##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K/A
 þ     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 OR
 o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 001-33016
 
 EAGLE ROCK ENERGY PARTNERS, L.P.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    68-0629883(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 16701 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
 (281) 408-1200
 14950 Heathrow Forest Parkway, Suite 111
Houston, Texas 77032
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Units of Limited Partner Interests
    
    NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act:
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE.




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##### 



TABLE OF CONTENTS
 PageItem 8. Financial Statements and Supplementary Data
    
    
    1Item 15. Exhibits and Financial Statement Schedules
    
    
    1Consent of Deloitte & Touche LLPCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906




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We are providing this Amendment to Form 10-K to include the financial statements of ONEOK Texas
Field Services, L.P., our predecessor, within Item 8. Financial Statements and Supplementary Data.
Such financial statements have previously been filed in Partnerships initial Form S-1.
 PART II
 
 Item 8. Financial Statements and Supplementary Data.
  PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)(1) Financial Statements:
  (a)(2) Financial Statement Schedules:None.(a)(3) Exhibits:
 The following documents are included as exhibits to this report:
 Exhibit Number
    
    Description3.1
    
    Certificate of Limited Partnership of Eagle Rock Energy Partners, L.P. (incorporated by reference
to Exhibit 3.1 of the registrants registration statement on Form S-1 (File No. 333-134750))3.2
    
    Amended and Restated Agreement of Limited Partnership of Eagle Rock Energy Partners, L.P.
(included as Appendix A to the Prospectus and including specimen unit certificate for the common
units) (incorporated by reference to Exhibit 3.2 of the registrants registration statement on Form
S-1 (File No. 333-134750))3.3
    
    Certificate of Limited Partnership of Eagle Rock Energy GP, L.P. (incorporated by reference to
Exhibit 3.3 of the registrants registration statement on Form S-1 (File No. 333-134750))3.4
    
    Limited Partnership Agreement of Eagle Rock Energy GP, L.P. (incorporated by reference to
Exhibit 3.4 of the registrants registration statement on Form S-1 (File No. 333-134750))3.5
    
    Certificate of Formation of Eagle Rock Energy G&P, LLC (incorporated by reference to Exhibit
3.5 of the registrants registration statement on Form S-1 (File No. 333-134750))3.6
    
    Amended and Restated Limited Liability Company Agreement of Eagle Rock Energy G&P, LLC
(incorporated by reference to Exhibit 3.6 of the registrants registration statement on Form S-1
(File No. 333-134750))4.1
    
    Registration Rights Agreement dated March 27, 2006, among Eagle Rock Pipeline, L.P. and the
Purchasers listed thereto (incorporated by reference to Exhibit 4.1 of the registrants registration
statement on Form S-1 (File No. 333-134750))4.2
    
    Tag Along Agreement dated March 27, 2006, among Eagle Rock Pipeline, L.P., Eagle Rock
Pipeline GP, LLC, Eagle Rock Holdings, L.P., and the Purchasers listed thereto.
(incorporated by reference to Exhibit 4.2 of the registrants registration statement
on Form S-1 (File No. 333-134750))4.3
    
    Form of Registration Rights Agreement between Eagle Rock Energy Partners, L.P. and Eagle
Rock Holdings, L.P. (incorporated by reference to Exhibit 4.3 of the registrants registration
statement on Form S-1 (File No. 333-134750))4.4
    
    Form of Common Unit Certificate (included as Exhibit A to the Amended and Restated
Partnership Agreement of Eagle Rock Energy Partners, L.P., which is included as Appendix A to
the Prospectus) (incorporated by reference to Exhibit 3.2 of the registrants registration statement
on Form S-1 (File No. 333-134750))10.1
    
    Amended and Restated Credit and Guaranty Agreement (incorporated by reference to Exhibit 3.1
of the registrants registration statement on Form S-1 (File No. 333-134750))
 1




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Exhibit Number
    
    Description10.2
    
    Form of Omnibus Agreement (incorporated by reference to Exhibit 3.1 of the registrants
registration statement on Form S-1 (File No. 333-134750))10.3**
    
    Form of Eagle Rock Energy Partners, L.P. Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.3 of the registrants registration statement on Form S-1 (File No. 333-134750))10.4
    
    Sale, Contribution and Exchange Agreement by and among the general and limited partners of
Midstream Gas Services, L.P., Eagle Rock Energy Services, L.P. and Eagle Rock Pipeline,
L.P. (incorporated by reference to Exhibit 10.4 of the registrants registration statement
on Form S-1
(File No. 333-134750))10.5
    
    Natural Gas Liquids Exchange Agreement by and between ONEOK Hydrocarbon, L.P. and
ONEOK Texas Field Services, L.P. (incorporated by reference to Exhibit 10.5 of the registrants
registration statement on Form S-1 (File No. 333-134750))10.6
    
    Gas Sales and Purchase Agreement between MC Panhandle, Inc. (Chesapeake Energy Marketing
Inc.) and MidCon Gas Services Corp. (Eagle Rock Field Services, L.P.) (incorporated by
reference
to Exhibit 10.6 of the registrants registration statement on Form S-1 (File No.
333-134750))10.7
    
    Brookeland Gas Facilities Gas Gathering and Processing Agreement between Union Pacific
Resources Company (Anadarko E&P Company LP) and Sonat Exploration Company (Eagle Rock
Field Services, L.P.) (incorporated by reference to Exhibit 10.7 of the registrants registration
statement on Form S-1 (File No. 333-134750))
 2




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Exhibit Number
    
    Description10.8
    
    Minimum Volume Agreement between ONEOK Texas Field Services L.P. and Peak Operating of
Texas, LLC (incorporated by reference to Exhibit 10.8 of the registrants registration statement on
Form S-1 (File No. 333-134750))10.9
    
    Gas Purchase Agreement between ONEOK Texas Field Services L.P. and Peak Operating of
Texas, LLC (incorporated by reference to Exhibit 10.9 of the registrants registration statement on
Form S-1 (File No. 333-134750))10.10
    
    Gas Purchase Contract between Warren Petroleum Company (Eagle Rock Field Services, L.P.)
and Wallace Oil & Gas, Inc. (Cimarex Energy Co.) (incorporated by reference to Exhibit 10.10 of
the registrants registration statement on Form S-1 (File No. 333-134750))10.11
    
    Form of Contribution, Conveyance and Assumption Agreement (incorporated by reference to
Exhibit 10.11 of the registrants registration statement on Form S-1 (File No. 333-134750))10.12**
    
    Employment Agreement dated August 2, 2006 between Eagle Rock Energy G&P, LLC and
Richard W. FitzGerald (incorporated by reference to Exhibit 10.12 of the registrants registration
statement on Form S-1 (File No. 333-134750))10.13
    
    Base Contract for Sale and Purchase of Natural Gas between Eagle Rock Field Services, L.P. and
Odyssey Energy Services, LLC (incorporated by reference to Exhibit 10.13 of the registrants
registration statement on Form S-1 (File No. 333-134750))14.1
    
    Code of Ethics posted on the Companys website at www.eaglerockenergy.com.21.1
    
    List of Subsidiaries of Eagle Rock Energy Partners, L.P. (incorporated by reference to Exhibit
21.1 of the registrants registration statement on Form S-1 (File No. 333-134750))23.1*
    
    Consent of Deloitte & Touche LLP24.1*
    
    Powers of Attorney (included on page 5 of the 10-K/A)31.1*
    
    Certification of Periodic Financial Reports by Joseph A. Mills. in satisfaction of Section
302 of the Sarbanes-Oxley Act of 200231.2*
    
    Certification of Periodic Financial Reports by Alfredo Garcia in satisfaction of Section 302
of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Periodic Financial Reports by Joseph A. Mills in satisfaction of Section
906 of the Sarbanes-Oxley Act of 200232.2*
    
    Certification of Periodic Financial Reports by Alfredo Garcia in satisfaction of Section 906
of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit
hereto.
    
