Overview of Business
    
    First Quarter 2010 Highlights
    
    Results of Operations
 
    
    Comparison of Quarter Ended March 31, 2010 to Quarter Ended March 31, 2009
 
    
    Capital Commitments, Capital Resources, and Liquidity
    
    Critical Accounting Policies and Estimates
    
    New Accounting Pronouncements
 Overview of Business
  
    
    the Big Horn Basin in Wyoming and Montana;
    
    the Permian Basin in West Texas and New Mexico;
    
    the Williston Basin in North Dakota and Montana; and
    
    the Arkoma Basin in Arkansas and Oklahoma.
     19




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
 First Quarter 2010 Highlights
  
    
    Our net income increased to $17.4 million ($0.38 per
diluted common unit) as compared to $2.1
million ($0.14 per diluted common unit) for the first quarter of 2009.
    
    Our oil and natural gas revenues increased 86 percent to $48.6 million as compared to
$26.1 million in the first quarter of 2009.
    
    Our average realized oil price increased 97 percent to $71.28 per Bbl as compared to
$36.20 per Bbl in the first quarter of 2009. Our average realized natural gas price
increased 91 percent to $5.69 per Mcf as compared to $2.97 per Mcf in the first quarter of
2009.
    
    Our production margin increased 195 percent to $31.9 million as compared to $10.8
million in the first quarter of 2009. Total oil and natural gas wellhead revenues per BOE
increased by 86 percent while total production expenses per BOE increased by nine percent.
On a per BOE basis, our production margin increased 197 percent to $39.23 per BOE as
compared to $13.21 per BOE for the first quarter of 2009.
    
    We invested $0.8 million in oil and natural gas activities, of which $0.5 million was
invested in development, exploitation, and exploration activities, yielding 1 gross (0.1
net) productive wells, and $0.3 million was invested in acquisitions.
 Results of Operations
 Comparison of Quarter Ended March 31, 2010 to Quarter Ended March 31, 2009
 Revenues.
 Three months ended March 31,
    
    
    Increase / (Decrease)2010
    
    
    2009 (a)
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    39,953
    
    
    $
    22,898
    
    
    $
    17,055
    
    
    
    74
    %Natural gas
    
    
    8,622
    
    
    
    3,231
    
    
    
    5,391
    
    
    
    167
    %Total oil and natural gas revenues
    
    
    48,575
    
    
    
    26,129
    
    
    
    22,446
    
    
    
    86
    %Marketing
    
    
    70
    
    
    
    170
    
    
    
    (100
    )
    
    
    -59
    %Total revenues
    
    $
    48,645
    
    
    $
    26,299
    
    
    $
    22,346
    
    
    
    85
    %Average realized prices:Oil ($/Bbl)
    
    $
    71.28
    
    
    $
    36.20
    
    
    $
    35.08
    
    
    
    97
    %Natural gas ($/Mcf)
    
    $
    5.69
    
    
    $
    2.97
    
    
    $
    2.72
    
    
    
    91
    %Combined ($/BOE)
    
    $
    59.75
    
    
    $
    32.11
    
    
    $
    27.64
    
    
    
    86
    %Total production volumes:Oil (MBbls)
    
    
    561
    
    
    
    633
    
    
    
    (72
    )
    
    
    -11
    %Natural gas (MMcf)
    
    
    1,515
    
    
    
    1,087
    
    
    
    428
    
    
    
    39
    %Combined (MBOE)
    
    
    813
    
    
    
    814
    
    
    
    (1
    )
    
    
    0
    %Average daily production volumes:Oil (Bbls/D)
    
    
    6,228
    
    
    
    7,029
    
    
    
    (801
    )
    
    
    -11
    %Natural gas (Mcf/D)
    
    
    16,834
    
    
    
    12,072
    
    
    
    4,762
    
    
    
    39
    %Combined (BOE/D)
    
    
    9,034
    
    
    
    9,041
    
    
    
    (7
    )
    
    
    0
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    78.61
    
    
    $
    43.31
    
    
    $
    35.30
    
    
    
    82
    %Natural gas (per Mcf)
    
    $
    5.36
    
    
    $
    4.92
    
    
    $
    0.44
    
    
    
    9
    %
 
 (a)
    
    In order to conform to the current period presentation, NGL revenues were reclassed from
natural gas revenues to oil revenues.  20




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
  Three months ended March 31,2010
    
    2009Average realized oil price ($/Bbl)
    
