##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 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
    
    (I.R.S. Employerincorporation or organization)
    
    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 July 31, 2009
    
    45,267,610




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##### 



ENCORE ENERGY PARTNERS LP
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    1Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008
    
    
    2Consolidated Statement of Partners Equity and Comprehensive Loss for the six months ended June 30, 2009
    
    
    3Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008
    
    
    4Notes to Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4.
    
    Controls and Procedures
    
    
    39PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    40Item 1A.
    
    Risk Factors
    
    
    40Item 6.
    
    Exhibits
    
    
    40EX-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.
    
    Delay Rentals. Fees paid to the lessor of an oil and natural gas lease during the
primary term of the lease prior to the commencement of production from a well.
    
    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.
    
    EAC.Encore Acquisition Company, a publicly traded Delaware corporation, together with
its subsidiaries.
    
    ENP. Encore Energy Partners LP, a publicly traded Delaware limited partnership,
together with its subsidiaries.
    
    Exploratory Well. A well drilled to find and produce hydrocarbons in an unproved area,
to find a new reservoir in a field previously producing hydrocarbons in another reservoir,
or to extend a known reservoir.
    
    FASB.Financial Accounting Standards Board.
    
    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 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.
    
    Net Profits Interest.An interest that entitles the owner to a specified share of net
profits from the production of hydrocarbons.
    
    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 or Successful 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.
    
    Proved Reserves.The estimated quantities of hydrocarbons that geological and
engineering data demonstrate with reasonable certainty to be recoverable in future periods
from known reservoirs under existing economic and operating
 ii




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ENCORE ENERGY PARTNERS LP
 conditions.
 
    
    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 tests in the area
and in the same reservoir.
    
    Recompletion.The completion for production from an existing wellbore in another
formation from that in which the well has been previously completed.
    
    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.
    
    Royalty.An interest in an oil and natural gas lease that gives the owner the right to
receive a portion of the production from the leased acreage (or of the proceeds from the
sale thereof), but does not require the owner to pay any portion of the production or
development costs on the leased acreage. Royalties may be either landowners royalties,
which are reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in connection
with a transfer to a subsequent owner.
    
    SFAS.Statement of Financial Accounting Standards.
    
    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
 June 30,
    
    
    December 31,2009
    
    
    2008 *ASSETSCurrent assets:Cash and cash equivalents
    
    $
    72
    
    
    $
    619Accounts receivable:Trade
    
    
    18,315
    
    
    
    16,309Affiliate
    
    
    350
    
    
    
    1,168Derivatives
    
    
    37,505
    
    
    
    75,131Other
    
    
    582
    
    
    
    831Total current assets
    
    
    56,824
    
    
    
    94,058Properties and equipment, at cost  successful efforts method:Proved properties, including wells and related equipment
    
    
    612,930
    
    
    
    580,731Unproved properties
    
    
    50
    
    
    
    67Accumulated depletion, depreciation, and amortization
    
    
    (134,964
    )
    
    
    (112,742
    )478,016
    
    
    
    468,056Other property and equipment
    
    
    802
    
    
    
    802Accumulated depreciation
    
    
    (341
    )
    
    
    (240
    )461
    
    
    
    562Goodwill
    
    
    4,500
    
    
    
    4,500Other intangibles, net
    
    
    3,489
    
    
    
    3,662Derivatives
    
    
    24,957
    
    
    
    38,497Other
    
    
    1,052
    
    
    
    1,457Total assets
    
    $
    569,299
    
    
    $
    610,792LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable:Trade
    
    $
    1,147
    
    
    $
    1,036Affiliate
    
    
    2,620
    
    
    
    2,812Accrued liabilities:Lease
operating expense
    
    
    4,877
    
    
    
    3,104Development capital
    
    
    1,838
    
    
    
    947Interest
    
    
    308
    
    
    
    126Production, ad valorem, and severance taxes
    
    
    10,819
    
    
    
    10,394Derivatives
    
    
    4,701
    
    
    
    1,297Oil and natural gas revenues payable
    
    
    1,885
    
    
    
    1,287Other
    
    
    3,122
    
    
    
    1,502Total current liabilities
    
    
    31,317
    
    
    
    22,505Derivatives
    
    
    6,234
    
    
    
    3,491Future abandonment cost, net of current portion
    
    
    10,074
    
    
    
    9,759Long-term debt
    
    
    195,000
    
    
    
    150,000Other
    
    
    372
    
    
    
    605Total liabilities
    
    
    242,997
    
    
    
    186,360Commitments and contingencies (see Note 12)Partners equity:Limited partners - 35,837,610 and 33,077,610 common units issued and
outstanding, respectively
    
    
    329,700
    
    
    
    425,749General partner - 504,851 general partner units issued and outstanding
    
    
    213
    
    
    
    2,942Accumulated other comprehensive loss
    
    
    (3,611
    )
    
    
    (4,259
    )Total partners equity
    
    
    326,302
    
    
    
    424,432Total liabilities and partners equity
    
    $
    569,299
    
    
    $
    610,792
 
 *
    
    Recast as discussed in Note 2.  1




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ENCORE ENERGY PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008 *
    
    
    2009
    
    
    2008 *Revenues:Oil
    
    $
    23,182
    
    
    $
    51,603
    
    
    $
    38,915
    
    
    $
    92,444Natural gas
    
    
    3,955
    
    
    
    14,654
    
    
    
    7,873
    
    
    
    23,743Marketing
    
    
    109
    
    
    
    903
    
    
    
    279
    
    
    
    3,762Total revenues
    
    
    27,246
    
    
    
    67,160
    
    
    
    47,067
    
    
    
    119,949Expenses:Production:Lease operating
    
    
    6,949
    
    
    
    7,635
    
    
    
    14,831
    
    
    
    14,329Production, ad valorem, and severance taxes
    
    
    3,062
    
    
    
    6,308
    
    
    
    5,402
    
    
    
    11,539Depletion, depreciation, and amortization
    
    
    11,294
    
    
    
    10,316
    
    
    
    22,285
    
    
    
    20,520Exploration
    
    
    18
    
    
    
    38
    
    
    
    40
    
    
    
    67General and administrative
    
    
    2,807
    
    
    
    3,252
    
    
    
    4,996
    
    
    
    6,424Marketing
    
    
    61
    
    
    
    1,609
    
    
    
    191
    
    
    
    4,002Derivative fair value loss
    
    
    37,440
    
    
    
    76,428
    
    
    
    26,533
    
    
    
    92,015Other operating
    
    
    658
    
    
    
    391
    
    
    
    1,375
    
    
    
    793Total expenses
    
    
    62,289
    
    
    
    105,977
    
    
    
    75,653
    
    
    
    149,689Operating loss
    
    
    (35,043
    )
    
    
    (38,817
    )
    
    
    (28,586
    )
    
    
    (29,740
    )Other income (expenses):Interest
    
    
    (2,351
    )
    
    
    (1,909
    )
    
    
    (4,567
    )
    
    
    (3,549
    )Other
    
    
    1
    
    
    
    65
    
    
    
    6
    
    
    
    82Total other expenses
    
    
    (2,350
    )
    
    
    (1,844
    )
    
    
    (4,561
    )
    
    
    (3,467
    )Loss before income taxes
    
    
    (37,393
    )
    
    
    (40,661
    )
    
    
    (33,147
    )
    
    
    (33,207
    )Income tax benefit (provision)
    
    
    (200
    )
    
