##### 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, 2008
 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
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ
 Number of common units outstanding as of August 1, 2008
    
    
    31,356,155




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##### 



ENCORE ENERGY PARTNERS LP
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    1Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007
    
    
    2Consolidated Statement of Partners Equity for the six months ended June 30, 2008
    
    
    3Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
    
    
    4Notes to Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 6. Exhibits
    
    
    33Signature
    
    
    34Rule 13a-14(a)/15d-14(a) CertificationRule 13a-14(a)/15d-14(a) CertificationSection 1350 CertificationSection 1350 CertificationStatement Showing Computation of Ratio of Earnings (Loss) to Fixed Charges
  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.
    
    Council of Petroleum Accountants Societies (COPAS). A professional organization of
oil and gas 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 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.
    
    Dry Hole. A well found to be incapable of producing hydrocarbons in sufficient
quantities such that proceeds from the sale of such production would exceed production
expenses and taxes.
    
    EAC.Encore Acquisition Company, a publicly traded Delaware corporation, together with
its subsidiaries.
    
    ENP or the Partnership. Encore Energy Partners LP, a Delaware limited partnership,
together with its subsidiaries.
    
    Exploratory Well. A well drilled to find and produce oil or natural gas in an unproved
area, to find a new reservoir in a field previously producing oil or natural gas in another
reservoir, or to extend a known reservoir.
    
    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.
    
    Gross Wells.The total number of wells in which an entity owns a working interest.
    
    Lease Operations Expense (LOE).All direct and allocated indirect costs of producing
oil and natural gas after completion of drilling. 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 Production.An entitys share of crude oil and natural gas produced from a
property, less royalties paid to landowners and production quantities due others.
    
    Net Profits Interest.An interest that entitles the owner to a specified share of net
profits from production of hydrocarbons.
    
    Net Wells.Gross wells multiplied by the percentage working interest 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 an
oil or natural gas well or lease.
    
    Production Margin.Oil and natural gas revenues less LOE and production, ad valorem,
and severance taxes.
    
    Proved Developed Reserves.Proved reserves that can be expected to be recovered through
existing wells with existing equipment and operating methods.
    
    Proved Reserves.The estimated quantities of crude oil, natural gas, and NGLs which
geological and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating 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. Proved undeveloped reserves include unrealized
 ii




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ENCORE ENERGY PARTNERS LP
 production response from fluid injection and other improved recovery techniques, where such
techniques have been proved effective by actual tests in the area and in the same reservoir.
    
    Recompletion.The completion for production of an existing well bore 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 oil and/or natural gas that is confined by impermeable rock or
water barriers and is individual and separate from other reservoirs.
    
    Royalty.An interest in an oil or natural gas lease that gives the owner of the
interest the right to receive a portion of the production from the leased acreage (or of
the proceeds from the sale of production), but does not require the owner to pay any
portion of the costs of drilling or operating the wells 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.
    
    Secondary Recovery.Enhanced recovery of oil or natural gas from a reservoir beyond the
oil or natural gas that can be recovered by normal flowing and pumping operations.
Secondary recovery techniques involve maintaining or enhancing reservoir pressure by
injecting water, gas, or other substances into the formation. The purpose of secondary
recovery is to maintain reservoir pressure and to displace hydrocarbons toward the
wellbore. The most common secondary recovery techniques are gas injection and
waterflooding.
    
    Successful Well.A well capable of producing oil and/or natural gas in commercial
quantities.
    
    Tertiary Recovery.An enhanced recovery operation that normally occurs after
waterflooding in which chemicals or natural gases are used as the injectant.
    
    Waterflood.A secondary recovery operation in which water is injected into the
producing formation in order to maintain reservoir pressure and force oil toward and into
the producing wells.
    
    Working Interest.An interest in an oil or natural gas lease that gives the owner of
the interest the right to drill for and produce oil and natural gas on the leased acreage
and requires the owner to pay a share of the costs of drilling and production operations.
    
    Workover.Operations on a producing well to restore or increase production.
 iii




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 ENCORE ENERGY PARTNERS LP
CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2008
    
    
    2007 *ASSETSCurrent assets:Cash and cash equivalents
    
    $
    626
    
    
    $
    3Accounts receivable:Trade
    
    
    31,727
    
    
    
    21,595Affiliate
    
    
    234
    
    
    
    3,290Derivatives
    
    
    632
    
    
    
    3,713Other
    
    
    558
    
    
    
    448Total current assets
    
    
    33,777
    
    
    
    29,049Properties and equipment, at cost  successful efforts method:Proved properties, including wells and related equipment
    
    
    517,483
    
    
    
    500,470Unproved properties
    
    
    249
    
    
    
    298Accumulated depletion, depreciation, and amortization
    
    
    (81,466
    )
    
    
    (63,295
    )436,266
    
    
    
    437,473Other property and equipment
    
    
    730
    
    
    
    510Accumulated depreciation
    
    
    (152
    )
    
    
    (68
    )578
    
    
    
    442Goodwill
    
    
    2,648
    
    
    
    2,648Other intangibles, net
    
    
    3,816
    
    
    
    3,969Derivatives
    
    
    6,504
    
    
    
    21,875Other
    
    
    1,483
    
    
    
    2,263Total assets
    
    $
    485,072
    
    
    $
    497,719LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable:Trade
    
    $
    2,145
    
    
    $
    1,915Affiliate
    
    
    2,130
    
    
    
    6,709Accrued liabilities:Lease operations expense
    
    
    2,896
    
    
    
    2,903Development capital
    
    
    2,147
    
    
    
    3,012Interest
    
    
    247
    
    
    
    147Production, ad valorem, and severance taxes
    
    
    11,367
    
    
    