    Portions of this exhibit have been omitted pursuant to a request for confidential treatment. 3




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SIGNATURES
  EAGLE ROCK ENERGY PARTNERS, L.P.By:
    
    Eagle Rock Energy GP, L.P., its general partnerBy:
    
    Eagle Rock Energy G&P, LLC, its general partnerBy:
    
    /s/ Joseph A. MillsName: Joseph A. MillsTitle: Chairman and Chief Executive OfficerEAGLE ROCK ENERGY PARTNERS, L.P.By: Eagle Rock Energy GP, L.P., its general partnerBy: Eagle Rock Energy G&P, LLC, its general partnerBy:
    
    /s/ Alfredo GarciaName: Alfredo GarciaTitle: Acting Chief Financial Officer
 4




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POWERS OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ Joseph A. Mills

Joseph A. Mills
    
    Chairman and Chief Executive Officer
(Principal Executive Officer)
    
    July 26, 2007/s/ Alfredo Garcia

Alfredo Garcia
    
    Senior Vice President, Corporate Development and Acting
Chief Financial Officer (Principal
Accounting Officer)
    
    July 26, 2007/s/ Kenneth A. Hersh

Kenneth A. Hersh
    
    Director
    
    July 26, 2007/s/ William J. Quinn

William J. Quinn
    
    Director
    
    July 26, 2007/s/ John A. Weinzierl

John A. Weinzierl
    
    Director
    
    July 26, 2007/s/ Philip B. Smith

Philip B. Smith
    
    Director
    
    July 26, 2007/s/ William K. White

William K. White
    
    Director
    
    July 26, 2007
 
 *
    
    /s/ Alfredo GarciaAttorney-in-Fact
 5




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CONSOLIDATED FINANCIAL STATEMENTS
OF EAGLE ROCK ENERGY PARTNERS, L.P.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    F-3Consolidated Statements of Operations for the years ended December 2006, 2005 and 2004
    
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
    
    
    F-5Consolidated Statements of Members Equity for the years ended 2006, 2005 and 2004
    
    
    F-7Notes to Consolidated Financial StatementsNote 1. Organization and Description of Business
    
    
    F-8Note 2. Summary of Significant Accounting Policies
    
    
    F-8Note 3. New Accounting Pronouncements
    
    
    F-11Note 4. Acquisitions
    
    
    F-12Note 5. Fixed Assets and Asset Retirement Obligations
    
    
    F-14Note 6. Long-term Debt
    
    
    F-14Note 7. Members Equity
    
    
    F-16Note 8. Related Party Transactions
    
    
    F-17Note 9. Fair Value of Financial Instruments
    
    
    F-17Note 10. Risk Management Activities
    
    
    F-18Note 11. Commitments and Contingent Liabilities
    
    
    F-19Note 12. Segments
    
    
    F-20Note 13. Discontinued Operations
    
    
    F-21Note 14. Employee Benefit Plans
    
    
    F-21Note 15. Income Taxes
    
    
    F-21Note 16. Equity-Based Compensation
    
    
    F-21Note 17. Earnings Per Unit
    
    
    F-22Note 18. Subsequent Events
    
    
    F-23ONEOK Texas Field Services, L.P.:Report of Independent Registered Public Accounting Firm
    
    
    F-24Balance Sheets as of December 31, 2004 and November 30, 2005
    
    
    F-25Statements of Operations for the Years Ended December 31, 2003 and 2004 and for the
Eleven-Month Period Ended November 30, 2005
    
    
    F-26Statements of Partnership Capital for the Years Ended December 31, 2003 and 2004 and
for the Eleven-Month Period Ended November 30, 2005
    
    
    F-27Statements of Cash Flows for the Years Ended December 31, 2003 and 2004 and for the
Eleven-Month Period Ended November 30, 2005
    
    
    F-28Notes to Financial Statements
    
    
    F-29




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 F - 2




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EAGLE ROCK ENERGY PARTNERS, L.P.
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2006 and 2005
 December 31,
    
    
    December 31,2006
    
    
    2005($ in thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    10,581
    
    
    $
    19,372Accounts receivable
    
    
    43,567
    
    
    
    43,557Risk management assets
    
    
    13,837
    
    
    
    21,830Prepayments and other current assets
    
    
    2,679
    
    
    
    1,277Total current assets
    
    
    70,664
    
    
    
    86,036PROPERTY, PLANT AND EQUIPMENT  Net
    
    
    554,063
    
    
    
    441,588INTANGIBLE ASSETS  Net
    
    
    130,001
    
    
    
    115,000RISK MANAGEMENT ASSETS
    
    
    17,373
    
    
    
    44,023OTHER ASSETS
    
    
    7,800
    
    
    
    14,012TOTAL
    
    $
    779,901
    
    
    $
    700,659LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    49,558
    
    
    $
    43,401Distributions payable-affiliate
    
    
    
    
    
    
    5,000Accrued liabilities
    
    
    7,996
    
    
    
    2,324Risk management liabilities
    
    
    1,005
    
    
    
    2,260Current maturities of long-term debt
    
    
    
    
    
    
    3,866Total current liabilities
    
    
    58,559
    
    
    
    56,851LONG-TERM DEBT
    
    
    405,731
    
    
    
    404,600ASSET RETIREMENT OBLIGATIONS
    
    
    1,819
    
    
    
    679DEFERRED TAX LIABILITY
    
    
    1,229
    
    
    
    RISK MANAGEMENT LIABILITIES
    
    
    20,576
    
    
    
    30,433COMMITMENTS AND CONTINGENCIES
MEMBERS EQUITY:Common Unitholders (1)
    
    
    116,283
    
    
    
    208,013Subordinated Unitholders (2)
    
    
    176,248
    
    
    
    General Partner
    
    
    (544
    )
    
    
    83Total members equity
    
    
    291,987
    
    
    
    208,096TOTAL
    
    $
    779,901
    
    
    $
    700,659
 
 (1)
    
    20,691,495 and 24,150,739 units were issued and outstanding for 2006 and 2005, respectively.(2)
    
    20,691,495 and 0 units were issued and outstanding for 2006 and 2005, respectively.  F - 3




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##### Table of Contents



EAGLE ROCK ENERGY PARTNERS, L.P.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
 Years Ended December 31,($ in thousands, except per unit amounts)
    
    2006
    
    
    2005
    
    
    2004REVENUE:Natural gas liquids sales
    
    $
    234,354
    
    
    $
    29,192
    
    
    $
    8,797Natural gas sales
    
    
    195,146
    
    
    
    26,463
    
    
    
    968Condensate
    
    
    57,411
    
    
    
    4,266
    
    
    
    72Gathering, compression, and processing fees
    
    
    14,862
    
    
    
    6,247
    
    
    
    799(Loss) gain on risk management instruments
    
    
    (24,004
    )
    
    
    7,308
    
    
    
    Other
    
    
    621
    
    
    
    214
    
    
    
    Total revenue
    
    
    478,390
    
    
    