    
    135
    
    
    
    (201
    )
    
    
    138Net loss
    
    $
    (37,593
    )
    
    $
    (40,526
    )
    
    $
    (33,348
    )
    
    $
    (33,069
    )Net loss allocation (see Note 9):Limited partners interest in net loss
    
    $
    (37,093
    )
    
    $
    (45,441
    )
    
    $
    (32,582
    )
    
    $
    (45,650
    )General partners interest in net loss
    
    $
    (630
    )
    
    $
    (735
    )
    
    $
    (573
    )
    
    $
    (808
    )Net loss per common unit:Basic
    
    $
    (1.08
    )
    
    $
    (1.45
    )
    
    $
    (0.97
    )
    
    $
    (1.53
    )Diluted
    
    $
    (1.08
    )
    
    $
    (1.45
    )
    
    $
    (0.97
    )
    
    $
    (1.53
    )Weighted average common units outstanding:Basic
    
    
    34,260
    
    
    
    31,260
    
    
    
    33,672
    
    
    
    29,766Diluted
    
    
    34,260
    
    
    
    31,260
    
    
    
    33,672
    
    
    
    29,766Cash distributions declared per common unit
    
    $
    0.5000
    
    
    $
    0.5755
    
    
    $
    1.0000
    
    
    $
    0.9630
 
 *
    
    Recast as discussed in Note 2.  2




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ENCORE ENERGY PARTNERS LP
CONSOLIDATED STATEMENT OF PARTNERS EQUITY AND COMPREHENSIVE LOSS
 AccumulatedOther
    
    
    TotalLimited Partners
    
    
    General Partner
    
    
    Comprehensive
    
    
    PartnersUnits
    
    
    Amount
    
    
    Units
    
    
    Amount
    
    
    Loss
    
    
    EquityBalance at December 31, 2008 *
    
    
    33,078
    
    
    $
    425,749
    
    
    
    505
    
    
    $
    2,942
    
    
    $
    (4,259
    )
    
    $
    424,432Net distributions to owner
    
    
    
    
    
    
    (476
    )
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (488
    )Deemed distributions in connection with acquisition of the Arkoma Basin Assets
    
    
    
    
    
    
    (45,333
    )
    
    
    
    
    
    
    (1,088
    )
    
    
    
    
    
    
    (46,421
    )Deemed distributions in connection with acquisition of the Williston Basin Assets
    
    
    
    
    
    
    (25,122
    )
    
    
    
    
    
    
    (606
    )
    
    
    
    
    
    
    (25,728
    )Proceeds from issuance of common units, net of offering costs
    
    
    2,760
    
    
    
    40,558
    
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    40,520Non-cash unit-based compensation
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    269Cash distributions to unitholders ($1.00 per unit)
    
    
    
    
    
    
    (33,077
    )
    
    
    
    
    
    
    (505
    )
    
    
    
    
    
    
    (33,582
    )Components of comprehensive loss:Net loss attributable to owners prior to acquisition of Williston Basin Assets
    
    
    
    
    
    
    (188
    )
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (193
    )Net loss attributable to unitholders
    
    
    
    
    
    
    (32,677
    )
    
    
    
    
    
    
    (478
    )
    
    
    
    
    
    
    (33,155
    )Change in deferred hedge loss on interest rate swaps, net of tax of $2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    648
    
    
    
    648Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,700
    )Balance at June 30, 2009
    
    
    35,838
    
    
    $
    329,700
    
    
    
    505
    
    
    $
    213
    
    
    $
    (3,611
    )
    
    $
    326,302
 
 *
    
    Recast as discussed in Note 2.  3




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ENCORE ENERGY PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months endedJune 30,2009
    
    
    2008*Cash flows from operating activities:Net loss
    
    $
    (33,348
    )
    
    $
    (33,069
    )Adjustments to reconcile net loss to net cash provided
by operating activities:Depletion, depreciation, and amortization
    
    
    22,285
    
    
    
    20,520Non-cash exploration expense
    
    
    17
    
    
    
    41Non-cash interest
    
    
    195
    
    
    
    243Deferred taxes
    
    
    (248
    )
    
    
    (214
    )Non-cash unit-based compensation expense
    
    
    269
    
    
    
    2,180Non-cash derivative loss
    
    
    69,055
    
    
    
    91,203Other
    
    
    444
    
    
    
    537Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,188
    )
    
    
    (8,326
    )Current derivatives
    
    
    (2,020
    )
    
    
    Other current assets
    
    
    (179
    )
    
    
    79Long-term derivatives
    
    
    (9,072
    )
    
    
    (1,196
    )Other assets
    
    
    8
    
    
    
    745Accounts payable
    
    
    273
    
    
    
    (4,136
    )Other current liabilities
    
    
    4,827
    
    
    
    3,939Net cash provided by operating activities
    
    
    51,318
    
    
    
    72,546Cash flows from investing activities:Purchases of other property and equipment
    
    
    
    
    
    
    (217
    )Acquisition of oil and natural gas properties
    
    
    (27,538
    )
    
    
    (92
    )Development of oil and natural gas properties
    
    
    (3,477
    )
    
    
    (13,130
    )Net cash used in investing activities
    
    
    (31,015
    )
    
    
    (13,439
    )Cash flows from financing activities:Proceeds from long-term debt, net of issuance costs
    
    
    78,000
    
    
    
    163,310Payments on long-term debt
    
    
    (33,000
    )
    
    
    (60,000
    )Deemed distributions to affiliates in connection with acquisitions
    
    
    (72,149
    )
    
    
    (124,838
    )Proceeds from issuance of common units, net of offering costs
    
    
    40,724
    
    
    
    Cash distributions to unitholders
    
    
    (33,582
    )
    
    
    (29,137
    )Other
    
    
    (843
    )
    
    
    (7,819
    )Net cash used in financing activities
    
    
    (20,850
    )
    
    
    (58,484
    )Increase (decrease) in cash and cash equivalents
    
    
    (547
    )
    
    
    623Cash and cash equivalents, beginning of period
    
    
    619
    
    
    
    3Cash and cash equivalents, end of period
    
    $
    72
    
    
    $
    626
 
 *
    
    Recast as discussed in Note 2.  4




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##### Table of Contents



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;
    
    the Williston Basin in North Dakota and Montana; and
    
    the Arkoma Basin in Arkansas.
 Note 2. Basis of Presentation
       5




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Supplemental Disclosures of Cash Flow Information
  Six months ended June 30,2009
    
    2008(In thousands)Non-cash investing and financing activities:Issuance of common units in connection with acquisition of the
Permian and Williston Basin Assets (a)
    
    $
    
    
    
    $
    125,027Issuance of common units in connection with acquisition of net
profits interest in certain Crockett County properties
    
    
    
    
    
    
    5,748
 
 (a)
    
    Please read Note 3. Acquisitions for additional discussion. Reclassifications
  New Accounting Pronouncements
 FASB Staff Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2)
  SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R)
 Business
Combinations Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arises from Contingencies
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities  an amendment of
FASB Statement No. 133 (SFAS 161)
 Accounting for Derivative
Instruments and Hedging Activities
 6




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Emerging Issues Task Force (EITF) Issue No. 07-4, Application of the Two-Class Method under FASB
Statement No. 128, Earnings per Share, to Master Limited Partnerships (EITF 07-4)
 Earnings per Share
 FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities (FSP EITF 03-6-1)
  SEC Release No. 33-8995, Modernization of Oil and Gas Reporting (Release 33-8995)
  FSP No. FAS 107-1 and APB 28-1, Disclosure of Fair Value of Financial Instruments in Interim
Statements (FSP FAS 107-1 and APB 28-1)
  SFAS No. 165, Subsequent Events (SFAS 165)
  7