    6,272Marketing
    
    
    944
    
    
    
    1,578Derivatives
    
    
    23,478
    
    
    
    865Other
    
    
    2,664
    
    
    
    2,898Total current liabilities
    
    
    48,018
    
    
    
    26,299Derivatives
    
    
    68,420
    
    
    
    20,447Future abandonment cost, net of current portion
    
    
    8,446
    
    
    
    8,314Long-term debt
    
    
    151,000
    
    
    
    47,500Other
    
    
    151
    
    
    
    146Total liabilities
    
    
    276,035
    
    
    
    102,706Commitments and contingencies (see Note 13)Partners equity:Limited partners - 31,356,155 and 24,187,679 common units issued and
outstanding, respectively
    
    
    209,034
    
    
    
    391,956General partner - 504,851 general partner units outstanding
    
    
    (981
    )
    
    
    3,057Accumulated other comprehensive income
    
    
    984
    
    
    
    Total partners equity
    
    
    209,037
    
    
    
    395,013Total liabilities and partners equity
    
    $
    485,072
    
    
    $
    497,719
 
 *
    
    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 30,2008
    
    
    2007 *
    
    
    2008
    
    
    2007 *Revenues:Oil
    
    $
    47,141
    
    
    $
    22,212
    
    
    $
    84,336
    
    
    $
    30,372Natural gas
    
    
    11,808
    
    
    
    5,689
    
    
    
    18,810
    
    
    
    10,302Marketing
    
    
    903
    
    
    
    3,614
    
    
    
    3,762
    
    
    
    4,852Total revenues
    
    
    59,852
    
    
    
    31,515
    
    
    
    106,908
    
    
    
    45,526Expenses:Production:Lease operations
    
    
    6,922
    
    
    
    5,728
    
    
    
    12,980
    
    
    
    8,419Production, ad valorem, and severance taxes
    
    
    5,782
    
    
    
    3,134
    
    
    
    10,580
    
    
    
    4,609Depletion, depreciation, and amortization
    
    
    9,215
    
    
    
    9,173
    
    
    
    18,335
    
    
    
    12,879Exploration
    
    
    38
    
    
    
    31
    
    
    
    67
    
    
    
    62General and administrative
    
    
    2,933
    
    
    
    1,011
    
    
    
    5,855
    
    
    
    1,566Marketing
    
    
    1,609
    
    
    
    3,275
    
    
    
    4,002
    
    
    
    4,355Derivative fair value loss
    
    
    76,428
    
    
    
    2,814
    
    
    
    92,015
    
    
    
    6,497Other operating
    
    
    331
    
    
    
    288
    
    
    
    682
    
    
    
    433Total expenses
    
    
    103,258
    
    
    
    25,454
    
    
    
    144,516
    
    
    
    38,820Operating income (loss)
    
    
    (43,406
    )
    
    
    6,061
    
    
    
    (37,608
    )
    
    
    6,706Other income (expenses):Interest
    
    
    (1,909
    )
    
    
    (5,342
    )
    
    
    (3,549
    )
    
    
    (6,444
    )Other
    
    
    65
    
    
    
    27
    
    
    
    82
    
    
    
    27Total other expenses
    
    
    (1,844
    )
    
    
    (5,315
    )
    
    
    (3,467
    )
    
    
    (6,417
    )Income (loss) before income taxes
    
    
    (45,250
    )
    
    
    746
    
    
    
    (41,075
    )
    
    
    289Income tax benefit (provision)
    
    
    252
    
    
    
    (33
    )
    
    
    162
    
    
    
    (65
    )Net income (loss)
    
    $
    (44,998
    )
    
    $
    713
    
    
    $
    (40,913
    )
    
    $
    224Net loss allocation (see Note 10):Limited partners interest in net loss
    
    $
    (45,233
    )
    
    
    
    
    
    $
    (44,808
    )General partners interest in net loss
    
    $
    (731
    )
    
    
    
    
    
    $
    (739
    )Net loss per common unit:Basic
    
    $
    (1.45
    )
    
    
    
    
    
    $
    (1.51
    )Diluted
    
    $
    (1.45
    )
    
    
    
    
    
    $
    (1.51
    )Weighted average common units outstanding:Basic
    
    
    31,260
    
    
    
    
    
    
    
    29,766Diluted
    
    
    31,260
    
    
    
    
    
    
    
    29,766
 
 *
    
    Recast as discussed in Note 2.  2




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ENCORE ENERGY PARTNERS LP
CONSOLIDATED STATEMENT OF PARTNERS EQUITY
 AccumulatedOther
    
    
    TotalLimited
    
    
    General
    
    
    Comprehensive
    
    
    Partners'Partners
    
    
    Partner
    
    
    Income
    
    
    EquityBalance at December 31, 2007 *
    
    $
    391,956
    
    
    $
    3,057
    
    
    $
    
    
    
    $
    395,013Deemed distributions to affiliates in connection with acquisition of Permian
and Williston Basin assets
    
    
    (121,894
    )
    
    
    (2,944
    )
    
    
    
    
    
    
    (124,838
    )Issuance of common units in exchange for net profits interest in Crockett
County properties
    
    
    5,748
    
    
    
    
    
    
    
    
    
    
    
    5,748Non-cash unit-based compensation
    
    
    2,145
    
    
    
    35
    
    
    
    
    
    
    
    2,180Cash distributions to unitholders
    
    
    (28,651
    )
    
    
    (486
    )
    
    
    
    
    
    
    (29,137
    )Components of comprehensive loss:Net income attributable to affiliates related to pre-partnership
operations of the Permian and Williston Basin assets
    