    $
    71.28
    
    
    $
    36.20Average NYMEX ($/Bbl)
    
    $
    78.61
    
    
    $
    43.31Differential to NYMEX
    
    $
    (7.33
    )
    
    $
    (7.11
    )Average realized oil price to NYMEX percentage
    
    
    91
    %
    
    
    84
    %Average realized natural gas price ($/Mcf)
    
    $
    5.69
    
    
    $
    2.97Average NYMEX ($/Mcf)
    
    $
    5.36
    
    
    $
    4.92Differential to NYMEX
    
    $
    0.33
    
    
    $
    (1.95
    )Average realized natural gas price to NYMEX percentage
    
    
    106
    %
    
    
    60
    %
    21




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ENCORE ENERGY PARTNERS LP
 Expenses.
 Three months ended March 31,
    
    
    Increase / (Decrease)2010
    
    
    2009 (a)
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operating
    
    $
    11,619
    
    
    $
    12,157
    
    
    $
    (538
    )Production taxes and marketing
    
    
    5,066
    
    
    
    3,220
    
    
    
    1,846Total production expenses
    
    
    16,685
    
    
    
    15,377
    
    
    
    1,308
    
    
    
    9
    %Other:Depletion, depreciation, and amortization
    
    
    12,851
    
    
    
    14,509
    
    
    
    (1,658
    )Exploration
    
    
    21
    
    
    
    22
    
    
    
    (1
    )General and administrative
    
    
    3,728
    
    
    
    3,015
    
    
    
    713Derivative fair value gain
    
    
    (5,413
    )
    
    
    (10,907
    )
    
    
    5,494Total operating expenses
    
    
    27,872
    
    
    
    22,016
    
    
    
    5,856
    
    
    
    27
    %Interest
    
    
    (3,359
    )
    
    
    (2,216
    )
    
    
    (1,143
    )Income tax provision
    
    
    26
    
    
    
    1
    
    
    
    25Total expenses
    
    $
    24,539
    
    
    $
    19,801
    
    
    $
    4,738
    
    
    
    24
    %Expenses (per BOE):Production:Lease operating
    
    $
    14.29
    
    
    $
    14.94
    
    
    $
    (0.65
    )Production taxes and marketing
    
    
    6.23
    
    
    
    3.96
    
    
    
    2.27Total production expenses
    
    
    20.52
    
    
    
    18.90
    
    
    
    1.62
    
    
    
    9
    %Other:Depletion, depreciation, and amortization
    
    
    15.81
    
    
    
    17.83
    
    
    
    (2.02
    )Exploration
    
    
    0.03
    
    
    
    0.03
    
    
    
    -General and administrative
    
    
    4.59
    
    
    
    3.71
    
    
    
    0.88Derivative fair value gain
    
    
    (6.66
    )
    
    
    (13.40
    )
    
    
    6.74Total operating expenses
    
    
    34.29
    
    
    
    27.07
    
    
    
    7.22
    
    
    
    27
    %Interest
    
    
    (4.13
    )
    
    
    (2.72
    )
    
    
    (1.41
    )Income tax provision
    
    
    0.03
    
    
    
    0.00
    
    
    
    0.03Total expenses
    
    $
    30.19
    
    
    $
    24.35
    
    
    $
    5.84
    
    
    
    24
    %
 
 (a)
    
    In order to conform to the current period presentation, marketing expenses were
reclassed to lease operating expenses, ad valorem taxes were reclassed to lease operating
expenses, and transportation expenses were reclassed to production taxes and marketing. Production expenses.
  Depletion, depreciation, and amortization (DD&A) expense.
 General and administrative (G&A) expense.
 22




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ENCORE ENERGY PARTNERS LP
 Derivative fair value gain.
 Three months ended March 31,2010
    
    
    2009
    
    
    Increase / (Decrease)(in thousands)Ineffectiveness on interest rate swaps
    
    $
    59
    
    
    $
    89
    
    
    $
    (30
    )Mark-to-market loss (gain)
    
    
    (6,179
    )
    
    
    7,300
    
    
    
    (13,479
    )Premium amortization
    
    
    2,420
    
    
    
    5,555
    
    
    
    (3,135
    )Settlements
    
    
    (1,713
    )
    
    
    (23,851
    )
    
    
    22,138Total derivative fair value gain
    
    $
    (5,413
    )
    
    $
    (10,907
    )
    