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (SFAS 168)
 The Hierarchy of
Generally Accepted Accounting Principles.
 Note 3. Acquisitions
 Williston Basin Assets
  Vinegarone Assets
  Arkoma Basin Assets
  Permian and Williston Basin Assets
  8




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Note 4. Proved Properties
  June 30,
    
    
    December 31,2009
    
    
    2008(in thousands)Proved leasehold costs
    
    $
    448,015
    
    
    $
    423,327Wells and related equipment  Completed
    
    
    164,599
    
    
    
    155,344Wells and related equipment  In process
    
    
    316
    
    
    
    2,060Total proved properties
    
    $
    612,930
    
    
    $
    580,731
 Note 5. Fair Value Measurements
  June 30, 2009
    
    December 31, 2008Book
    
    Fair
    
    Book
    
    FairValue
    
    Value
    
    Value
    
    Value(in thousands)Assets:Cash and cash equivalents
    
    $
    72
    
    
    $
    72
    
    
    $
    619
    
    
    $
    619Accounts receivable  trade
    
    
    18,315
    
    
    
    18,315
    
    
    
    16,309
    
    
    
    16,309Accounts receivable  affiliate
    
    
    350
    
    
    
    350
    
    
    
    1,168
    
    
    
    1,168Commodity derivative contracts
    
    
    62,462
    
    
    
    62,462
    
    
    
    113,628
    
    
    
    113,628Liabilities:Accounts payable  trade
    
    
    1,147
    
    
    
    1,147
    
    
    
    1,036
    
    
    
    1,036Accounts payable  affiliate
    
    
    2,620
    
    
    
    2,620
    
    
    
    2,812
    
    
    
    2,812Revolving credit facility
    
    
    195,000
    
    
    
    195,000
    
    
    
    150,000
    
    
    
    150,000Commodity derivative contracts
    
    
    7,110
    
    
    
    7,110
    
    
    
    229
    
    
    
    229Interest rate swaps
    
    
    3,825
    
    
    
    3,825
    
    
    
    4,559
    
    
    
    4,559
  Derivative Policy
    9




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Commodity Derivative Contracts
   10




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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
    
    
    WeightedDaily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    AssetFloor
    
    
    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)July  Dec. 2009 (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    21,2273,130
    
    
    $
    110.00
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    440
    
    
    
    97.75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    68.702010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,934880
    
    
    
    80.00
    
    
    
    
    440
    
    
    
    93.80
    
    
    
    
    760
    
    
    
    75.432,000
    
    
    
    75.00
    
    
    
    
    1,000
    
    
    
    77.23
    
    
    
    
    250
    
    
    
    65.95760
    
    
    
    67.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,7101,880
    
    
    
    80.00
    
    
    
    
    1,440
    
    
    
    95.41
    
    
    
    
    760
    
    
    
    78.461,000
    
    
    
    70.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760
    
    
    
    65.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    69.652012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,159
    
    
    
    
    
    
    
    
    500
    
    
    
    82.05
    
    
    
    
    210
    
    
    
    81.62750
    
    
    
    70.00
    
    
    
    
    250
    
    
    
    79.25
    
    
    
    
    1,300
    
    
    
    76.541,510
    
    
    
    65.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    40,030
 
 (a)
    
    In addition, ENP has a floor contract for 1,000 Bbls/D at $63.00 per Bbl and a short
floor contract for 1,000 Bbls/D at $65.00 per Bbl. Natural Gas 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(Mcf)
    
    
    (per Mcf)
    
    
    
    (Mcf)
    
    
    (per Mcf)
    
    
    
    (Mcf)
    
    
    (per Mcf)
    
    
    
    (in thousands)July  Dec. 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,9723,800
    
    
    $
    8.20
    
    
    
    
    3,800
    
    
    $
    9.83
    
    
    
    
    
    
    
    $
    3,800
    
    
    
    7.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,3363,800
    
    
    
    8.20
    
    
    
    
    3,800
    
    
    
    9.58
    
    
    
    
    
    
    
    
    4,698
    
    
    
    7.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,452
    
    
    
    6.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.862011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,1823,398
    
    
    
    6.31
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,952
    
    
    
    6.36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.862012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (168
    )898
    
    
    
    6.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,452
    
    
    
    6.26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    5.86$
    15,322
 Counterparty Risk.
 11




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Percentage of
    
    Percentage ofOil Derivative
    
    Natural GasContracts
    
    Derivative ContractsCounterparty
    
    Committed
    
    CommittedBNP Paribas
    
    
    51
    %
    
    
    29
    %Calyon
    
    
    33
    %
    
    
    38
    %Wachovia Bank
    
    
    5
    %
    
    
    31
    %
  Interest Rate Swaps
  Notional
    
    Fixed
    
    FloatingTerm
    
    Amount
    
    Rate
    
    Rate(in thousands)July 2009  Jan. 2011
    
    $
    50,000
    
    
    
    3.1610
    %
    
    1-month LIBORJuly 2009  Jan. 2011
    
    
    25,000
    
    
    
    2.9650
    %
    
    1-month LIBORJuly 2009  Jan. 2011
    
    
    25,000
    
    
    
    2.9613
    %
    
    1-month LIBORJuly 2009  Mar. 2012
    
    
    50,000
    
    
    
    2.4200
    %
    
    1-month LIBOR
  Current Period Impact
  Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Ineffectiveness
    
    $
    6
    
    
    $
    39
    
    
    $
    (34
    )
    
    $
    (343
    )Mark-to-market loss
    
    
    50,251
    
    
    
    73,156
    
    
    
    57,681
    
    
    
    87,159Premium amortization
    
    
    5,854
    
    
    
    2,250
    
    
    
    11,408
    
    
    
    4,387Settlements
    
    
    (18,671
    )
    
    
    983
    
    
    
    (42,522
    )
    
    
    812Total derivative fair value loss
    
    $
    37,440
    
    
    $
    76,428
    
    
    $
    26,533
    
    
    $
    92,015
 Accumulated Other Comprehensive Loss
  12




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Tabular Disclosures of Fair Value Measurements
  Asset Derivatives
    
    
    
    Liability DerivativesJune 30, 2009
    
    
    December 31, 2008
    
    
    
    June 30, 2009
    
    
    December 31, 2008Balance Sheet
    
    
    Fair
    
    
    Balance Sheet
    
    
    Fair
    
    
    
    Balance Sheet
    
    
    
    
    
    
    Balance SheetLocation
    
    
    Value
    
    
    Location
    
    
    Value
    
    
    
    Location
    
    
    Fair Value
    
    
    Location
    
    
    Fair ValueDerivatives not designated as
hedging instruments under
SFAS 133Commodity derivative contracts
    
    Derivatives  current
    
    $
    37,505
    
    
    Derivatives  current
    
    $
    75,131
    
    
    
    Derivatives  current
    
    $
    1,429
    
    
    Derivatives  current
    
    $
    Commodity derivative contracts
    
    Derivatives  noncurrent
    
    
    24,957
    
    
    Derivatives  noncurrent
    
    
    38,497
    
    
    