    
    3,321
    
    
    
    80
    
    
    
    
    
    
    
    3,401Net loss attributable to unitholders
    
    
    (43,591
    )
    
    
    (723
    )
    
    
    
    
    
    
    (44,314
    )Change in unrealized hedge gain on interest rate swap agreements, net
of tax of $3
    
    
    
    
    
    
    
    
    
    
    984
    
    
    
    984Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,929
    )Balance at June 30, 2008
    
    $
    209,034
    
    
    $
    (981
    )
    
    $
    984
    
    
    $
    209,037
 
 *
    
    Recast as discussed in Note 2.  3




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ENCORE ENERGY PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months endedJune 30,2008
    
    
    2007*Cash flows from operating activities:Net income (loss)
    
    $
    (40,913
    )
    
    $
    224Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Depletion, depreciation, and amortization
    
    
    18,335
    
    
    
    12,879Non-cash exploration expense
    
    
    41
    
    
    
    11Non-cash unit-based compensation expense
    
    
    2,180
    
    
    
    Non-cash derivative fair value loss
    
    
    91,203
    
    
    
    6,682Deferred taxes
    
    
    (290
    )
    
    
    6Non-cash interest
    
    
    243
    
    
    
    3,749Other
    
    
    522
    
    
    
    159Changes in operating assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    (7,235
    )
    
    
    (13,197
    )Other current assets
    
    
    79
    
    
    
    (102
    )Long-term derivatives
    
    
    (1,196
    )
    
    
    (2,051
    )Other assets
    
    
    745
    
    
    
    (2,779
    )Accounts payable
    
    
    (4,136
    )
    
    
    4,979Other current liabilities
    
    
    4,058
    
    
    
    3,069Net cash provided by operating activities
    
    
    63,636
    
    
    
    13,629Cash flows from investing activities:Purchases of other property and equipment
    
    
    (217
    )
    
    
    Acquisition of oil and natural gas properties
    
    
    (81
    )
    
    
    (354,670
    )Development of oil and natural gas properties
    
    
    (12,050
    )
    
    
    (6,760
    )Net cash used in investing activities
    
    
    (12,348
    )
    
    
    (361,430
    )Cash flows from financing activities:Proceeds from long-term debt, net of issuance costs
    
    
    163,310
    
    
    
    248,883Payments on long-term debt
    
    
    (60,000
    )
    
    
    (15,500
    )Deemed distributions to affiliates in connection with acquisition of Permian and Williston Basin assets
    
    
    (124,838
    )
    
    
    Distributions to unitholders
    
    
    (29,137
    )
    
    
    Net contributions from owner
    
    
    
    
    
    
    115,766Net cash provided by (used in) financing activities
    
    
    (50,665
    )
    
    
    349,149Increase in cash and cash equivalents
    
    
    623
    
    
    
    1,348Cash and cash equivalents, beginning of period
    
    
    3
    
    
    
    Cash and cash equivalents, end of period
    
    $
    626
    
    
    $
    1,348Non-cash investing and financing activities:Issuance of common units in connection with acquisition of net profits interest in Crockett County
properties
    
    $
    5,748
    
    
    $
    Issuance of common units in connection with acquisition of Permian and Williston Basin assets (see Note 3)
 
 *
    
    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 of Wyoming and Montana, primarily in the Elk Basin field (the Elk
Basin Assets);
    
    the Permian Basin of West Texas; and
    
    the Williston Basin of North Dakota.
 Note 2. Basis of Presentation
      New Accounting Pronouncements
 Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS
157)
 5




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Effective Date of FASB Statement No. 157
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  including an
amendment of FASB Statement No. 115 (SFAS 159)
  SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R)
 Business
Combinations.
 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,
 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
 6




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162)
 The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles.
 FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities (FSP EITF 03-6-1)
  Note 3. Acquisitions
 Permian and Williston Basin Assets
   Elk Basin Assets
  7




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
   Six months endedJune 30, 2007(in thousands)Pro forma total revenues
    
    $
    59,687Pro forma net loss
    
    $
    (1,836
    )
  Note 4. Proved Properties
  June 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Proved leasehold costs
    
    $
    377,923
    
    
    $
    372,076Wells and related equipment  Completed
    
    
    137,230
    
    
    
    124,381Wells and related equipment  In process
    
    
    2,330
    
    
    
    4,013Total proved properties
    
    $
    517,483
    
    
    $
    500,470
 Note 5. Derivative Financial Instruments
 Commodity Derivative Contracts  Mark-to-Market Accounting
  8




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Oil Derivative Contracts
 Average
    
    
    Weighted
    
    
    
    Average
    
    
    Weighted
    
    
    
    Average
    
    
    WeightedDaily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    LiabilityFloor
    
    
    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. 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,751
    )880
    
    
    $
    80.00
    
    
    
    
    440
    
    
    $
    107.60
    
    
    
    
    
    
    
    $
    2,000
    
    
    
    75.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    65.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,084
    )880
    
    
    
    80.00
    
    
    
    
    440
    
    
    
    97.75
    
    
    
    
    
    
    
    
    2,250
    
    
    
    74.11
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    68.702010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,696
    )880
    
    
    
    80.00
    
    
    
    
    440
    
    
    
    93.80
    
    
    
    
    
    
    
    
    2,000
    
    
    
    75.00
    
    
    
    
    1,000
    
    
    
    77.23
    
    
    
    
    
    
    
    
    2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,639
    )1,880
    
    
    
    80.00
    
    
    
    
    1,440
    
    
    
    95.41
    
    
    
    
    
    
    
    
    1,000
    
    
    
    70.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (78,170
    )
 Natural Gas Derivative Contracts
 Average
    