    73,690
    
    
    
    10,636COSTS AND EXPENSES:Cost of natural gas and natural gas liquids
    
    
    377,580
    
    
    
    55,272
    
    
    
    8,811Operations and maintenance
    
    
    32,905
    
    
    
    2,955
    
    
    
    34General and administrative
    
    
    13,161
    
    
    
    4,765
    
    
    
    2,406Advisory termination fee
    
    
    6,000
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    43,220
    
    
    
    4,088
    
    
    
    619Total costs and expenses
    
    
    472,866
    
    
    
    67,080
    
    
    
    11,870OPERATING INCOME (LOSS)
    
    
    5,524
    
    
    
    6,610
    
    
    
    (1,234
    )OTHER INCOME (EXPENSE):Interest and
other income
    
    
    996
    
    
    
    171
    
    
    
    24Interest and other expense
    
    
    (28,604
    )
    
    
    (4,031
    )
    
    
    Total other (expense) income
    
    
    (27,608
    )
    
    
    (3,860
    )
    
    
    24INCOME TAX PROVISION
    
    
    1,230
    
    
    
    
    
    
    
    (LOSS) INCOME FROM CONTINUING OPERATIONS
    
    
    (23,314
    )
    
    
    2,750
    
    
    
    (1,210
    )INCOME FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    
    
    
    
    22,192NET (LOSS) INCOME
    
    $
    (23,314
    )
    
    $
    2,750
    
    
    $
    20,982NET (LOSS) INCOME PER COMMON UNIT  BASIC
AND DILUTED:(Loss) income from continuing operationsCommon units
    
    $
    (1.26
    )
    
    $
    0.11
    
    
    $
    (0.05
    )Subordinated units
    
    
    (0.43
    )
    
    
    
    
    
    
    General partner units
    
    
    (0.80
    )
    
    
    4.06
    
    
    
    (0.05
    )Income from discontinued operationsCommon units
    
    $
    
    
    
    $
    
    
    
    $
    0.87General partner units
    
    
    
    
    
    
    
    
    
    
    Net (loss) incomeCommon units
    
    $
    (1.26
    )
    
    $
    0.11
    
    
    $
    0.92Subordinated units
    
    
    (0.43
    )
    
    
    
    
    
    
    General partner units
    
    
    (0.80
    )
    
    
    4.06
    
    
    
    Basic and Diluted (units in thousands)Common units
    
    
    12,123
    
    
    
    24,151
    
    
    
    24,151Subordinated units
    
    
    17,873
    
    
    
    
    
    
    
    General partner units
    
    
    557
    
    
    
    20
    
    
    
    
  F - 4




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EAGLE ROCK ENERGY PARTNERS, L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
 Years Ended December 31,($ in thousands)
    
    2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (23,314
    )
    
    $
    2,750
    
    
    $
    20,982Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    43,220
    
    
    
    4,088
    
    
    
    1,174Amortization of debt issuance costs
    
    
    1,114
    
    
    
    76
    
    
    
    Net realized gain on derivative contracts
    
    
    (978
    )
    
    
    
    
    
    
    Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    (19,465
    )Advisory termination fee
    
    
    6,000
    
    
    
    
    
    
    
    Equity-based compensation
    
    
    142
    
    
    
    
    
    
    
    Other
    
    
    1,424
    
    
    
    5
    
    
    
    Changes in assets and liabilities  net of acquisitions:Accounts receivable
    
    
    (10
    )
    
    
    (42,821
    )
    
    
    688Prepayments and other current assets
    
    
    (1,422
    )
    
    
    (358
    )
    
    
    214Risk management activities
    
    
    23,531
    
    
    
    (5,709
    )
    
    
    Accounts and distributions payable
    
    
    3,105
    
    
    
    40,094
    
    
    
    167Accrued liabilities
    
    
    5,672
    
    
    
    103
    
    
    
    2Other assets
    
    
    (3,492
    )
    
    
    104
    
    
    
    111Other current liabilities
    
    
    
    
    
    
    
    
    
    
    (221
    )Net cash provided by (used in) operating activities
    
    
    54,992
    
    
    
    (1,667
    )
    
    
    3,652CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property, plant and equipment
    
    
    (38,416
    )
    
    
    (4,157
    )
    
    
    (20,491
    )Sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    37,409Acquisitions, net
    
    
    (101,182
    )
    
    
    (530,951
    )
    
    
    Escrow cash
    
    
    7,643
    
    
    
    (7,643
    )
    
    
    Purchase of intangible assets
    
    
    (2,918
    )
    
    
    (750
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (134,873
    )
    
    
    (543,501
    )
    
    
    16,918CASH FLOWS FROM FINANCING ACTIVITIES:(Repayment of) proceeds from long-term debt
    
    
    (4,635
    )
    
    
    400,000
    
    
    
    (14,000
    )Proceeds from revolver
    
    
    12,500
    
    
    
    7,600
    
    
    
    Repayment of revolver
    
    
    (10,600
    )
    
    
    
    
    
    
    Payment of debt issuance costs
    
    
    (2,939
    )
    
    
    (6,535
    )
    
    
    Payment for derivative contracts
    
    
    
    
    
    
    (27,452
    )
    
    
    Proceeds from derivative contracts
    
    
    978
    
    
    
    
    
    
    
    Unit issuance costs for IPO
    
    
    (3,723
    )
    
    
    
    
    
    
    Net cash in flow from IPO, including overallotment
    
    
    248,067
    
    
    
    
    
    
    
    Distributions of IPO proceeds to pre-IPO members
    
    
    (245,067
    )
    
    
    
    
    
    
    Contribution by members
    
    
    98,540
    
    
    
    192,369
    
    
    
    45Distributions to members and affiliates
    
    
    (22,033
    )
    
    
    (9,679
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    71,088
    
    
    
    556,304
    
    
    
    (13,955
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (8,791
    )
    
    
    11,136
    
    
    
    6,615CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    19,372
    
    
    
    8,235
    
    
    
    1,620CASH AND CASH EQUIVALENTS  End of period
    
    $
    10,581
    
    
    $
    19,372
    
    
    $
    8,235
 F - 5




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Years Ended December 31,($ in thousands)
    
    2006
    
    
    2005
    
    
    2004Interest paid  net of amounts capitalized
    
    $
    30,657
    
    
    $
    
    
    
    $
    317Investments in property, plant and equipment not paid
    
    $
    6,573
    
    
    $
    1,190
    
    
    $
    Distributions payable to member
    
    $
    
    
    
    $
    5,000
    
    
    $
    Prepayment financed by note payable
    
    $
    
    
    
    $
    866
    
    
    $
    Issuance of common units for MGS acquisition
    
    $
    20,280
    
    
    $
    
    
    
    $
    
  F - 6




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EAGLE ROCK ENERGY PARTNERS, L.P.
 
 CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004  ($ in thousands, except Unit amounts)
 Eagle RockNumber of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Pipeline, L.P.General
    
    
    Common
    
    
    Common
    
    
    Subordinated
    
    
    Subordinated
    
    
    PredecessorPartner
    
    
    Units
    
    
    Units
    
    
    Units
    
    
    Units
    
    
    Equity
    
    
    TotalBALANCE 
January 1, 2004
    
    $
    
    
    
    
    24,150,731
    (1)
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    6,628
    
    
    $
    6,628Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,982
    
    
    
    20,982Capital contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    45BALANCE  December
31, 2004
    
    
    
    
    
    
    24,150,731
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,655
    
    
    
    27,655Net income
    
    
    83
    
    
    
    
    
    
    
    4,067
    
    
    
    
    
    
    
    
    
    
    
    (1,400
    )
    
    
    2,750Capital contributions
    
    
    
    
    
    
    
    
    
    
    142,688
    
    
    
    
    
    
    
    
    
    
    
    49,681
    
    
    
    192,369Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,679
    )
    
    
    (14,679
    )Conversion of
predecessor equity
to common units
    
    
    
    
    
    
    
    
    
    
    61,258
    
    
    
    
    
    
    
    
    
    
    
    (61,258
    )
    
    
    BALANCE December
31, 2005
    
    
    83
    
    
    
    24,150,731
    (1)
    
    
    208,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,096Net loss
    
    
    (448
    )
    
    
    
    
    
    
    (15,229
    )
    
    
    
    
    
    
    (7,637
    )
    
    
    
    
    
    
    (23,314
    )Distributions
    
    
    (287
    )
    
    
    
    
    
    
    (4,160
    )
    
    
    
    
    
    
    (12,587
    )
    
    
    
    
    
    
    (17,033
    )Conversion of common
units to
subordinated units
    
    
    
    
    
    
    (20,691,495
    )
    
    
    (193,481
    )
    
    
    20,691,495
    
    
    
    193,481
    
    
    
    
    
    
    
    Issuance of common
units  March 2006
    
    
    
    
    
    
    3,922,930
    (2)
    
    
    98,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,540Issuance of common
units in MGS
acquisition
    
    
    
    
    
    
    809,329
    (2)
    
    
    20,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,280IPO and
overallotment
    
    
    4,883
    
    
    
    12,500,000
    
    
    
    37,144
    
    
    
    
    
    
    
    206,039
    
    
    
    
    
    
    
    248,067Distribution of IPO
proceeds
    
    
    (4,824
    )
    
    
    
    
    
    
    (35,860
    )
    
    
    
    
    
    
    (204,382
    )
    
    
    
    
    
    
    (245,067
    )IPO offering costs
    
    
    (74
    )
    
    
    
    
    
    
    (1,593
    )
    
    
    
    
    
    
    (2,056
    )
    
    
    
    
    
    
    (3,723
    )Advisory fee
termination
    
    
    120
    
    
    
    
    
    
    
    2,567
    
    
    
    
    
    
    
    3,313
    
    
    
    
    
    
    
    6,000Restricted units
expense
    
    
    3
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    142BALANCE 
December 31, 2006
    
    $
    (544
    )
    
    
    20,691,495
    
    
    $
    116,283
    
    
    
    20,691,495
    
    
    $
    176,248
    
    
    $
    
    
    
    $
    291,987
 
 (1)
    
    Represents adjusted common units for presentation purposes. Based upon units on formation
in March 2006, adjusted for IPO unit rate conversion.(2)
    
    Units issued adjusted for IPO conversion.  F - 7




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##### Table of Contents



EAGLE ROCK ENERGY PARTNERS, L.P.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
 
 NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
   Basis of Presentation and Principles of Consolidation
  
 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Use of Estimates
 Cash and Cash Equivalents
 F - 8




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##### Table of Contents



Concentration and Credit Risk
  Certain Other Concentrations
 Property, Plant, and Equipment
 Pipelines and equipment
    
    20 yearsGas processing and equipment
    
    20 yearsOffice furniture and equipment
    
    5 years
   Impairment of Long-Lived Assets
 
    
    significant adverse change in legal factors or in the business climate;
    
    a current-period operating or cash flow loss combined with a history of operating or
cash flow losses or a projection or forecast which demonstrates continuing losses
associated with the use of a long-lived asset;
    
    an accumulation of costs significantly in excess of the amount originally expected for
the acquisition or construction of a long-lived asset;
    
    significant adverse changes in the extent or manner in which an asset is used or in its physical condition;
    
    a significant change in the market value of an asset; or
    
    a current expectation that, more likely than not, an asset
will be sold or otherwise disposed of before the end of its estimated
useful life.
 F - 9




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##### Table of Contents



Intangible Assets
 December 31,
    
    
    December 31,($ in thousands)
    
    2006
    
    
    2005Rights-of-way and easements  at cost
    
    $
    66,801
    
    
    $
    57,714Less: accumulated amortization
    
    
    (7,407
    )
    
    
    (237
    )Contracts
    
    
    80,210
    
    
    
    58,499Less: accumulated amortization
    
    
    (9,603
    )
    
    
    (975
    )Net Intangible assets
    
    $
    130,001
    
    
    $
    115,000
  Other Assets
 Transportation and Exchange Imbalances
 Revenue Recognition
 
    
    sales of natural gas, NGLs and condensate;
    
    natural gas gathering, processing and transportation, from which Eagle Rock Energy
generates revenues primarily through the compression, gathering, treating, processing and
transportation of natural gas; and
    
    NGL transportation from which we generate revenues from transportation fees.
   F - 10




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##### Table of Contents



Environmental Expenditures
 Income Taxes
 Derivatives Accounting for
Derivative Instruments and Hedging Activities,
 
 NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS
 Accounting Changes and Error Corrections.
 Accounting for Certain Hybrid Financial
Instruments Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
 F - 11




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##### Table of Contents



Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for Purchases and Sales of Inventory with the Same Counterparty
  Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
 
 NOTE 4. ACQUISITIONS
     F - 12




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##### Table of Contents



($ in thousands)Accounts receivable and other current assets
    
    $
    673Property, plant, and equipment
    
    
    420,551Intangibles
    
    
    115,265Accounts payable
    
    
    (2,047
    )Other current liabilities
    
    
    (1,931
    )Asset retirement obligations
    
    
    (1,405
    )$
    531,106
   ($ in thousands)Property, plant, and equipment
    
    $
    88,858Intangibles
    
    
    7,992Other current liabilities
    
    
    (750
    )Asset retirement obligations
    
    
    291$
    95,809
   ($ in thousands)
    
    2006
    
    
    2005Pro forma earnings data:Revenues
    
    $
    492,507
    
    
    $
    508,904Costs and expenses
    
    
    (489,723
    )
    
    
    (478,066
    )Operating (loss) income
    
    
    2,784
    
    
    
    30,838Other income (expense), net
    
    
    (27,786
    )
    
    
    (31,078
    )Income tax provision
    
    
    (1,230
    )
    
    
    Loss from continuing operations
    
    $
    (26,232
    )
    
    $
    (240
    )
  F - 13




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##### Table of Contents



NOTE 5. FIXED ASSETS AND ASSET RETIREMENT OBLIGATIONS
  December 31,($ in thousands)
    
    2006
    
    
    2005Land
    
    $
    853
    
    
    $
    327Plant
    
    
    81,485
    
    
    
    63,718Gathering and pipeline
    
    
    433,779
    
    
    
    345,296Equipment and machinery
    
    
    37,185
    
    
    
    24,386Vehicles and transportation equipment
    
    
    2,740
    
    
    
    1,970Office equipment, furniture, and fixtures
    
    
    511
    
    
    
    133Computer equipment and software
    
    
    4,623
    
    
    
    508Corporate
    
    
    126
    
    
    
    126Linefill
    
    
    3,923
    
    
    
    3,674Construction in progress
    
    
    19,677
    
    
    
    4,888584,902
    
    
    
    445,025Less: accumulated depreciation
    
    
    (30,839
    )
    