    Derivatives  noncurrent
    
    
    5,681
    
    
    Derivatives  noncurrent
    
    
    229Total derivatives not
designated as hedging
instruments under SFAS 133
    
    
    
    
    
    $
    62,462
    
    
    
    
    
    
    $
    113,628
    
    
    
    
    
    
    
    $
    7,110
    
    
    
    
    
    
    $
    229Derivatives designated as
hedging instruments under
SFAS 133Interest rate swaps
    
    Derivatives  current
    
    $
    
    
    
    Derivatives  current
    
    $
    
    
    
    
    Derivatives  current
    
    $
    3,272
    
    
    Derivatives  current
    
    $
    1,297Interest rate swaps
    
    Derivatives  noncurrent
    
    
    
    
    
    Derivatives  noncurrent
    
    
    
    
    
    
    Derivatives  noncurrent
    
    
    553
    
    
    Derivatives  noncurrent
    
    
    3,262Total derivatives designated
as hedging instruments under
SFAS 133
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    $
    3,825
    
    
    
    
    
    
    $
    4,559Total derivatives
    
    
    
    
    
    $
    62,462
    
    
    
    
    
    
    $
    113,628
    
    
    
    
    
    
    
    $
    10,935
    
    
    
    
    
    
    $
    4,788
  Amount of Loss Recognized In IncomeDerivatives Not Designated as
    
    Location of Loss
    
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,Hedges Under SFAS 133
    
    Recognized In Income
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Commodity derivative contracts
    
    Derivative fair value loss
    
    $
    37,434
    
    
    $
    76,389
    
    
    $
    26,567
    
    
    $
    92,358
  Amount of LossAmount of Gain
    
    
    
    
    
    Reclassified from
    
    
    
    
    
    Amount of LossRecognized in OCI
    
    Location of Loss
    
    Accumulated OCI into
    
    
    
    
    
    Recognized In Income(Effective Portion)
    
    (Gain) Reclassified
    
    Income (Effective Portion)
    
    
    
    
    
    as IneffectiveThree months ended
    
    from Accumulated
    
    Three months ended
    
    Location of Loss (Gain)
    
    Three months endedDerivatives Designated as
    
    June 30,
    
    OCI into Income
    
    June 30,
    
    Recognized in Income
    
    June 30,Hedges Under SFAS 133
    
    2009
    
    2008
    
    (Effective Portion)
    
    2009
    
    2008
    
    as Ineffective
    
    2009
    
    2008Interest rate swaps
    
    $
    440
    
    
    $
    2,427
    
    
    Interest expense
    
    $
    922
    
    
    $
    125
    
    
    Derivative fair value loss
    
    $
    6
    
    
    $
    39
 Amount of LossAmount of Gain (Loss)
    
    
    
    
    
    Reclassified from
    
    
    
    
    
    Amount of GainRecognized in OCI
    
    Location of Loss
    
    Accumulated OCI into
    
    
    
    
    
    Recognized In Income(Effective Portion)
    
    (Gain) Reclassified
    
    Income (Effective Portion)
    
    
    
    
    
    as IneffectiveSix months ended
    
    from Accumulated
    
    Six months ended
    
    Location of Loss (Gain)
    
    Six months endedDerivatives Designated as
    
    June 30,
    
    OCI into Income
    
    June 30,
    
    Recognized in Income
    
    June 30,Hedges Under SFAS 133
    
    2009
    
    2008
    
    (Effective Portion)
    
    2009
    
    2008
    
    as Ineffective
    
    2009
    
    2008Interest rate swaps
    
    $
    (1,155
    )
    
    $
    876
    
    
    Interest expense
    
    $
    1,803
    
    
    $
    108
    
    
    Derivative fair value loss
    
    $
    34
    
    
    $
    343
 Fair Value Hierarchy
  13




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  
    
    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.
  
    
    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 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 for which 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
    
    
    SignificantAsset (Liability) at
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    June 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Oil derivative contracts  swaps
    
    $
    (3,609
    )
    
    $
    
    
    
    $
    (3,609
    )
    
    $
    Oil derivative contracts  floors and caps
    
    
    43,639
    
    
    
    
    
    
    
    
    
    
    
    43,639Natural gas derivative contracts  swaps
    
    
    1,581
    
    
    
    
    
    
    
    1,581
    
    
    
    Natural gas derivative contracts  floors and caps
    
    
    13,741
    
    
    
    
    
    
    
    
    
    
    
    13,741Interest rate swaps
    
    
    (3,825
    )
    
    
    
    
    
    
    (3,825
    )
    
    
    Total
    
    $
    51,527
    
    
    $
    
    
    
    $
    (5,853
    )
    
    $
    57,380
 14




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##### Table of Contents



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, 2009
    
    $
    95,430
    
    
    $
    12,741
    
    
    $
    108,171Total gains (losses):Included in earnings
    
    
    (27,939
    )
    
    
    6,693
    
    
    
    (21,246
    )Purchases, issuances, and settlements
    
    
    (23,852
    )
    
    
    (5,693
    )
    
    
    (29,545
    )Balance at June 30, 2009
    
    $
    43,639
    
    
    $
    13,741
    
    
    $
    57,380The amount of total gains or losses for the period included in
earnings attributable to the change in unrealized gains or losses
relating to assets still held at the reporting date
    
    $
    (27,939
    )
    
    $
    6,693
    
    
    $
    (21,246
    )
   
    
    Level 3 Fair values of asset retirement obligations are determined using discounted
cash flow methodologies based on inputs, such as plugging costs and reserve lives, which
are not readily available in public markets. See Note 6. Asset Retirement Obligations
for additional discussion of ENPs asset retirement obligations.
  Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    Significant Other
    
    SignificantLiability at
    
    Identical Assets
    
    Observable Inputs
    
    Unobservable Inputs
    
    Total GainsDescription
    
    June 30, 2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    (Losses)(in thousands)Asset retirement obligations
    
    $
    76
    
    
    $
    
    
    
    $
    
    
    
    $
    76
    
    
    $
    
 Note 6. Asset Retirement Obligations
  Future abandonment liability at January 1, 2009
    
    $
    10,148Wells drilled
    
    
    15Acquisition of properties
    
    
    61Accretion of discount
    
    
    316Revision of previous estimates
    
    
    12Plugging and abandonment costs incurred
    
    
    (47
    )Future abandonment liability at June 30, 2009
    
    $
    10,505
 15




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Note 7. Long-Term Debt
    CommitmentRatio of Total Outstanding Borrowings to Borrowing Base
    
    Fee PercentageLess than .90 to 1
    
    
    0.375
    %Greater than or equal to .90 to 1
    
    
    0.500
    %
   Applicable Margin for
    
    Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans
    
    Base Rate LoansLess than .50 to 1
    
    
    1.750
    %
    
    
    0.750
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    2.000
    %
    
    
    0.750
    %Greater than or equal to .75 to 1 but less than .90 to 1
    
    
    2.250
    %
    
    
    1.000
    %Greater than or equal to .90 to 1
    
    
    2.500
    %
    
    
    1.250
    %
   16




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  
    
    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 1.5 to 1.0;
    
    a requirement that ENP and OLLC maintain a ratio of consolidated EBITDA to consolidated
senior interest expense of not less than 2.5 to 1.0; and
    
    a requirement that ENP and OLLC maintain a ratio of consolidated funded debt (excluding
certain related party debt) to consolidated adjusted EBITDA of not more than 3.5 to 1.0.
   