    
    Weighted
    
    
    
    Average
    
    
    Weighted
    
    
    
    Average
    
    
    WeightedDaily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    Daily
    
    
    Average
    
    
    
    LiabilityFloor
    
    
    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. 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,342
    )3,800
    
    
    $
    8.20
    
    
    
    
    3,800
    
    
    $
    9.83
    
    
    
    
    
    
    
    $
    3,800
    
    
    
    7.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,492
    )3,800
    
    
    
    8.20
    
    
    
    
    3,800
    
    
    
    9.83
    
    
    
    
    
    
    
    
    3,800
    
    
    
    7.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,108
    )3,800
    
    
    
    8.20
    
    
    
    
    3,800
    
    
    
    9.58
    
    
    
    
    
    
    
    
    3,800
    
    
    
    7.20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (7,942
    )
 Interest Rate Swap Agreements
  Notional
    
    Fixed
    
    FloatingTerm
    
    Amount
    
    Rate
    
    Rate(in thousands)July 2008-January 2011
    
    $
    50,000
    
    
    
    3.1610
    %
    
    1 month LIBORJuly 2008-January 2011
    
    
    25,000
    
    
    
    2.9650
    %
    
    1 month LIBORJuly 2008-January 2011
    
    
    25,000
    
    
    
    2.9613
    %
    
    1 month LIBOR
  9




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Current Period Impact
  Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Mark-to-market loss on commodity derivative contracts
    
    $
    73,195
    
    
    $
    1,806
    
    
    $
    87,197
    
    
    $
    5,489Premium amortization
    
    
    2,250
    
    
    
    1,194
    
    
    
    4,387
    
    
    
    1,194Change in fair value of interest rate swap agreements prior to designation
    
    
    
    
    
    
    
    
    
    
    (381
    )
    
    
    Settlements on commodity derivative contracts
    
    
    983
    
    
    
    (186
    )
    
    
    812
    
    
    
    (186
    )Total derivative fair value loss
    
    $
    76,428
    
    
    $
    2,814
    
    
    $
    92,015
    
    
    $
    6,497
 Accumulated Other Comprehensive Income (AOCI)
  Note 6. Fair Value Measurements
   
    
    Level 1 Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which transactions
for the asset or liability occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
    
    Level 2 Pricing inputs, other than quoted prices within Level 1, that are
observable for the asset or liability, either directly or indirectly, as of the
reporting date. Level 2 includes those financial instruments that are valued using
models or other valuation methodologies. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and contractual prices
for the underlying instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace throughout the
full term of the instrument, can be derived from observable data, or are supported by
observable levels at which transactions are executed in the marketplace.
    
    Level3  Pricing inputs include significant unobservable inputs. These inputs may
be used with internally developed 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
 
  Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Oil derivative contracts  swaps
    
    $
    (25,132
    )
    
    $
    
    
    
    $
    (25,132
    )
    
    $
    Oil derivative contracts  floors and caps
    
    
    (53,038
    )
    
    
    
    
    
    
    
    
    
    
    (53,038
    )Natural gas derivative contracts  floors and caps
    
    
    (7,942
    )
    
    
    
    
    
    
    
    
    
    
    (7,942
    )Interest rate swap agreements
    
    
    1,350
    
    
    
    
    
    
    
    1,350
    
    
    
    Total
    
    $
    (84,762
    )
    
    $
    
    
    
    $
    (23,782
    )
    
    $
    (60,980
    )
   Fair Value Measurements Using Significant Unobservable Inputs(Level 3)Natural GasOil Derivative
    
    
    DerivativeContracts - Floors
    
    
    Contracts - Floorsand Caps
    
    
    and Caps
    
    
    Total(in thousands)Balance at January 1, 2008
    
    $
    6,466
    
    
    $
    4,533
    
    
    $
    10,999Total gains (losses):Included in earnings
    
    
    (61,357
    )
    
    
    (12,631
    )
    
    
    (73,988
    )Purchases, issuances, and settlements
    
    
    1,853
    
    
    
    156
    
    
    
    2,009Balance at June 30, 2008
    
    $
    (53,038
    )
    
    $
    (7,942
    )
    
    $
    (60,980
    )The amount of total 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
    
    $
    (61,357
    )
    
    $
    (12,631
    )
    
    $
    (73,988
    )
   11




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Level 2 Fair Value Measurements
 Oil derivative contracts  swaps
 Interest rate swap agreements
 Level 3 Fair Value Measurements
 Oil and natural gas derivative contracts  floors and caps
 Note 7. Asset Retirement Obligations
  Future abandonment liability at January 1, 2008
    
    $
    8,704Wells drilled
    
    
    26Accretion of discount
    
    
    239Revision of previous estimates
    
    
    (233
    )Future abandonment liability at June 30, 2008
    
    $
    8,736
  Note 8. Debt
 Revolving Credit Facility
     12




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Subordinated Credit Agreement
  Note 9. Partners Equity and Distributions
   Note 10. Earnings Per Common Unit (EPU)
   13




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
  Three months ended
    
    
    Six months endedJune 30, 2008
    
    
    June 30, 2008Net loss
    
    $
    (44,998
    )
    
    $
    (40,913
    )Less: Net income related to pre-partnership operations of the Permian and
Williston Basin Assets
    
    
    
    
    
    
    3,401Net loss attributable to unitholders
    
    $
    (44,998
    )
    
    $
    (44,314
    )Numerator:Net loss attributable to unitholders
    
    $
    (44,998
    )
    
    $
    (44,314
    )Less: Distributions to participating securities
    
    
    1,257
    
    
    
    1,719Less: Undistributed losses allocated to participating securities
    
    
    (1,022
    )
    