    $
    5,494
  Interest expense.
 Capital Commitments, Capital Resources, and Liquidity
 Capital commitments
  
    
    Distributions to unitholders;
    
    Development, exploitation, and exploration of oil and natural gas properties;
    
    Acquisitions of oil and natural gas properties;
    
    Funding of working capital; and
    
    Contractual obligations.
 Distributions to unitholders.
  23




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ENCORE ENERGY PARTNERS LP
  Cash DistributionDate
    
    Declared per
    
    
    
    
    
    TotalDeclared
    
    Common Unit
    
    Date Paid
    
    Distribution(in thousands)2010Quarter ended March 31
    
    
    4/30/2010
    
    
    $
    0.5000
    
    
    
    5/14/2010
    (a)
    
    $
    22,923
    (a)2009Quarter ended December 31
    
    
    1/25/2010
    
    
    $
    0.5375
    
    
    
    2/12/2010
    
    
    
    24,642Quarter ended September 30
    
    
    10/26/2009
    
    
    $
    0.5375
    
    
    
    11/13/2009
    
    
    
    24,642Quarter ended June 30
    
    
    7/27/2009
    
    
    $
    0.5125
    
    
    
    8/14/2009
    
    
    
    23,481Quarter ended March 31
    
    
    4/27/2009
    
    
    $
    0.5000
    
    
    
    5/15/2009
    
    
    
    16,8132008Quarter ended December 31
    
    
    1/26/2009
    
    
    $
    0.5000
    
    
    
    2/13/2009
    
    
    
    16,813
 
 (a)
    
    Represents the date the distribution is expected to be paid and the total amount of the
distribution that is expected to be paid. The distribution is slightly lower than the
third and fourth quarter 2009 distribution rate of $0.5375 per unit, due primarily to lower
cash settlements on oil and natural gas commodity contracts in the first quarter of 2010. Development, exploitation, and exploration of oil and natural gas properties.
 Three months ended March 31,2010
    
    
    2009(in thousands)Development and exploitation
    
    $
    531
    
    
    $
    2,522Exploration
    
    
    20
    
    
    
    266Total
    
    $
    551
    
    
    $
    2,788
  Acquisitions of oil and natural gas properties.
 Funding of working capital.
 Off-balance sheet arrangements.
 24




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ENCORE ENERGY PARTNERS LP
 Contractual obligations.
  Other contingencies and commitments
  
    
    beginning on the first day of April in each year by an amount equal to the product of
the then-current administrative fee multiplied by the COPAS Wage Index Adjustment for that
year;
    
    if we acquire additional assets, Encore Operating may propose an increase in its
administrative fee that covers the provision of services for such additional assets;
however, such proposal must be approved by the board of directors of our general partner
upon the recommendation of its conflicts committee; and
    
    otherwise as agreed upon by Encore Operating and our General Partner, with the approval
of the conflicts committee of the board of directors of our general partner.
 Capital resources
 Cash flows from operating activities
 Cash flows from investing activities
 Cash flows from financing activities
   25




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ENCORE ENERGY PARTNERS LP
 Liquidity
   Internally generated cash flows.
 Revolving credit facility.
      26




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ENCORE ENERGY PARTNERS LP
  Applicable Margin for
    
    Applicable Margin forRatio of Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans
    
    Base Rate LoansLess than .50 to 1
    
    
    2.250
    %
    
    
    1.250
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    2.500
    %
    
    
    1.500
    %Greater than or equal to .75 to 1 but less than .90 to 1
    
    
    2.750
    %
    
    
    1.750
    %Greater than or equal to .90 to 1
    
    
    3.000
    %
    
    
    2.000
    %
    
    
    a prohibition against incurring debt, subject to permitted exceptions;
    
    a prohibition against purchasing or redeeming capital stock, or prepaying indebtedness,
subject to permitted exceptions;
    
    a restriction on creating liens on our assets and the assets of OLLC and its
subsidiaries, subject to permitted exceptions;
    
    restrictions on merging and selling assets outside the ordinary course of business;
    
    restrictions on use of proceeds, investments, transactions with affiliates, or change of
principal business;
    
    a provision limiting oil and natural gas hedging transactions (other than puts) to a
volume not exceeding 75 percent of anticipated production from proved producing reserves;
    
    a requirement that we and OLLC maintain a ratio of consolidated current assets to
consolidated current liabilities of not less than 1.0 to 1.0 (the Current Ratio);
    
    a requirement that we and OLLC maintain a ratio of consolidated EBITDA to the sum of
consolidated net interest expense plus letter of credit fees of not less than 2.5 to 1.0
(the Interest Coverage Ratio); and
    
    a requirement that we and OLLC maintain a ratio of consolidated funded debt to
consolidated adjusted EBITDA of not more than 3.5 to 1.0 (the Leverage Ratio).
   Actual Ratio as ofFinancial Covenant
    