    
    (3,438
    )Net fixed assets
    
    $
    554,063
    
    
    $
    441,588
  Asset Retirement Obligations Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No.
143 Accounting for Asset Retirement Obligations,
  ($ in thousands)Asset retirement obligations  January 1, 2005
    
    $
    Addition, primarily Panhandle acquisitions
    
    
    674Accretion expense
    
    
    5Asset retirement obligations  December 31, 2005
    
    
    679Additions for Brookeland and MGS acquisitions
    
    
    297Purchase price allocation adjustment on Panhandle assets
    
    
    698Additional liability on newly built assets
    
    
    17Accretion expense
    
    
    128Asset retirement obligations  December 31, 2006
    
    $
    1,819
  
 NOTE 6. LONG-TERM DEBT
  December 31,
    
    
    December 31,($ in thousands)
    
    2006
    
    
    2005Revolver
    
    $
    106,481
    
    
    $
    7,600Term loan
    
    
    299,250
    
    
    
    400,000Other
    
    
    
    
    
    
    866Total debt
    
    
    405,731
    
    
    
    408,466Less: current portion
    
    
    
    
    
    
    3,866Total long-term debt
    
    $
    405,731
    
    
    $
    404,600
 F - 14




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##### Table of Contents




    
    Adjusted EBITDA (as defined) to interest expense of not less than 2.0 to 1.0 through
December 31, 2006, and 2.50 to 1.0 thereafter; and
    
    Total consolidated funded debt to Adjusted EBITDA (as defined) of not more than 6.0 to
1.0 through December 31, 2006, and 5.0 to 1.0 thereafter and 5.25 to 1.0 for the three
quarters following a material acquisition;
    F - 15




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##### Table of Contents



Principal($ in thousands)
    
    Amount2007
    
    $
    02008
    
    
    02009
    
    
    02010
    
    
    02011
    
    
    405,731$
    405,731
  
 NOTE 7. MEMBERS EQUITY
    F - 16




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##### Table of Contents



NOTE 8. RELATED PARTY TRANSACTIONS
       
 NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
   F - 17




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##### Table of Contents



NOTE 10. RISK MANAGEMENT ACTIVITIES
  ($ in thousands)Fair ValueRoll Forward
    
    Expiration
    
    Notional
    
    Fixed
    
    December 31,Effective Date
    
    Date
    
    Amount
    
    Rate
    
    200601/03/2006
    
    
    01/03/2011
    
    
    $
    100,000,000
    
    
    
    4.9500
    %
    
    $
    (319
    )01/03/2006
    
    
    01/03/2011
    
    
    
    100,000,000
    
    
    
    4.9625
    
    
    
    (267
    )01/03/2006
    
    
    01/03/2011
    
    
    
    50,000,000
    
    
    
    4.8800
    
    
    
    (295
    )01/03/2006
    
    
    01/03/2011
    
    
    
    50,000,000
    
    
    
    4.8800
    
    
    
    (295
    )
    
    
    Over-the-counter NGL puts, costless collar and swap transactions for the sale of Mont
Belvieu gas liquids with a combined notional amount of 530,000 Bbls per month for a term
from January 2006 through December 2010;
    
    Condensate puts and costless collar transactions for the sale of West Texas
Intermediate crude oil with a combined notional amount of 250,000 Bbls per month for a term
from January 2006 through December 2010; and
    
    Natural gas calls for the sale of Henry Hub natural gas with a notional amount of
200,000 MMBtu per month for a term from January 2006 through December 2007.
  
    
    Costless collar transactions for West Texas Intermediate crude oil with a combined
notional amount of 50,000 Bbls per month for a term of October through December 2006; and,
60,000 Bbls per month for a term of January 2007 through December 2007.
    
    Fixed swap agreements to hedge WTS-WTI basis differential in amount of 20,000 Bbls per
month for a term of October-December 2006; and, 20,000 Bbls per month for a term of January
through December 2007.
    
    Natural gas fixed swap agreements to hedge short natural gas positions with a combined
notional amount of 100,000 MMBtu per month for the term of August 2006 through September
2006.
  F - 18




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##### Table of Contents



NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
 Litigation
 Insurance
  Regulatory Compliance
 Environmental
 Other Commitments and Contingencies
 F - 19




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##### Table of Contents



NOTE 12. SEGMENTS
   Southeast($ in millions)
    
    
    
    
    
    Texas andYear Ended December 31, 2006
    
    Panhandle
    
    Louisiana
    
    Corporate
    
    TotalSales to external customers
    
    $
    422.1
    
    
    $
    79.4
    
    
    $
    (23.1
    )(a)
    
    $
    478.4Interest expense and other financing costs
    
    
    
    
    
    
    
    
    
    
    28.6
    
    
    
    28.6Depreciation and amortization
    
    
    36.3
    
    
    
    5.9
    
    
    
    1.0
    
    
    
    43.2Segment profit (loss)(b)
    
    
    104.5
    
    
    
    19.4
    
    
    
    (23.1
    )
    
    
    100.8Capital expenditures
    
    
    12.2
    
    
    
    20.7
    
    
    
    5.5
    
    
    
    38.4Segment assets
    
    
    573.6
    
    
    
    148.9
    
    
    
    57.4
    
    
    
    779.9
 Southeast($ in millions)
    
    
    
    
    
    Texas andYear Ended December 31, 2005
    
    Panhandle
    
    Louisiana
    
    Corporate
    
    TotalSales to external customers
    
    $
    43.0
    
    
    $
    23.4
    
    
    $
    7.3
    (a)
    
    $
    73.7Interest expense and other financing costs
    
    
    
    
    
    
    
    
    
    
    4.0
    
    
    
    4.0Depreciation and amortization
    
    
    2.9
    
    
    
    1.0
    
    
    
    0.1
    
    
    
    4.1Segment profit (b)
    
    
    7.8
    
    
    
    3.3
    
    
    
    7.3
    
    
    
    18.4Capital expenditures
    
    
    
    
    
    
    4.1
    
    
    
    0.1
    
    
    
    4.2Segment assets
    
    
    525.4
    
    
    
    82.0
    
    
    
    93.3
    
    
    
    700.7
 Southeast($ in millions)
    
    
    
    
    
    Texas andYear Ended December 31, 2004
    
    Panhandle
    
    Louisiana
    
    Corporate
    
    TotalSales to external customers
    
    $
    
    
    
    $
    10.6
    
    
    $
    
    
    
    $
    10.6Interest expense and other financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    0.6Segment profit (b)
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    1.8Capital expenditures
    
    
    
    
    
    
    20.5
    
    
    
    
    
    
    
    20.5Segment assets
    
    
    
    
    
    
    19.7
    
    
    
    8.3
    
    
    
    28.0
 
 (a)
    
    Represents results of our derivatives activity.(b)
    
    Segment profit (loss) is defined as sales to external customers minus
cost of natural gas and natural gas liquids and other cost of sales.
Sales to external customers for the corporate column include the
impact of the risk management activities.  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,($ in millions)
    
    2006
    
    
    2005
    
    
    2004Segment profit
    
    $
    100.8
    
    
    $
    18.4
    
    
    $
    1.8Operations and maintenance
    
    
    (32.9
    )
    
    
    (2.9
    )
    
    
    General and administrative
    
    
    (13.2
    )
    
    
    (4.8
    )
    
    
    (2.4
    )
 F - 20




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##### Table of Contents



Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,($ in millions)
    