    
    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 8. Partners Equity and Distributions
 Distributions
  17




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Cash DistributionDate
    
    Declared per
    
    
    
    
    
    TotalDeclared
    
    Common Unit
    
    Date Paid
    
    Distribution(in thousands)2009Quarter ended June 30
    
    
    7/27/2009
    
    
    $
    0.5125
    
    
    
    8/14/2009
    (a)
    
    $
    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
    
    
    
    16,813Quarter ended September 30
    
    
    11/7/2008
    
    
    $
    0.6600
    
    
    
    11/14/2008
    
    
    
    22,191Quarter ended June 30
    
    
    8/11/2008
    
    
    $
    0.6881
    
    
    
    8/14/2008
    
    
    
    23,119Quarter ended March 31
    
    
    5/9/2008
    
    
    $
    0.5755
    
    
    
    5/15/2008
    
    
    
    19,3162007Quarter ended December 31
    
    
    2/6/2008
    
    
    $
    0.3875
    
    
    
    2/14/2008
    
    
    
    9,843
 
 (a)
    
    Represents the date the distribution is expected to be paid with respect to the second
quarter of 2009. Shelf Registration Statement on Form S-3
  Public Offering of Common Units
  Note 9. Earnings Per Unit
  18




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per unit amounts)Net loss
    
    $
    (37,593
    )
    
    $
    (40,526
    )
    
    $
    (33,348
    )
    
    $
    (33,069
    )Less: net loss (income) for pre-partnership operations of
assets acquired from affiliates
    
    
    (130
    )
    
    
    (4,472
    )
    
    
    193
    
    
    
    (11,245
    )Net loss attributable to unitholders
    
    $
    (37,723
    )
    
    $
    (44,998
    )
    
    $
    (33,155
    )
    
    $
    (44,314
    )Numerator:Numerator for basic EPU:Net loss attributable to unitholders
    
    $
    (37,723
    )
    
    $
    (44,998
    )
    
    $
    (33,155
    )
    
    $
    (44,314
    )Less: distributions earned by participating securities
    
    
    (258
    )
    
    
    (1,525
    )
    
    
    (511
    )
    
    
    (2,782
    )Plus: cash distributions in excess of
income allocated to the general partner
    
    
    888
    
    
    
    1,082
    
    
    
    1,084
    
    
    
    1,446Net loss allocated to limited partners
    
    $
    (37,093
    )
    
    $
    (45,441
    )
    
    $
    (32,582
    )
    
    $
    (45,650
    )Denominator:Denominator for basic EPU:Weighted average common units outstanding
    
    
    34,260
    
    
    
    31,260
    
    
    
    33,672
    
    
    
    29,766Effect of dilutive phantom units (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted EPU
    
    
    34,260
    
    
    
    31,260
    
    
    
    33,672
    
    
    
    29,766Net loss per common unit:Basic
    
    $
    (1.08
    )
    
    $
    (1.45
    )
    
    $
    (0.97
    )
    
    $
    (1.53
    )Diluted
    
    $
    (1.08
    )
    
    $
    (1.45
    )
    
    $
    (0.97
    )
    
    $
    (1.53
    )
 
 (a)
    
    For the three and six months ended months ended June 30, 2009, 43,750 phantom units
were outstanding but were excluded from the diluted EPU calculations because their effect
would have been antidilutive. For the three and six months ended months ended June 30,
2008, 25,000 phantom units were outstanding but were excluded from the diluted EPU
calculations because their effect would have been antidilutive. Please read Note 10.
Unit-Based Compensation Plans for additional discussion of phantom units. Note 10. Unit-Based Compensation Plans
 Management Incentive Units
   Long-Term Incentive Plan
  19




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Phantom Units.
  WeightedAverageNumber of
    
    Grant DateShares
    
    Fair ValueOutstanding at January 1, 2009
    
    
    43,750
    
    
    $
    18.67Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at June 30, 2009
    
    
    43,750
    
    
    
    18.67
  Note 11. Comprehensive Loss
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Net loss
    
    $
    (37,593
    )
    
    $
    (40,526
    )
    
    $
    (33,348
    )
    
    $
    (33,069
    )Change in deferred
hedge loss on
interest rate swaps
    
    
    1,361
    
    
    
    2,552
    
    
    
    648
    
    
    
    984Comprehensive loss
    
    $
    (36,232
    )
    
    $
    (37,974
    )
    
    $
    (32,700
    )
    
    $
    (32,085
    )
 Note 12. Commitments and Contingencies
   20




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Note 13. Related Party Transactions
 Administrative Services Agreement
    
    
    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 or one of its subsidiaries 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 June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008(in thousands)Administrative fees (including COPAS recovery)
    
    $
    1,164
    
    
    $
    1,689
    
    
    $
    2,825
    
    
    $
    3,147Third-party expenses
    
    
    2,017
    
    
    
    2,557
    
    
    
    2,973
    
    
    
    3,330
  Acquisitions from EAC
  21




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Distributions
   Note 14. Subsequent Events
  Distribution
  Acquisition from EAC
   Public Offering of Common Units
  22




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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 2008 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
and Exhibit 99.3 to our Current Report on Form 8-K filed with the SEC on May 7, 2009, which recast
Item 8. Financial Statements and Supplementary Data included in our 2008 Annual Report on Form
10-K.
 Introduction
  
    
    Overview of Business
    
    Results of Operations
 
    
    Comparison of Quarter Ended June 30, 2009 to Quarter Ended June 30, 2008
    
    Comparison of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2008
 
    
    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;
    
    the Williston Basin in North Dakota and Montana; and
    
    the Arkoma Basin in Arkansas.
    23




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ENCORE ENERGY PARTNERS LP
 Results of Operations
 Comparison of Quarter Ended June 30, 2009 to Quarter Ended June 30, 2008
 Revenues.
 Three months ended June 30,
    
    
    Decrease2009
    
    
    2008
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    23,182
    
    
    $
    51,603
    
    
    $
    (28,421
    )
    
    
    -55
    %Natural gas
    
    
    3,955
    
    
    
    14,654
    
    
    
    (10,699
    )
    
    
    -73
    %Total oil and natural gas revenues
    
    
    27,137
    
    
    
    66,257
    
    
    
    (39,120
    )
    
    
    -59
    %Marketing
    
    
    109
    
    
    
    903
    
    
    
    (794
    )
    
    
    -88
    %Total revenues
    
    $
    27,246
    
    
    $
    67,160
    
    
    $
    (39,914
    )
    
    
    -59
    %Average realized prices:Oil ($/Bbl)
    
    $
    54.16
    
    
    $
    112.10
    
    
    $
    (57.94
    )
    
    
    -52
    %Natural gas ($/Mcf)
    
    $
    3.22
    
    
    $
    10.71
    
    
    $
    (7.49
    )
    
    
    -70
    %Combined ($/BOE)
    
    $
    42.89
    
    
    $
    96.24
    
    
    $
    (53.35
    )
    
    
    -55
    %Total production volumes:Oil (MBbls)
    
    
    428
    
    
    
    460
    
    
    
    (32
    )
    
    
    -7
    %Natural gas (MMcf)
    
    
    1,228
    
    
    
    1,369
    
    
    
    (141
    )
    
    
    -10
    %Combined (MBOE)
    
    
    633
    
    
    
    688
    
    
    
    (55
    )
    
    
    -8
    %Average daily production volumes:Oil (Bbls/D)
    
    
    4,704
    
    
    