    
    (1,225
    )Net loss allocation to limited partners
    
    $
    (45,233
    )
    
    $
    (44,808
    )Denominator:Denominator for basic EPU:Weighted average common units outstanding
    
    
    31,260
    
    
    
    29,766Effect of dilutive management incentive units (a)
    
    
    
    
    
    
    Denominator for diluted EPU
    
    
    31,260
    
    
    
    29,766Net loss per common unit:Basic
    
    $
    (1.45
    )
    
    $
    (1.51
    )Diluted
    
    $
    (1.45
    )
    
    $
    (1.51
    )
 
 (a)
    
    A total of 550,000 management incentive units, which represented 1,678,490 common unit
equivalents as of June 30, 2008, were outstanding at June 30, 2008 but were excluded from
the above calculation of diluted EPU for the second quarter of 2008 because their effect
would be antidilutive. See additional discussion of management incentive units in Note
11. Unit-Based Compensation Plans. Note 11. Unit-Based Compensation Plans
 Management Incentive Units
  
    
    a change in control;
    
    at the option of the holder, when the Partnerships aggregate quarterly distributions to
unitholders over four consecutive quarters are at least $2.05 per unit; or
    
    the holders death or disability.
  
    
    the holders of management incentive units are not entitled to receive, in the aggregate,
common units upon conversion of the management incentive units that exceed a maximum limit
of 5.1 percent of all the Partnerships then-outstanding
units; and
    
    the holders of management incentive units are not entitled to receive, in the aggregate,
distributions of the Partnerships available cash in an amount that exceeds a maximum limit
of 5.1 percent of all such distributions to all unitholders at
 14




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 the time of any such
distribution.
   ENP Incentive Plan
  Share-Based Payment.
   15




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ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
 Note 12. Comprehensive Income (Loss)
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Net income (loss)
    
    $
    (44,998
    )
    
    $
    713
    
    
    $
    (40,913
    )
    
    $
    224Change in
deferred hedge gain on interest rate swap agreements
    
    
    2,552
    
    
    
    
    
    
    
    984
    
    
    
    Comprehensive income (loss)
    
    $
    (42,446
    )
    
    $
    713
    
    
    $
    (39,929
    )
    
    $
    224
 Note 13. Commitments and Contingencies
   Note 14. Related Party Transactions
    16




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
      Note 15. Subsequent Event
  17




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##### Table of Contents



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 in our 2007 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 in Item
8. Financial Statements and Supplementary Data of our 2007 Annual Report on Form 10-K .
 Introduction
  
    
    Overview of Business
    
    Results of Operations
 
    
    Comparison of Quarter Ended June 30, 2008 to Quarter Ended June 30, 2007
    
    Comparison of Six Months Ended June 30, 2008 to Six Months Ended June 30, 2007
 
    
    Liquidity and Capital Resources
    
    Capital Commitments and Contingencies
    
    Critical Accounting Policies and Estimates
    
    New Accounting Pronouncements
 Overview of Business
   
 18




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
 Results of Operations
 Comparison of Quarter Ended June 30, 2008 to Quarter Ended June 30, 2007
 Revenues.
 Three months ended June 30,
    
    
    Increase / (Decrease)2008
    
    
    2007
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    47,141
    
    
    $
    22,212
    
    
    $
    24,929
    
    
    
    112
    %Natural gas
    
    
    11,808
    
    
    
    5,689
    
    
    
    6,119
    
    
    
    108
    %Total combined oil and natural gas revenues
    
    
    58,949
    
    
    
    27,901
    
    
    
    31,048
    
    
    
    111
    %Marketing
    
    
    903
    
    
    
    3,614
    
    
    
    (2,711
    )
    
    
    -75
    %Total revenues
    
    $
    59,852
    
    
    $
    31,515
    
    
    $
    28,337
    
    
    
    90
    %Average realized prices:Oil ($/Bbl)
    
    $
    111.53
    
    
    $
    52.09
    
    
    $
    59.44
    
    
    
    114
    %Natural gas ($/Mcf)
    
    $
    11.06
    
    
    $
    7.45
    
    
    $
    3.61
    
    
    
    48
    %Combined ($/BOE)
    
    $
    98.15
    
    
    $
    50.39
    
    
    $
    47.76
    
    
    
    95
    %Total production volumes:Oil (MBbls)
    
    
    423
    
    
    
    426
    
    
    
    (3
    )
    
    
    -1
    %Natural gas (MMcf)
    
    
    1,067
    
    
    
    764
    
    
    
    303
    
    
    
    40
    %Combined (MBOE)
    
    
    601
    
    
    
    554
    
    
    
    47
    
    
    
    8
    %Average daily production volumes:Oil (Bbls/D)
    
    
    4,645
    
    
    
    4,686
    
    
    
    (41
    )
    
    
    -1
    %Natural gas (Mcf/D)
    
    
    11,729
    
    
    
    8,393
    
    
    
    3,336
    
    
    
    40
    %Combined (BOE/D)
    
    
    6,600
    
    
    
    6,085
    
    
    
    515
    
    
    
    8
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    124.30
    
    
    $
    65.06
    
    
    $
    59.24
    
    
    
    91
    %Natural gas (per Mcf)
    
    $
    10.94
    
    
    $
    7.55
    
    
    $
    3.39
    
    
    
    45
    %
   
 19




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ENCORE ENERGY PARTNERS LP
  Three months ended June 30,2008
    
    2007Average realized oil price ($/Bbl)
    
    $
    111.53
    
    
    $
    52.09Average NYMEX ($/Bbl)
    
    $
    124.30
    
    
    $
    65.06Differential to NYMEX
    
    $
    (12.77
    )
    