    2006
    
    
    2005
    
    
    2004Advisory termination fee
    
    
    (6.0
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    (43.2
    )
    
    
    (4.1
    )
    
    
    (0.6
    )Interest expense, net
    
    
    (27.6
    )
    
    
    (3.9
    )
    
    
    Provision for income taxes
    
    
    (1.2
    )
    
    
    
    
    
    
    (Loss) income from continuing operations
    
    $
    (23.3
    )
    
    $
    2.7
    
    
    $
    (1.2
    )
 
 NOTE 13. DISCONTINUED OPERATIONS
 2
 
 NOTE 14. EMPLOYEE BENEFIT PLAN
  
 NOTE 15. INCOME TAXES
    
 NOTE 16. EQUITY-BASED COMPENSATION
   Number of
    
    Weighted AverageRestricted
    
    Grant - Date FairUnits
    
    ValueOutstanding at beginning of period
    
    
    
    
    
    $
    0Granted
    
    
    124,250
    
    
    
    18.75Vested
    
    
    Forfeitures
    
    
    (1,800
    )
    
    
    18.75Outstanding at end of period
    
    
    122,450
    
    
    $
    18.75
 F - 21




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##### Table of Contents



NOTE 17. EARNINGS PER UNIT
     For the Year Ended December 31,($ in thousands)
    
    2006
    
    2005
    
    2004Net (loss) income:
    
    $
    (23,314
    )
    
    $
    2,750
    
    
    $
    20,982Net (loss) income allocated:Common units
    
    
    (15,229
    )
    
    
    2,667
    
    
    
    20,982Subordinated units
    
    
    (7,637
    )
    
    
    
    
    
    
    General partner units
    
    
    (448
    )
    
    
    83
    
    
    
    Weighted average unit outstanding during period:Common units
    
    
    12,123
    
    
    
    24,151
    
    
    
    24,151Subordinated units
    
    
    17,873
    
    
    
    
    
    
    
    General partner units
    
    
    557
    
    
    
    20
    
    
    
    Earnings Per Unit  continuing operations:Common units
    
    $
    (1.26
    )
    
    $
    0.11
    
    
    $
    (0.05
    )Subordinated units
    
    $
    (0.43
    )
    
    $
    
    
    
    $
    General partner units
    
    $
    (0.80
    )
    
    $
    4.06
    
    
    $
    (0.05
    )
 F - 22




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NOTE 18. SUBSEQUENT EVENTS
       F - 23




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 F-24




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##### Table of Contents



ONEOK TEXAS FIELD SERVICES, L.P.
 
 BALANCE SHEETS
 As of December 31, 2004 and November 30, 2005
 December 31,
    
    
    November 30,2004
    
    
    2005ASSETSCURRENT ASSETS:Trade accounts receivable  net
    
    $
    30,923,722
    
    
    $
    57,504,280Other current assets
    
    
    103,583
    
    
    
    72,638Total current assets
    
    
    31,027,305
    
    
    
    57,576,918PROPERTY, PLANT, AND EQUIPMENT
    
    
    277,416,065
    
    
    
    283,937,499Less accumulated depreciation and amortization
    
    
    (33,476,890
    )
    
    
    (41,450,158
    )Property, plant, and equipment  net
    
    
    243,939,175
    
    
    
    242,487,341GOODWILL
    
    
    18,739,673
    
    
    
    18,739,673AMOUNT DUE FROM AFFILIATES  Net
    
    
    10,911,596
    
    
    
    57,543,486INVESTMENTS AND OTHER
    
    
    13,172
    
    
    
    99,845TOTAL ASSETS
    
    $
    304,630,921
    
    
    $
    376,447,263LIABILITIES AND PARTNERSHIP CAPITALCURRENT LIABILITIES:Accounts payable
    
    $
    28,050,478
    
    
    $
    44,846,894Accrued taxes
    
    
    227,865
    
    
    
    8,371,637Merger consideration earnest money
    
    
    
    
    
    
    15,000,000Other current liabilities
    
    
    158,364
    
    
    
    966,197Total current liabilities
    
    
    28,436,707
    
    
    
    69,184,728DEFERRED INCOME TAXES
    
    
    70,226,307
    
    
    
    71,785,476OTHER DEFERRED CREDITS
    
    
    1,623,828
    
    
    
    1,769,464Total liabilities
    
    
    100,286,842
    
    
    
    142,739,668COMMITMENTS AND CONTINGENCIES (Note 6)PARTNERSHIP CAPITAL
    
    
    204,344,079
    
    
    
    233,707,595TOTAL LIABILITIES AND PARTNERSHIP CAPITAL
    
    $
    304,630,921
    
    
    $
    376,447,263
  F-25




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##### Table of Contents



ONEOK TEXAS FIELD SERVICES, L.P.
 
 STATEMENTS OF OPERATIONS
 For the Years Ended December 31, 2003 and 2004 and for the
Eleven-Month Period Ended November 30, 2005
 Period EndedYears Ended December 31,
    
    
    November 30,2003
    
    
    2004
    
    
    2005REVENUES
    
    $
    297,289,534
    
    
    $
    335,518,977
    
    
    $
    396,953,100COSTS AND EXPENSES:Cost of natural gas and natural gas liquids
    
    
    249,283,649
    
    
    
    263,840,261
    
    
    
    316,978,910Operations and maintenance
    
    
    22,394,552
    
    
    
    25,218,165
    
    
    
    25,326,379Depreciation and amortization
    
    
    7,187,244
    
    
    
    8,267,893
    
    
    
    8,157,159Ad valorem taxes
    
    
    1,509,920
    
    
    
    2,208,776
    
    
    
    2,192,117Total costs and expenses
    
    
    280,375,365
    
    
    
    299,535,095
    
    
    
    352,654,565OPERATING INCOME
    
    
    16,914,169
    
    
    
    35,983,882
    
    
    
    44,298,535OTHER INCOME:Other income  net
    
    
    51,752
    
    
    
    23,145
    
    
    
    17,312Interest income
    
    
    189,598
    
    
    
    645,329
    
    
    
    858,793Total other income
    
    
    241,350
    
    
    
    668,474
    
    
    
    876,105INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
    
    
    17,155,519
    
    
    
    36,652,356
    
    
    
    45,174,640INCOME TAX PROVISION
    
    
    6,071,125
    
    
    
    12,730,580
    
    
    
    15,811,124INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE
    
    
    11,084,394
    
    
    
    23,921,776
    
    
    
    29,363,516CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE  Net of tax
    
    
    227,083
    
    
    
    
    
    
    
    NET INCOME
    
    $
    10,857,311
    
    
    $
    23,921,776
    
    
    $
    29,363,516
  F-26




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##### Table of Contents



ONEOK TEXAS FIELD SERVICES, L.P.
 
 STATEMENTS OF PARTNERSHIP CAPITAL
 For the Years Ended December 31, 2003 and 2004 and for the
Eleven-Month Period Ended November 30, 2005
 Period EndedYears Ended December 31,
    
    
    November 30,2003
    
    
    2004
    
    
    2005PARTNERSHIP CAPITAL  Beginning of period
    
    $
    169,564,992
    
    
    $
    180,422,303
    
    
    $
    204,344,079NET INCOME
    
    
    10,857,311
    
    
    
    23,921,776
    
    
    
    29,363,516PARTNERSHIP CAPITAL  End of period
    
    $
    180,422,303
    
    
    $
    204,344,079
    
    
    $
    233,707,595
  F-27




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##### Table of Contents



ONEOK TEXAS FIELD SERVICES, L.P.
 
 STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003 and 2004 and for the
Eleven-Month Period Ended November 30, 2005
 Period EndedYears Ended December 31,
    
    
    November 30,2003
    
    
    2004
    
    
    2005OPERATING ACTIVITIES:Net income
    
    $
    10,857,311
    
    
    $
    23,921,776
    
    
    $
    29,363,516Adjustments to reconcile net income to net cash provided
by operating activities Depreciation and amortization
    
    
    7,187,244
    
    
    
    8,267,893
    
    
    
    8,157,159Provision for deferred income taxes
    
    
    10,942,967
    
    
    
    7,325,058
    
    
    
    1,559,008Changes in assets and liabilities:Accounts receivable and other current assets
    
    
    (23,791,047
    )
    
    
    (30,904,634
    )
    
    
    (56,598,772
    )Accounts payable and accrued liabilities
    
    
    21,363,098
    
    
    
    34,705,323
    
    
    
    64,320,201Other assets and liabilities
    
    
    5,659,611
    
    
    
    (1,502,400
    )
    
    
    801,622Net cash provided by operating activities
    
    
    32,219,184
    
    
    
    41,813,016
    
    
    
    47,602,734INVESTING ACTIVITIES:Capital expenditures
    
    
    (5,203,298
    )
    
    
    (5,567,410
    )
    
    
    (6,705,325
    )Other investing activities
    
    
    
    
    
    
    
    
    
    
    (2,281
    )Net cash used in investing activities
    
    
    (5,203,298
    )
    
    
    (5,567,410
    )
    
    
    (6,707,606
    )FINANCING ACTIVITIES  Increase in amounts due from parent
    
    
    (27,015,886
    )
    
    
    (36,245,606
    )
    
    
    (40,895,128
    )CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS  End of period
    
    
    
    
    
    
    
    
    
    
    
  F-28




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##### Table of Contents



ONEOK TEXAS FIELD SERVICES, L.P.
 
 NOTES TO FINANCIAL STATEMENTS
 For the Years Ended December 31, 2003 and 2004, and for the
Eleven-Month Period Ended November 30, 2005
 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
  2. SUMMARY OF ACCOUNTING POLICIES
 Critical Accounting Policies
 Derivatives and Risk Management Activities
 Impairment of Goodwill and Long-Lived Assets Goodwill and Other
Intangible Assets.
 Accounting for the
Impairment or Disposal of Long-Lived Assets.
  
    
    a significant decrease in the market price of a long-lived asset or asset group;
    
    a significant adverse change in the extent or manner in which a long-lived asset or asset
group is being used or in its physical condition;
    
    a significant adverse change in legal factors or in the business climate that could
affect the value of a long-lived asset or asset group, including an adverse action or
assessment by a regulator that would exclude allowable costs from the rate-making process;
    
    an accumulation of costs significantly in excess of the amount originally expected for
the acquisition or construction of a long-lived asset or asset group;
    
    a current-period operating cash flow loss combined with a history of operating cash flow
losses or a projection or forecast that demonstrates continuing losses associated with the
use of a long-lived asset or asset group; and
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##### Table of Contents




    
    a current expectation that, more likely than not, a long-lived asset or asset group will
be sold or otherwise disposed of significantly before the end of its previously estimated
useful life;
 Pension and Postretirement Employee Benefits
 Contingencies Accounting for Contingencies.
 Significant Accounting Policies
 Cash and Cash Equivalents
 Property, Plant, and Equipment
 Pipeline and equipment
    
    33 yearsGas processing and equipment
    
    25 yearsOffice furniture and equipment
    
    20 years
  Revenue Recognition
 
    
    Keep-Whole We extract NGLs and return to the producer volumes of merchantable natural
gas containing the same amount of BTUs as the raw natural gas that the producer delivered to
us. We then sell the natural gas liquids to an affiliate.
    
    Percent of Proceeds We retain a percentage of the NGLs and/or a percentage of the
natural gas as payment for gathering, compressing and processing the producers raw natural
gas. Both the natural gas and natural gas liquids are sold to affiliates.
    
    Fee We are paid a fee for the services provided such as BTUs gathered, compressed,
treated and/or processed.
 Income Taxes
 Asset Retirement Obligations Accounting for
Asset Retirement Obligations.
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Use of Estimates
  Allocated Expenses
 
    
    Officer and employee salaries
    
    Rent or depreciation
    
    Advertising
    
    Accounting, tax, and legal services
    
    Other selling, general and administrative expenses
    
    Costs for pension, medical, postretirement, and other employee benefits
 Environmental Expenditures
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##### Table of Contents



3. PROPERTY, PLANT, AND EQUIPMENT
  As of
    
    
    As ofDecember 31
    
    
    November 30,2004
    
    
    2005Land and buildings
    
    $
    101,587
    
    
    $
    101,587Pipelines and related assets
    
    
    272,878,005
    
    
    
    277,318,829Office equipment, furniture, and fixtures
    
    
    1,783
    
    
    
    127,044Constructions in progress
    
    
    3,418,233
    
    
    
    5,404,689Other
    
    
    1,016,457
    
    
    
    985,350Total
    
    
    277,416,065
    
    
    
    283,937,499Less accumulated depreciation
    
    
    (33,476,890
    )
    
    
    (41,450,158
    )Net
    
    $
    243,939,175
    
    
    $
    242,487,341
 4. RELATED-PARTY TRANSACTIONS
   5. FAIR VALUE OF FINANCIAL INSTRUMENTS
  6. COMMITMENTS AND CONTINGENCIES
 Leases
  Environmental
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##### Table of Contents



Other
 Regulatory Compliance
 7. INCOME TAXES
  Period EndedYears Ended December 31,
    
    
    November 30,2003
    
    
    2004
    
    
    2005Current income taxes (benefit)
    
    $
    (4,871,842
    )
    
    $
    5,405,522
    
    
    $
    14,252,116Deferred income taxes
    
    
    10,942,967
    
    
    
    7,325,058
    
    
    
    1,559,008Total provision for income taxes before cumulative effect of change in
accounting principle
    
    
    6,071,125
    
    
    
    12,730,580
    
    
    
    15,811,124Tax benefit related to cumulative effect of change in accounting principle
    
    
    (122,275
    )
    
    
    
    
    
    
    Total provision for income taxes
    
    $
    5,948,850
    
    
    $
    12,730,580
    
    
    $
    15,811,124
  Period EndedYears Ended December 31,
    
    
    November 30,2003
    
    
    2004
    
    
    2005Pretax income
    
    $
    17,155,519
    
    
    $
    36,652,356
    
    
    $
    45,174,640Federal statutory income tax rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Provision for federal income taxes at statutory rate
    
    
    6,004,432
    
    
    
    12,828,325
    
    
    
    15,811,124Other  net
    
    
    66,693
    
    
    
    (97,745
    )
    
    
    Income tax provision before cumulative effect of
change in accounting principle
    
    $
    6,071,125
    
    
    $
    12,730,580
    
    
    $
    15,811,124
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December 31,
    
    
    November 30,2004
    
    
    2005DEFERRED TAX ASSETS  Other accrued liabilities
    
    $
    212,580
    
    
    $
    254,919Deferred tax liabilities:Excess of tax over book depreciation and depletion
    
    
    70,377,637
    
    
    
    71,984,249Other
    
    
    61,250
    
    
    