    5,059
    
    
    
    (355
    )
    
    
    -7
    %Natural gas (Mcf/D)
    
    
    13,498
    
    
    
    15,042
    
    
    
    (1,544
    )
    
    
    -10
    %Combined (BOE/D)
    
    
    6,953
    
    
    
    7,566
    
    
    
    (613
    )
    
    
    -8
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    59.83
    
    
    $
    124.30
    
    
    $
    (64.47
    )
    
    
    -52
    %Natural gas (per Mcf)
    
    $
    3.49
    
    
    $
    10.94
    
    
    $
    (7.45
    )
    
    
    -68
    %
   24




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ENCORE ENERGY PARTNERS LP
  Three months ended June 30,2009
    
    2008Average realized oil price ($/Bbl)
    
    $
    54.16
    
    
    $
    112.10Average NYMEX ($/Bbl)
    
    $
    59.83
    
    
    $
    124.30Differential to NYMEX
    
    $
    (5.67
    )
    
    $
    (12.20
    )Average realized oil price to NYMEX percentage
    
    
    91
    %
    
    
    90
    %Average realized natural gas price ($/Mcf)
    
    $
    3.22
    
    
    $
    10.71Average NYMEX ($/Mcf)
    
    $
    3.49
    
    
    $
    10.94Differential to NYMEX
    
    $
    (0.27
    )
    
    $
    (0.23
    )Average realized natural gas price to NYMEX percentage
    
    
    92
    %
    
    
    98
    %
    25




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ENCORE ENERGY PARTNERS LP
 Expenses.
 Three months ended June 30,
    
    
    Increase / (Decrease)2009
    
    
    2008
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operating
    
    $
    6,949
    
    
    $
    7,635
    
    
    $
    (686
    )Production, ad valorem, and severance taxes
    
    
    3,062
    
    
    
    6,308
    
    
    
    (3,246
    )Total production expenses
    
    
    10,011
    
    
    
    13,943
    
    
    
    (3,932
    )
    
    
    -28
    %Other:Depletion, depreciation, and amortization
    
    
    11,294
    
    
    
    10,316
    
    
    
    978Exploration
    
    
    18
    
    
    
    38
    
    
    
    (20
    )General and administrative
    
    
    2,807
    
    
    
    3,252
    
    
    
    (445
    )Marketing
    
    
    61
    
    
    
    1,609
    
    
    
    (1,548
    )Derivative fair value loss
    
    
    37,440
    
    
    
    76,428
    
    
    
    (38,988
    )Other operating
    
    
    658
    
    
    
    391
    
    
    
    267Total operating expenses
    
    
    62,289
    
    
    
    105,977
    
    
    
    (43,688
    )
    
    
    -41
    %Interest
    
    
    2,351
    
    
    
    1,909
    
    
    
    442Income tax provision (benefit)
    
    
    200
    
    
    
    (135
    )
    
    
    335Total expenses
    
    $
    64,840
    
    
    $
    107,751
    
    
    $
    (42,911
    )
    
    
    -40
    %Expenses (per BOE):Production:Lease operating
    
    $
    10.98
    
    
    $
    11.09
    
    
    $
    (0.11
    )Production, ad valorem, and severance taxes
    
    
    4.84
    
    
    
    9.16
    
    
    
    (4.32
    )Total production expenses
    
    
    15.82
    
    
    
    20.25
    
    
    
    (4.43
    )
    
    
    -22
    %Other:Depletion, depreciation, and amortization
    
    
    17.85
    
    
    
    14.98
    
    
    
    2.87Exploration
    
    
    0.03
    
    
    
    0.06
    
    
    
    (0.03
    )General and administrative
    
    
    4.44
    
    
    
    4.72
    
    
    
    (0.28
    )Marketing
    
    
    0.10
    
    
    
    2.34
    
    
    
    (2.24
    )Derivative fair value loss
    
    
    59.17
    
    
    
    111.01
    
    
    
    (51.84
    )Other operating
    
    
    1.04
    
    
    
    0.57
    
    
    
    0.47Total operating expenses
    
    
    98.45
    
    
    
    153.93
    
    
    
    (55.48
    )
    
    
    -36
    %Interest
    
    
    3.72
    
    
    
    2.77
    
    
    
    0.95Income tax provision (benefit)
    
    
    0.32
    
    
    
    (0.20
    )
    
    
    0.52Total expenses
    
    $
    102.49
    
    
    $
    156.50
    
    
    $
    (54.01
    )
    
    
    -35
    %
 Production expenses.
   Depletion, depreciation, and amortization expense (DD&A).
 26




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ENCORE ENERGY PARTNERS LP
  General and administrative expense (G&A).
 Marketing expenses.
 Derivative fair value loss.
 Three months ended June 30,
    
    
    Increase /2009
    
    
    2008
    
    
    (Decrease)(in thousands)Ineffectiveness
    
    $
    6
    
    
    $
    39
    
    
    $
    (33
    )Mark-to-market loss
    
    
    50,251
    
    
    
    73,156
    
    
    
    (22,905
    )Premium amortization
    
    
    5,854
    
    
    
    2,250
    
    
    
    3,604Settlements
    
    
    (18,671
    )
    
    
    983
    
    
    
    (19,654
    )Total derivative fair value loss
    
    $
    37,440
    
    
    $
    76,428
    
    
    $
    (38,988
    )
 Interest expense.
 27




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ENCORE ENERGY PARTNERS LP
 Comparison of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2008
 Revenues.
 Six months ended June 30,
    
    
    Decrease2009
    
    
    2008
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    38,915
    
    
    $
    92,444
    
    
    $
    (53,529
    )
    
    
    -58
    %Natural gas
    
    
    7,873
    
    
    
    23,743
    
    
    
    (15,870
    )
    
    
    -67
    %Total oil and natural gas revenues
    
    
    46,788
    
    
    
    116,187
    
    
    
    (69,399
    )
    
    
    -60
    %Marketing
    
    
    279
    
    
    
    3,762
    
    
    
    (3,483
    )
    
    
    -93
    %Total revenues
    
    $
    47,067
    
    
    $
    119,949
    
    
    $
    (72,882
    )
    
    
    -61
    %Average realized prices:Oil ($/Bbl)
    
    $
    45.61
    
    
    $
    99.81
    
    
    $
    (54.20
    )
    
    
    -54
    %Natural gas ($/Mcf)
    
    $
    3.31
    
    
    $
    9.34
    
    
    $
    (6.03
    )
    
    
    -65
    %Combined ($/BOE)
    
    $
    37.45
    
    
    $
    86.07
    
    
    $
    (48.62
    )
    
    
    -56
    %Total production volumes:Oil (MBbls)
    
    
    853
    
    
    
    926
    
    
    
    (73
    )
    
    
    -8
    %Natural gas (MMcf)
    
    
    2,377
    
    
    
    2,542
    
    
    
    (165
    )
    
    
    -6
    %Combined (MBOE)
    
    
    1,249
    
    
    
    1,350
    
    
    
    (101
    )
    
    
    -7
    %Average daily production volumes:Oil (Bbls/D)
    
    
    4,714
    
    
    
    5,089
    
    
    
    (375
    )
    
    
    -7
    %Natural gas (Mcf/D)
    
    
    13,132
    
    
    
    13,967
    
    
    
    (835
    )
    
    
    -6
    %Combined (BOE/D)
    
    
    6,903
    
    
    
    7,417
    
    
    