    $
    (12.97
    )Average realized oil price to NYMEX percentage
    
    
    90
    %
    
    
    80
    %Average realized natural gas price ($/Mcf)
    
    $
    11.06
    
    
    $
    7.45Average NYMEX ($/Mcf)
    
    $
    10.94
    
    
    $
    7.55Differential to NYMEX
    
    $
    0.12
    
    
    $
    (0.10
    )Average realized natural gas price to NYMEX percentage
    
    
    101
    %
    
    
    99
    %
   20




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
 Expenses.
 Three months ended June 30,
    
    
    Increase / (Decrease)2008
    
    
    2007
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operations
    
    $
    6,922
    
    
    $
    5,728
    
    
    $
    1,194Production, ad valorem, and severance taxes
    
    
    5,782
    
    
    
    3,134
    
    
    
    2,648Total production expenses
    
    
    12,704
    
    
    
    8,862
    
    
    
    3,842
    
    
    
    43
    %Other:Depletion, depreciation, and amortization
    
    
    9,215
    
    
    
    9,173
    
    
    
    42Exploration
    
    
    38
    
    
    
    31
    
    
    
    7General and administrative
    
    
    2,933
    
    
    
    1,011
    
    
    
    1,922Marketing
    
    
    1,609
    
    
    
    3,275
    
    
    
    (1,666
    )Derivative fair value loss
    
    
    76,428
    
    
    
    2,814
    
    
    
    73,614Other operating
    
    
    331
    
    
    
    288
    
    
    
    43Total operating
    
    
    103,258
    
    
    
    25,454
    
    
    
    77,804
    
    
    
    306
    %Interest
    
    
    1,909
    
    
    
    5,342
    
    
    
    (3,433
    )Income tax (benefit) provision
    
    
    (252
    )
    
    
    33
    
    
    
    (285
    )Total expenses
    
    $
    104,915
    
    
    $
    30,829
    
    
    $
    74,086
    
    
    
    240
    %Expenses (per BOE):Production:Lease operations
    
    $
    11.53
    
    
    $
    10.34
    
    
    $
    1.19Production, ad valorem, and severance taxes
    
    
    9.63
    
    
    
    5.66
    
    
    
    3.97Total production expenses
    
    
    21.16
    
    
    
    16.00
    
    
    
    5.16
    
    
    
    32
    %Other:Depletion, depreciation, and amortization
    
    
    15.34
    
    
    
    16.57
    
    
    
    (1.23
    )Exploration
    
    
    0.06
    
    
    
    0.06
    
    
    
    -General and administrative
    
    
    4.88
    
    
    
    1.83
    
    
    
    3.05Marketing
    
    
    2.68
    
    
    
    5.91
    
    
    
    (3.23
    )Derivative fair value loss
    
    
    127.26
    
    
    
    5.08
    
    
    
    122.18Other operating
    
    
    0.55
    
    
    
    0.52
    
    
    
    0.03Total operating
    
    
    171.93
    
    
    
    45.97
    
    
    
    125.96
    
    
    
    274
    %Interest
    
    
    3.18
    
    
    
    9.65
    
    
    
    (6.47
    )Income tax (benefit) provision
    
    
    (0.42
    )
    
    
    0.06
    
    
    
    (0.48
    )Total expenses
    
    $
    174.69
    
    
    $
    55.68
    
    
    $
    119.01
    
    
    
    214
    %
 Production expenses.
   21




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
 Depletion, depreciation, and amortization (DD&A) expense.
 G&A expense.
 Marketing expense.
 Derivative fair value loss.
 Three months ended June 30,
    
    
    Increase /2008
    
    
    2007
    
    
    (Decrease)(in thousands)Mark-to-market loss on commodity derivative contracts
    
    $
    73,195
    
    
    $
    1,806
    
    
    $
    71,389Premium amortization
    
    
    2,250
    
    
    
    1,194
    
    
    
    1,056Settlements on commodity derivative contracts
    
    
    983
    
    
    
    (186
    )
    
    
    1,169Total derivative fair value loss
    
    $
    76,428
    
    
    $
    2,814
    
    
    $
    73,614
 Interest expense.
 Income taxes.
 22




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
 Comparison of Six Months Ended June 30, 2008 to Six Months Ended June 30, 2007
 Revenues.
 Six months ended June 30,
    
    
    Increase / (Decrease)2008
    
    
    2007
    
    
    $
    
    
    %Revenues (in thousands):Oil
    
    $
    84,336
    
    
    $
    30,372
    
    
    $
    53,964
    
    
    
    178
    %Natural gas
    
    
    18,810
    
    
    
    10,302
    
    
    
    8,508
    
    
    
    83
    %Total combined oil and natural gas revenues
    
    
    103,146
    
    
    
    40,674
    
    
    
    62,472
    
    
    
    154
    %Marketing
    
    
    3,762
    
    
    
    4,852
    
    
    
    (1,090
    )
    
    
    -22
    %Total revenues
    
    $
    106,908
    
    
    $
    45,526
    
    
    $
    61,382
    
    
    
    135
    %Average realized prices:Oil ($/Bbl)
    
    $
    99.37
    
    
    $
    50.57
    
    
    $
    48.80
    
    
    
    97
    %Natural gas ($/Mcf)
    
    $
    9.62
    
    
    $
    7.21
    
    
    $
    2.41
    
    
    
    33
    %Combined ($/BOE)
    
    $
    87.81
    
    
    $
    48.49
    
    
    $
    39.32
    
    
    
    81
    %Total production volumes:Oil (MBbls)
    
    
    849
    
    
    
    601
    
    
    