    Required Ratio
    
    March 31, 2010Current Ratio
    
    Minimum 1.0 to 1.0
    
    
    5.0 to 1.0Interest Coverage Ratio
    
    Minimum 2.5 to 1.0
    
    
    10.0 to 1.0Leverage Ratio
    
    Maximum 3.5 to 1.0
    
    
    1.9 to 1.0
  Current assets
    
    $
    51,836Availability under the OLLC Credit Agreement
    
    
    125,000Consolidated current assets
    
    $
    176,836Divided by: consolidated current liabilities
    
    $
    35,538Current Ratio
    
    
    5.0
 27




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ENCORE ENERGY PARTNERS LP
  Consolidated EBITDA (a)
    
    $
    121,298Divided by: Consolidated net interest expense and letter of credit fees
    
    $
    12,074Interest Coverage Ratio
    
    
    10.0
 
 (a)
    
    Consolidated EBITDA is defined in the OLLC Credit Agreement and generally means
earnings before interest, income taxes, DD&A, and exploration expense. Consolidated EBITDA
is a non-GAAP financial measure, which is reconciled to its most directly comparable GAAP
measure below.  Consolidated funded debt
    
    $
    250,000Divided by: Consolidated Adjusted EBITDA (a)
    
    $
    130,031Leverage Ratio
    
    
    1.9
 
 (a)
    
    Consolidated Adjusted EBITDA is defined in the OLLC Credit Agreement and generally
means earnings before interest, income taxes, DD&A, and amortization, and exploration
expense, after giving pro forma effect to acquisitions or dispositions in excess of $20
million in the aggregate. Consolidated Adjusted EBITDA is a non-GAAP financial measure,
which is reconciled to its most directly comparable GAAP measure below.  Consolidated net loss
    
    $
    (27,662
    )Unrealized non-cash hedge loss
    
    
    80,931Consolidated net interest expense
    
    
    12,074Income and franchise taxes
    
    
    39DD&A and exploration expense
    
    
    53,111Non-cash unit-based compensation
    
    
    1,334Other non-cash
    
    
    1,471Consolidated EBITDA
    
    
    121,298Pro forma effect of acquisitions
    
    
    8,733Consolidated Adjusted EBITDA
    
    $
    130,031
  Capitalization.
 Critical Accounting Policies and Estimates
  28




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ENCORE ENERGY PARTNERS LP
 New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Sensitivity
  Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
   29




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ENCORE ENERGY PARTNERS LP
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  Exhibit No.
    
    Description3.1
    
    Certificate of Limited Partnership of Encore Energy Partners LP (incorporated by reference to
Exhibit 3.1 to ENPs Registration Statement on Form S-1 (File No. 333-142847), filed with the
SEC on May 11, 2007).3.2
    
    Second Amended and Restated Agreement of Limited Partnership of Encore Energy Partners LP,
dated as of September 17, 2007 (incorporated by reference to Exhibit 3.1 of ENPs Current
Report on Form 8-K, filed with the SEC on September 21, 2007).3.2.1
    
    Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of Encore
Energy Partners LP, dated as of May 10, 2007 (incorporated by reference to Exhibit 3.1 to
ENPs Current Report on Form 8-K, filed with the SEC on April 18, 2008).31.1*
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer of our General Partner).31.2*
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer of our General Partner).32.1*
    
    Section 1350 Certification (Principal Executive Officer of our General Partner).32.2*
    
    Section 1350 Certification (Principal Financial Officer of our General Partner).99.1*
    
    Statement showing computation of ratios of earnings to fixed charges.
 
 *
    
    Filed herewith. 30




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ENCORE ENERGY PARTNERS LP
 SIGNATURES
  ENCORE ENERGY PARTNERS LP
By:  Encore Energy Partners GP LLC, its General Partner/s/ Mark C. AllenMark C. AllenSenior Vice President and Chief Financial Officer/s/ Alan RhoadesAlan RhoadesVice President, Accounting  31