    56,146Total deferred tax liabilities
    
    
    70,438,887
    
    
    
    72,040,395Net deferred tax liabilities
    
    $
    70,226,307
    
    
    $
    71,785,476
 8. EMPLOYEE BENEFIT PLANS
 Employee Benefit Plans
 Retirement Plans
 Other Postretirement Benefit Plans
 Thrift Plan
 Profit Sharing Plan
 9. SUBSEQUENT EVENT
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Index to Exhibits
 Exhibit Number
    
    Description3.1
    
    Certificate of Limited Partnership of Eagle Rock Energy Partners, L.P. (incorporated by reference
to Exhibit 3.1 of the registrants registration statement on Form S-1 (File No. 333-134750))3.2
    
    Amended and Restated Agreement of Limited Partnership of Eagle Rock Energy Partners, L.P.
(included as Appendix A to the Prospectus and including specimen unit certificate for the common
units) (incorporated by reference to Exhibit 3.2 of the registrants registration statement on Form
S-1 (File No. 333-134750))3.3
    
    Certificate of Limited Partnership of Eagle Rock Energy GP, L.P. (incorporated by reference to
Exhibit 3.3 of the registrants registration statement on Form S-1 (File No. 333-134750))3.4
    
    Limited Partnership Agreement of Eagle Rock Energy GP, L.P. (incorporated by reference to
Exhibit 3.4 of the registrants registration statement on Form S-1 (File No. 333-134750))3.5
    
    Certificate of Formation of Eagle Rock Energy G&P, LLC (incorporated by reference to Exhibit
3.5 of the registrants registration statement on Form S-1 (File No. 333-134750))3.6
    
    Amended and Restated Limited Liability Company Agreement of Eagle Rock Energy G&P, LLC
(incorporated by reference to Exhibit 3.6 of the registrants registration statement on Form S-1
(File No. 333-134750))4.1
    
    Registration Rights Agreement dated March 27, 2006, among Eagle Rock Pipeline, L.P. and the
Purchasers listed thereto (incorporated by reference to Exhibit 4.1 of the registrants registration
statement on Form S-1 (File No. 333-134750))4.2
    
    Tag Along Agreement dated March 27, 2006, among Eagle Rock Pipeline, L.P., Eagle Rock
Pipeline GP, LLC, Eagle Rock Holdings, L.P. and the Purchasers listed thereto.
(incorporated by reference to Exhibit 4.2 of the registrants registration statement
on Form S-1 (File No. 333-134750))4.3
    
    Form of Registration Rights Agreement between Eagle Rock Energy Partners, L.P. and Eagle
Rock Holdings, L.P. (incorporated by reference to Exhibit 4.3 of the registrants registration
statement on Form S-1 (File No. 333-134750))4.4
    
    Form of Common Unit Certificate (included as Exhibit A to the Amended and Restated
Partnership Agreement of Eagle Rock Energy Partners, L.P., which is included as Appendix A to
the Prospectus) (incorporated by reference to Exhibit 3.2 of the registrants registration statement
on Form S-1 (File No. 333-134750))10.1
    
    Amended and Restated Credit and Guaranty Agreement (incorporated by reference to Exhibit 3.1
of the registrants registration statement on Form S-1 (File No. 333-134750))10.2
    
    Form of Omnibus Agreement (incorporated by reference to Exhibit 3.1 of the registrants
registration statement on Form S-1 (File No. 333-134750))10.3**
    
    Form of Eagle Rock Energy Partners, L.P. Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.3 of the registrants registration statement on Form S-1 (File No. 333-134750))10.4
    
    Sale, Contribution and Exchange Agreement by and among the general and limited partners of
Midstream Gas Services, L.P., Eagle Rock Energy Services, L.P. and Eagle Rock Pipeline,
L.P. (incorporated by reference to Exhibit 10.4 of the registrants registration statement
on Form S-1
(File No. 333-134750))10.5
    
    Natural Gas Liquids Exchange Agreement by and between ONEOK Hydrocarbon, L.P. and
ONEOK Texas Field Services, L.P. (incorporated by reference to Exhibit 10.5 of the registrants
registration statement on Form S-1 (File No. 333-134750))10.6
    
    Gas Sales and Purchase Agreement between MC Panhandle, Inc. (Chesapeake Energy Marketing
Inc.) and MidCon Gas Services Corp. (Eagle Rock Field Services, L.P.) (incorporated by
reference
to Exhibit 10.6 of the registrants registration statement on Form S-1 (File No.
333-134750))10.7
    
    Brookeland Gas Facilities Gas Gathering and Processing Agreement between Union Pacific
Resources Company (Anadarko E&P Company LP) and Sonat Exploration Company (Eagle Rock
Field Services, L.P.) (incorporated by reference to Exhibit 10.7 of the registrants registration
statement on Form S-1 (File No. 333-134750))10.8
    
    Minimum Volume Agreement between ONEOK Texas Field Services L.P. and Peak Operating of
Texas, LLC (incorporated by reference to Exhibit 10.8 of the registrants registration statement on
Form S-1 (File No. 333-134750))10.9
    
    Gas Purchase Agreement between ONEOK Texas Field Services L.P. and Peak Operating of
Texas, LLC (incorporated by reference to Exhibit 10.9 of the registrants registration statement on
Form S-1 (File No. 333-134750))
 6




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##### Table of Contents



Exhibit Number
    
    Description10.10
    
    Gas Purchase Contract between Warren Petroleum Company (Eagle Rock Field Services, L.P.)
and Wallace Oil & Gas, Inc. (Cimarex Energy Co.) (incorporated by reference to Exhibit 10.10 of
the registrants registration statement on Form S-1 (File No. 333-134750))10.11
    
    Form of Contribution, Conveyance and Assumption Agreement (incorporated by reference to
Exhibit 10.11 of the registrants registration statement on Form S-1 (File No. 333-134750))10.12**
    
    Employment Agreement dated August 2, 2006 between Eagle Rock Energy G&P, LLC and
Richard W. FitzGerald (incorporated by reference to Exhibit 10.12 of the registrants registration
statement on Form S-1 (File No. 333-134750))10.13
    
    Base Contract for Sale and Purchase of Natural Gas between Eagle Rock Field Services, L.P. and
Odyssey Energy Services, LLC (incorporated by reference to Exhibit 10.13 of the registrants
registration statement on Form S-1 (File No. 333-134750))14.1
    
    Code of Ethics posted on the Companys website at www.eaglerockenergy.com.21.1
    
    List of Subsidiaries of Eagle Rock Energy Partners, L.P. (incorporated by reference to Exhibit
21.1 of the registrants registration statement on Form S-1 (File No. 333-134750))23.1*
    
    Consent of Deloitte & Touche LLP24.1*
    
    Powers of Attorney (included on page 5 of the 10-K/A)31.1*
    
    Certification of Periodic Financial Reports by Joseph A. Mills in satisfaction of Section
302 of the Sarbanes-Oxley Act of 200231.2*
    
    Certification of Periodic Financial Reports by Alfredo Garcia in satisfaction of Section 302
of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Periodic Financial Reports by Joseph A. Mills in satisfaction of Section
906 of the Sarbanes-Oxley Act of 200232.2*
    
    Certification of Periodic Financial Reports by Alfredo Garcia in satisfaction of Section 906
of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith**
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit
hereto.
    
    Portions of this exhibit have been omitted pursuant to a request for confidential treatment. 7