    248
    
    
    
    41
    %Natural gas (MMcf)
    
    
    1,956
    
    
    
    1,429
    
    
    
    527
    
    
    
    37
    %Combined (MBOE)
    
    
    1,175
    
    
    
    839
    
    
    
    336
    
    
    
    40
    %Average daily production volumes:Oil (Bbls/D)
    
    
    4,663
    
    
    
    4,639
    
    
    
    24
    
    
    
    1
    %Natural gas (Mcf/D)
    
    
    10,745
    
    
    
    8,186
    
    
    
    2,559
    
    
    
    31
    %Combined (BOE/D)
    
    
    6,454
    
    
    
    6,004
    
    
    
    450
    
    
    
    7
    %Average NYMEX prices:Oil (per Bbl)
    
    $
    111.02
    
    
    $
    61.70
    
    
    $
    49.32
    
    
    
    80
    %Natural gas (per Mcf)
    
    $
    9.48
    
    
    $
    7.16
    
    
    $
    2.32
    
    
    
    32
    %
     23




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ENCORE ENERGY PARTNERS LP
  Six months ended June 30,2008
    
    2007Average realized oil price ($/Bbl)
    
    $
    99.37
    
    
    $
    50.57Average NYMEX ($/Bbl)
    
    $
    111.02
    
    
    $
    61.70Differential to NYMEX
    
    $
    (11.65
    )
    
    $
    (11.13
    )Average realized oil price to NYMEX percentage
    
    
    90
    %
    
    
    82
    %Average realized natural gas price ($/Mcf)
    
    $
    9.62
    
    
    $
    7.21Average NYMEX ($/Mcf)
    
    $
    9.48
    
    
    $
    7.16Differential to NYMEX
    
    $
    0.14
    
    
    $
    0.05Average realized natural gas price to NYMEX percentage
    
    
    101
    %
    
    
    101
    %
   24




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ENCORE ENERGY PARTNERS LP
 Expenses.
 Six months ended June 30,
    
    
    Increase / (Decrease)2008
    
    
    2007
    
    
    $
    
    
    %Expenses (in thousands):Production:Lease operations
    
    $
    12,980
    
    
    $
    8,419
    
    
    $
    4,561Production, ad valorem, and severance taxes
    
    
    10,580
    
    
    
    4,609
    
    
    
    5,971Total production expenses
    
    
    23,560
    
    
    
    13,028
    
    
    
    10,532
    
    
    
    81
    %Other:Depletion, depreciation, and amortization
    
    
    18,335
    
    
    
    12,879
    
    
    
    5,456Exploration
    
    
    67
    
    
    
    62
    
    
    
    5General and administrative
    
    
    5,855
    
    
    
    1,566
    
    
    
    4,289Marketing
    
    
    4,002
    
    
    
    4,355
    
    
    
    (353
    )Derivative fair value loss
    
    
    92,015
    
    
    
    6,497
    
    
    
    85,518Other operating
    
    
    682
    
    
    
    433
    
    
    
    249Total operating
    
    
    144,516
    
    
    
    38,820
    
    
    
    105,696
    
    
    
    272
    %Interest
    
    
    3,549
    
    
    
    6,444
    
    
    
    (2,895
    )Income tax (benefit) provision
    
    
    (162
    )
    
    
    65
    
    
    
    (227
    )Total expenses
    
    $
    147,903
    
    
    $
    45,329
    
    
    $
    102,574
    
    
    
    226
    %Expenses (per BOE):Production:Lease operations
    
    $
    11.05
    
    
    $
    10.04
    
    
    $
    1.01Production, ad valorem, and severance taxes
    
    
    9.01
    
    
    
    5.49
    
    
    
    3.52Total production expenses
    
    
    20.06
    
    
    
    15.53
    
    
    
    4.53
    
    
    
    29
    %Other:Depletion, depreciation, and amortization
    
    
    15.61
    
    
    
    15.35
    
    
    
    0.26Exploration
    
    
    0.06
    
    
    
    0.07
    
    
    
    (0.01
    )General and administrative
    
    
    4.98
    
    
    
    1.87
    
    
    
    3.11Marketing
    
    
    3.41
    
    
    
    5.19
    
    
    
    (1.78
    )Derivative fair value loss
    
    
    78.33
    
    
    
    7.75
    
    
    
    70.58Other operating
    
    
    0.58
    
    
    
    0.52
    
    
    
    0.06Total operating
    
    
    123.03
    
    
    
    46.28
    
    
    
    76.75
    
    
    
    166
    %Interest
    
    
    3.02
    
    
    
    7.68
    
    
    
    (4.66
    )Income tax (benefit) provision
    
    
    (0.14
    )
    
    
    0.08
    
    
    
    (0.22
    )Total expenses
    
    $
    125.91
    
    
    $
    54.04
    
    
    $
    71.87
    
    
    
    133
    %
 Production expenses.
   25




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ENCORE ENERGY PARTNERS LP
  DD&A expense.
 G&A expense.
 Marketing expense.
 Derivative fair value loss.
 Six months ended June 30,
    
    
    Increase /2008
    
    
    2007
    
    
    (Decrease)(in thousands)Mark-to-market loss on commodity derivative contracts
    
    $
    87,197
    
    
    $
    5,489
    
    
    $
    81,708Premium amortization
    
    
    4,387
    
    
    
    1,194
    
    
    
    3,193Change in fair value of interest rate swap agreements prior to designation
    
    
    (381
    )
    
    
    
    
    
    
    (381
    )Settlements on commodity derivative contracts
    
    
    812
    
    
    
    (186
    )
    