    (514
    )
    
    
    -7
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    51.61
    
    
    $
    111.02
    
    
    $
    (59.41
    )
    
    
    -54
    %Natural gas (per Mcf)
    
    $
    4.20
    
    
    $
    9.48
    
    
    $
    (5.28
    )
    
    
    -56
    %
   28




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ENCORE ENERGY PARTNERS LP
  Six months ended June 30,2009
    
    
    2008Average realized oil price ($/Bbl)
    
    $
    45.61
    
    
    $
    99.81Average NYMEX ($/Bbl)
    
    $
    51.61
    
    
    $
    111.02Differential to NYMEX
    
    $
    (6.00
    )
    
    $
    (11.21
    )Average realized oil price to NYMEX percentage
    
    
    88
    %
    
    
    90
    %Average realized natural gas price ($/Mcf)
    
    $
    3.31
    
    
    $
    9.34Average NYMEX ($/Mcf)
    
    $
    4.20
    
    
    $
    9.48Differential to NYMEX
    
    $
    (0.89
    )
    
    $
    (0.14
    )Average realized natural gas price to NYMEX percentage
    
    
    79
    %
    
    
    99
    %
    29




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ENCORE ENERGY PARTNERS LP
 Expenses.
 Six months ended June 30,
    
    
    Increase / (Decrease)2009
    
    
    2008
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operating
    
    $
    14,831
    
    
    $
    14,329
    
    
    $
    502Production, ad valorem, and severance taxes
    
    
    5,402
    
    
    
    11,539
    
    
    
    (6,137
    )Total production expenses
    
    
    20,233
    
    
    
    25,868
    
    
    
    (5,635
    )
    
    
    -22
    %Other:Depletion, depreciation, and amortization
    
    
    22,285
    
    
    
    20,520
    
    
    
    1,765Exploration
    
    
    40
    
    
    
    67
    
    
    
    (27
    )General and administrative
    
    
    4,996
    
    
    
    6,424
    
    
    
    (1,428
    )Marketing
    
    
    191
    
    
    
    4,002
    
    
    
    (3,811
    )Derivative fair value loss
    
    
    26,533
    
    
    
    92,015
    
    
    
    (65,482
    )Other operating
    
    
    1,375
    
    
    
    793
    
    
    
    582Total operating expenses
    
    
    75,653
    
    
    
    149,689
    
    
    
    (74,036
    )
    
    
    -49
    %Interest
    
    
    4,567
    
    
    
    3,549
    
    
    
    1,018Income tax provision (benefit)
    
    
    201
    
    
    
    (138
    )
    
    
    339Total expenses
    
    $
    80,421
    
    
    $
    153,100
    
    
    $
    (72,679
    )
    
    
    -47
    %Expenses (per BOE):Production:Lease operating
    
    $
    11.87
    
    
    $
    10.62
    
    
    $
    1.25Production, ad valorem, and severance taxes
    
    
    4.32
    
    
    
    8.55
    
    
    
    (4.23
    )Total production expenses
    
    
    16.19
    
    
    
    19.17
    
    
    
    (2.98
    )
    
    
    -16
    %Other:Depletion, depreciation, and amortization
    
    
    17.84
    
    
    
    15.20
    
    
    
    2.64Exploration
    
    
    0.03
    
    
    
    0.05
    
    
    
    (0.02
    )General and administrative
    
    
    4.00
    
    
    
    4.76
    
    
    
    (0.76
    )Marketing
    
    
    0.15
    
    
    
    2.96
    
    
    
    (2.81
    )Derivative fair value loss
    
    
    21.24
    
    
    
    68.17
    
    
    
    (46.93
    )Other operating
    
    
    1.10
    
    
    
    0.59
    
    
    
    0.51Total operating expenses
    
    
    60.55
    
    
    
    110.90
    
    
    
    (50.35
    )
    
    
    -45
    %Interest
    
    
    3.66
    
    
    
    2.63
    
    
    
    1.03Income tax provision (benefit)
    
    
    0.16
    
    
    
    (0.10
    )
    
    
    0.26Total expenses
    
    $
    64.37
    
    
    $
    113.43
    
    
    $
    (49.06
    )
    
    
    -43
    %
 Production expenses.
   30




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ENCORE ENERGY PARTNERS LP
 DD&A expense.
 G&A expense.
 Marketing expenses.
 Derivative fair value loss.
 Six months ended June 30,
    
    
    Increase /2009
    
    
    2008
    
    
    (Decrease)(in thousands)Ineffectiveness
    
    $
    (34
    )
    
    $
    (343
    )
    
    $
    309Mark-to-market loss
    
    
    57,681
    
    
    
    87,159
    
    
    
    (29,478
    )Premium amortization
    
    
    11,408
    
    
    
    4,387
    
    
    
    7,021Settlements
    
    
    (42,522
    )
    
    
    812
    
    
    
    (43,334
    )Total derivative fair value loss
    
    $
    26,533
    
    
    $
    92,015
    
    
    $
    (65,482
    )
 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.
  31




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ENCORE ENERGY PARTNERS LP
    Development, exploitation, and exploration of oil and natural gas properties.
 Three months ended June 30,
    
    
    Six months ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Development and exploitation
    
    $
    2,417
    
    
    $
    10,778
    
    
    $
    4,525
    
    
    $
    16,951Exploration
    
    
    28
    
    
    
    1,261
    
    
    
    294
    
    
    
    1,462Total
    
    $
    2,445
    
    
    $
    12,039
    
    
    $
    4,819
    
    
    $
    18,413
   Acquisitions of oil and natural gas properties.
 Funding of working capital.
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ENCORE ENERGY PARTNERS LP
   Off-balance sheet arrangements.
 Contractual obligations.
 Payments Due by PeriodYears Ending
    
    
    Years EndingContractual Obligations and
    
    
    
    
    
    Six Months Ending
    
    
    December 31, 2010 -
    
    
    December 31, 2012 -Commitments
    
    Total
    
    
    December 31, 2009
    
    
    2011
    
    
    2013
    
    
    Thereafter(in thousands)Revolving credit facility (a)
    
    $
    208,987
    
    
    $
    2,543
    
    
    $
    10,172
    
    
    $
    196,272
    
    
    $
    Commodity derivative contracts (b)
    
    
    2,101
    
    
    
    
    
    
    
    
    
    
    
    2,101
    
    
    
    Interest rate swaps (c)
    
    
    3,925
    
    
    
    1,772
    
    
    
    2,153
    
    
    
    
    
    
    
    Development commitments (d)
    
    
    1,556
    
    
    
    778
    
    
    
    778
    
    
    
    
    
    
    
    Operating leases (e)
    
    
    2,231
    
    
    
    343
    
    
    
    1,373
    
    
    
    515
    
    
    
    Asset retirement obligations (f)
    
    
    34,924
    
    
    
    431
    
    
    
    861
    
    
    
    646
    
    
    
    32,986Total
    
    $
    253,724
    
    
    $
    5,867
    
    
    $
    15,337
    
    
    $
    199,534
    
    
    $
    32,986
 
 (a)
    
    Includes principal and projected interest payments. Please read Note 7 of Notes to
Consolidated Financial Statements included in Item 1. Financial Statements for additional
information regarding our revolving credit facility.(b)
    