    
    998Total derivative fair value loss
    
    $
    92,015
    
    
    $
    6,497
    
    
    $
    85,518
 Interest expense.
 Income taxes.
 Liquidity and Capital Resources
   26




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ENCORE ENERGY PARTNERS LP
   Cash Flows
 Internally generated cash flows.
  Cash flows from operating activities
 Cash flows from investing activities
 Cash flows from financing activities
   Revolving Credit Facility
   27




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##### Table of Contents



ENCORE ENERGY PARTNERS LP
    Applicable Margin for
    
    Applicable Margin forRatio of Total Outstanding Borrowings to Borrowing Base
    
    Eurodollar Loans
    
    Base Rate LoansLess than .50 to 1
    
    
    1.000
    %
    
    
    0.000
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    1.250
    %
    
    
    0.000
    %Greater than or equal to .75 to 1 but less than .90 to 1
    
    
    1.500
    %
    
    
    0.250
    %Greater than or equal to .90 to 1
    
    
    1.750
    %
    
    
    0.500
    %
    
    
    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 our 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 OLLC maintain a ratio of consolidated current assets to consolidated
current liabilities of not less than 1.0 to 1.0;
    
    a requirement that OLLC maintain a ratio of consolidated EBITDA (as defined in the
credit agreement) 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 OLLC maintain a ratio of consolidated EBITDA (as defined in the
credit agreement) to consolidated senior interest expense of not less
than 2.5 to 1.0; and
    
    a requirement that OLLC maintain a ratio of consolidated funded debt (excluding certain
related party debt) to consolidated adjusted EBITDA (as defined in the credit agreement) of
not more than 3.5 to 1.0.
   28




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ENCORE ENERGY PARTNERS LP
 CommitmentRatio of Total Outstanding Borrowings to Borrowing Base
    
    Fee PercentageLess than .50 to 1
    
    
    0.250
    %Greater than or equal to .50 to 1 but less than .75 to 1
    
    
    0.300
    %Greater than or equal to .75 to 1
    
    
    0.375
    %
  Current capitalization.
 Capital Commitments and Contingencies
 Capital Commitments
  
    
    Distributions to unitholders;
    
    Development, exploitation, and exploration of oil and natural gas properties;
    
    Acquisitions of oil and natural gas properties;
    
    Funding of necessary working capital; and
    
    Contractual obligations.
 Distributions to unitholders.
  Development, exploitation, and exploration of oil and natural gas properties.
 Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Development and exploitation
    
    $
    4,507
    
    
    $
    5,584
    
    
    $
    10,356
    
    
    $
    9,259Exploration
    
    
    1,179
    
    
    
    1,376
    
    
    
    1,188
    
    
    
    1,406Total
    
    $
    5,686
    
    
    $
    6,960
    
    
    $
    11,544
    
    
    $
    10,665
  29




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ENCORE ENERGY PARTNERS LP
   Acquisitions of oil and natural gas properties.
  Funding of necessary working capital.
  Off-balance sheet arrangements.
 Contractual obligations.
 Payments Due by PeriodContractual Obligations and
    
    
    
    
    
    Six Months EndingCommitments
    
    Total
    
    
    December 31, 2008
    
    
    2009 - 2010
    
    
    2011-2012
    
    
    Thereafter(in thousands)Revolving credit facility (a)
    
    $
    172,759
    
    
    $
    2,967
    
    
    $
    11,869
    
    
    $
    157,923
    
    
    $
    Commodity derivative contracts (b)
    
    
    88,484
    
    
    
    4,979
    
    
    
    64,283
    
    
    
    19,222
    
    
    
    Interest rate swap agreements
    
    
    106
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    Development commitments (c)
    
    
    2,147
    
    
    
    2,147
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligations (d)
    
    
    32,545
    
    
    
    145
    
    
    
    579
    
    
    
    579
    
    
    
    31,242Total
    
    $
    296,041
    
    
    $
    10,344
    
    
    $
    76,731
    
    
    $
    177,724
    
    
    $
    31,242
 
 (a)
    
    Amounts include principal and projected interest payments. Please read Note 8 of Notes
to Consolidated Financial Statements included in Item 1. Financial Statements for
additional information regarding our long-term debt.(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)
    
    Development commitments represent authorized purchases for work in process. Also at
June 30, 2008, we had $11.1 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.(d)
    
    Asset retirement obligations represent the undiscounted future plugging and abandonment
expenses on oil and natural gas properties and related facilities disposal at the
completion of field life. Please read Note 7 of Notes to Consolidated Financial Statements
included in Item 1. Financial Statements for additional information regarding our asset
retirement obligations. 30




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ENCORE ENERGY PARTNERS LP
 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 the
current year;
    
    if we or one of our subsidiaries acquires any 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 our General Partner
upon the recommendation of the conflicts committee of our General Partner; and
    
    otherwise as agreed upon by Encore Operating and our General Partner, with the
approval of the conflicts committee of our General Partner.
  Critical Accounting Policies and Estimates
  New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Commodity Price Sensitivity
  31




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ENCORE ENERGY PARTNERS LP
 Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
   32




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ENCORE ENERGY PARTNERS LP
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
 Exhibits3.1
    
    Certificate of Limited Partnership of Encore Energy Partners LP (incorporated by reference to
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 to Exhibit 3.1 to the 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 the
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 ratio of earnings (loss) to fixed charges.
 
 *
    
    Filed herewith. 33




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ENCORE ENERGY PARTNERS LP
 
 SIGNATURE
  ENCORE ENERGY PARTNERS LP
By: Encore Energy Partners GP LLC, its General PartnerDate:  August 8, 2008
    /s/ Andrea HunterAndrea HunterVice President, Controller, and Principal Accounting Officer 34