    Represents net liabilities for commodity derivative contracts, the ultimate settlement
of which are unknown because they are subject to continuing market risk. Please read Item
3. Quantitative and Qualitative Disclosures about Market Risk and Note 5 of Notes to
Consolidated Financial Statements included in Item 1. Financial Statements for additional
information regarding our commodity derivative contracts.(c)
    
    Represents net liabilities for interest rate swaps, the ultimate settlement of which
are unknown because they are subject to continuing market risk. Please read Item 3.
Quantitative and Qualitative Disclosures about Market Risk and Note 5 of Notes to
Consolidated Financial Statements included in Item 1. Financial Statements for additional
information regarding our interest rate swaps.(d)
    
    Represents authorized purchases for work in process. Also at June 30, 2009, we had
approximately $13.3 million of authorized purchases not placed to vendors (authorized
AFEs), which were not accrued and are excluded from the above table but are budgeted for
and expected to be made unless circumstances change.(e)
    
    Represents equipment obligations that have non-cancelable initial lease terms in excess
of one year.(f)
    
    Represents the undiscounted future plugging and abandonment expenses on oil and natural
gas properties and related facilities disposal at the end of field life. Please read Note
6 of Notes to Consolidated Financial Statements included in Item 1. Financial Statements
for additional information regarding our asset retirement obligations. Other contingencies and commitments
 33




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ENCORE ENERGY PARTNERS LP
  
    
    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 or one of our subsidiaries 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 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
   Liquidity
   34




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ENCORE ENERGY PARTNERS LP
  Internally generated cash flows.
 Revolving credit facility.
    CommitmentRatio of Total Outstanding Borrowings to Borrowing Base
    
    Fee PercentageLess than .90 to 1
    
    
    0.375%
    (a)Greater than or equal to .90 to 1
    
    
    0.500
    %
 
 (a)
    
    In connection with the proposed increase in our borrowing base from $240 million to
$375 million, we expect this commitment fee percentage to increase to 0.500 percent.   35




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ENCORE ENERGY PARTNERS LP
 Applicable Margin for
    
    Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans (a)
    
    Base Rate Loans (a)Less than .50 to 1
    
    
    1.750
    %
    
    
    0.750
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    2.000
    %
    
    
    0.750
    %Greater than or equal to .75 to 1 but less than .90 to 1
    
    
    2.250
    %
    
    
    1.000
    %Greater than or equal to .90 to 1
    
    
    2.500
    %
    
    
    1.250
    %
 
 (a)
    
    In connection with the proposed increase in our borrowing base from $240 million to
$375 million, we expect the applicable margin for Eurodollar loans to increase by 0.500
percent at each tier and the applicable margin for base rate loans to increase by 0.500
percent for the first tier and by 0.750 percent for the other three tiers.    
    
    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 1.5 to 1.0
(the Total Interest Coverage Ratio);
    
    a requirement that we and OLLC maintain a ratio of consolidated EBITDA to consolidated
senior interest expense of not less than 2.5 to 1.0 (the Senior Interest Coverage Ratio);
and
    
    a requirement that we and OLLC maintain a ratio of consolidated funded debt (excluding
certain related party debt) to consolidated adjusted EBITDA of not more than 3.5 to 1.0
(the Leverage Ratio).
   Actual Ratio as ofFinancial Covenant
    
    Required Ratio
    
    June 30, 2009Current Ratio
    
    Minimum 1.0 to 1.0
    
    3.3 to 1.0Total Interest Coverage Ratio
    
    Minimum 1.5 to 1.0
    
    13.0 to 1.0Senior Interest Coverage Ratio
    
    Minimum 2.5 to 1.0
    
    17.2 to 1.0Leverage Ratio
    
    Maximum 3.5 to 1.0
    
    1.7 to 1.0
 36




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ENCORE ENERGY PARTNERS LP
  Current assets
    
    $
    56,824Availability under the OLLC Credit Agreement
    
    
    45,000Consolidated current assets
    
    $
    101,824Divided by: consolidated current liabilities
    
    $
    31,317Current Ratio
    
    
    3.3
  Consolidated EBITDA (a)
    
    $
    103,785Divided by:Consolidated interest expense and letter of credit fees
    
    $
    7,987Consolidated interest income
    
    
    (23
    )Consolidated net interest expense and letter of credit fees
    
    $
    7,964Total Interest Coverage Ratio
    
    
    13.0
 
 (a)
    
    Consolidated EBITDA is defined in the OLLC Credit Agreement and generally means
earnings before interest, income taxes, depletion, depreciation, and amortization, and
exploration expense. Consolidated EBITDA is a non-GAAP financial measure, which is
reconciled to its most directly comparable GAAP measure below.  Consolidated EBITDA (a)
    
    $
    103,785Divided by:Consolidated senior interest expense
    
    $
    6,045Consolidated interest income
    
    
    (23
    )Consolidated net senior interest expense
    
    $
    6,022Senior Interest Coverage Ratio
    
    
    17.2
 
 (a)
    
    Consolidated EBITDA is defined in the OLLC Credit Agreement and generally means
earnings before interest, income taxes, depletion, depreciation, and amortization, 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
    
    $
    195,000Divided by: Consolidated Adjusted EBITDA (a)
    
    $
    114,577Leverage Ratio
    
    
    1.7
 
 (a)
    
    Consolidated Adjusted EBITDA is defined in the OLLC Credit Agreement and generally
means earnings before interest, income taxes, depletion, depreciation, and amortization,
and exploration expense, after giving pro forma effect to one or more 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.  37




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ENCORE ENERGY PARTNERS LP
 Consolidated net income
    
    $
    180,405Unrealized non-cash hedge gain
    
    
    (130,390
    )Consolidated net interest expense
    
    
    7,964Income and franchise taxes
    
    
    998Depletion, depreciation, amortization, and
exploration expense
    
    
    41,202Non-cash unit-based compensation
    
    
    3,321Other non-cash
    
    
    285Consolidated EBITDA
    
    
    103,785Pro forma
effect of acquisitions
    
    10,792Consolidated Adjusted EBITDA
    
    $
    114,577
    Debt covenants
 Capitalization.
 Critical Accounting Policies and Estimates
  New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   38




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ENCORE ENERGY PARTNERS LP
 Commodity Price Sensitivity
  Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
   39




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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
from Exhibit 3.1 to Form S-1 (File No. 333-142847) for Encore Energy Partners LP, 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 from 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 from Exhibit 3.1 to
ENPs Current Report on Form 8-K, filed with the SEC on April 18, 2008).10.1
    
    Purchase and Sale Agreement, dated May 18, 2009, by and among Encore Energy Partners LP,
Encore Energy Partners Operating LLC, and Encore Operating, L.P. (incorporated by reference
from Exhibit 2.1 of ENPs Current Report on Form 8-K, filed with the SEC on June 5, 2009).10.2
    
    Purchase and Sale Agreement, dated June 28, 2009, by and among Encore Energy Partners LP,
Encore Energy Partners Operating LLC, and Encore Operating, L.P. (incorporated by reference
from Exhibit 2.1 of ENPs Current Report on Form 8-K, filed with the SEC on June 29, 2009).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 loss to fixed charges.
 
 *
    
    Filed herewith. 40




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ENCORE ENERGY PARTNERS LP
 SIGNATURE
  ENCORE ENERGY PARTNERS LP
By:   Encore Energy Partners GP LLC, its General
         PartnerDate:  August 3, 2009
    /s/ Andrea HunterAndrea HunterVice President, Controller,
and Principal Accounting Officer
(Duly Authorized Signatory) 41