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EAGLE ROCK ENERGY GP, L.P.
 INDEX
 PageUnaudited Condensed Consolidated Balance Sheet as of June 30, 2007
    
    
    1Notes to the Unaudited Condensed Consolidated Balance Sheet
    
    
    2Note 1. Organization and Description of Business
    
    
    2Note 2. Summary of Significant Accounting Policies
    
    
    2Note 3. New Accounting Pronouncements
    
    
    5Note 4. Acquisitions
    
    
    5Note 5. Fixed Assets and Asset Retirement Obligations
    
    
    6Note 6. Long-Term Debt
    
    
    7Note 7. Minority Interest
    
    
    9Note 8. Members Deficit
    
    
    9Note 9. Related Party Transactions
    
    
    10Note 10. Fair Value of Financial Instruments
    
    
    10Note 11. Risk Management Activities
    
    
    11Note 12. Commitments and Contingent Liabilities
    
    
    12Note 13. Segments
    
    
    12Note 14. Income Taxes
    
    
    13Note 15. Equity-Based Compensation
    
    
    13Note 16. Subsequent Events
    
    
    14
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##### Table of Contents



EAGLE ROCK ENERGY GP, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2007
 June 30,2007($ in thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,296Cash advances to affiliates
    
    
    10,665Accounts receivable
    
    
    106,034Risk management assets
    
    
    Prepayments and other current assets
    
    
    1,626Total current assets
    
    
    120,621PROPERTY, PLANT AND EQUIPMENT  Net
    
    
    832,857INTANGIBLE ASSETS  Net
    
    
    155,670RISK MANAGEMENT ASSETS
    
    
    20,700OTHER ASSETS
    
    
    12,076TOTAL
    
    $
    1,141,924LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    111,518Accrued liabilities
    
    
    15,099Risk management liabilities
    
    
    7,802Total current liabilities
    
    
    134,419LONG-TERM DEBT
    
    
    422,131ASSET RETIREMENT OBLIGATIONS
    
    
    1,947DEFERRED STATE TAX LIABILITY
    
    
    1,822RISK MANAGEMENT LIABILITIES
    
    
    38,526OTHER
    
    
    145COMMITMENTS AND CONTINGENCIESMINORITY INTEREST
    
    
    544,605MEMBERS DEFICIT
    
    
    (1,671
    )TOTAL
    
    $
    1,141,924




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EAGLE ROCK ENERGY GP, L.P.
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
 
 NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
 Organization
 1.16
 Midstream Operations
 Upstream Operations
 Basis of Presentation and Principles of Consolidation
 
 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Use of Estimates
 Interim Condensed Disclosures
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Cash and Cash Equivalents
 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.
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Intangible Assets
 June 30,($ in thousands)
    
    2007Rights-of-way and easements  at cost
    
    $
    68,550Less: accumulated amortization
    
    
    (5,208
    )Contracts
    
    
    112,421Less: accumulated amortization
    
    
    (20,093
    )Net intangible assets
    
    $
    155,670
  Other Assets
 Transportation and Exchange Imbalances
 Environmental Expenditures
 Income Taxes
 Derivatives Accounting for
Derivative Instruments and Hedging Activities,
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NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Certain Hybrid Financial Instruments Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities,
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
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NOTE 4. ACQUISITIONS
  Financial Statements of Oil and Gas Exchange Offers
   ($ in thousands)Oil and gas properties
    
    $
    132,414Working capital, net
    
    
    4,551Equity investments in non-affiliates
    
    
    3,459$
    140,424
   ($ in thousands)Property, plant and equipment
    
    $
    107,183Intangibles
    
    
    32,210Working capital, net
    
    
    3,977$
    143,370
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NOTE 5. FIXED ASSETS AND ASSET RETIREMENT OBLIGATIONS
  June 30,($ in thousands)
    
    2007Land
    
    $
    1,064Plant
    
    
    112,463Gathering and pipeline
    
    
    540,401Equipment and machinery
    
    
    46,391Vehicles and transportation equipment
    
    
    3,422Office equipment, furniture, and fixtures
    
    
    1,079Computer equipment
    
    
    4,628Corporate
    
    
    126Linefill
    
    
    4,157Proved properties
    
    
    91,278Unproved properties
    
    
    60,069Construction in progress
    
    
    17,768882,846Less: accumulated depletion, depreciation and amortization
    
    
    (49,989
    )Net fixed assets
    
    $
    832,857
 Asset Retirement Obligations
  ($ in thousands)Asset retirement obligations  December 31, 2006
    
    $
    1,819Additional liability on newly built assets
    
    
    49Accretion expense
    
    
    79Asset retirement obligations  June 30, 2007
    
    $
    1,947
 
 NOTE 6. LONG-TERM DEBT
  June 30,($ in thousands)
    
    2007Revolver
    
    $
    122,881Term loan
    
    
    299,250Total debt
    
    
    422,131Less: current portion
    
    
    Total long-term debt
    
    $
    422,131
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
    
    Adjusted EBITDA (as defined) to interest expense of not less than 2.5 to 1.0; and
    
    Total consolidated funded debt to Adjusted EBITDA (as defined) of not more than 5.0 to
1.0 and 5.25 to 1.0 for the three quarters following a material acquisition.
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Principal($ in thousands)
    
    Amount2007
    
    $
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    422,131$
    422,131
  
 NOTE 7. MINORITY INTEREST
  Limited partners of Eagle Rock Energy Partners, L.P.:Non-affiliates of Eagle Rock Energy GP, L.P.
    
    $
    395,981Affiliates of Eagle Rock Energy GP, L.P.
    
    
    148,624$
    544,605
 
 NOTE 8. MEMBERS DEFICIT
 1.16
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NOTE 9. RELATED PARTY TRANSACTIONS
        
 NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
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NOTE 11. RISK MANAGEMENT ACTIVITIES
  ($ in thousands)Fair ValueRoll Forward
    
    Expiration
    
    Notional
    
    Fixed
    
    June 30,Effective Date
    
    Date
    
    Amount
    
    Rate
    
    200701/03/2006
    
    
    01/03/2011
    
    
    $
    100,000,000
    
    
    
    4.9500
    %
    
    $
    1,96101/03/2006
    
    
    01/03/2011
    
    
    
    100,000,000
    
    
    
    4.9625
    
    
    
    1,90601/03/2006
    
    
    01/03/2011
    
    
    
    50,000,000
    
    
    
    4.8800
    
    
    
    1,09101/03/2006
    
    
    01/03/2011
    
    
    
    50,000,000
    
    
    
    4.8800
    
    
    
    1,091
    
    
    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;
    
    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; and
    
    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.
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NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
 Litigation
 Insurance
  Regulatory Compliance
 Environmental
 Other Commitments and Contingencies
 
 NOTE 13. SEGMENTS
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Midstream Segment
 (i)
    
    gathering, processing, transportation and marketing of natural gas in the Texas
Panhandle System;(ii)
    
    gathering, processing, transportation and marketing of natural gas in the south Texas
System;(iii)
    
    gathering, processing and marketing of natural gas and related NGL transportation in
the southeast Texas and Louisiana System;
 Upstream Segment
 (iv)
    
    crude oil and natural gas production (fee minerals, royalties and non-operated working
interest ownership, lease bonus and rental income and equity income in non-affiliates); and
 Corporate Segment
 (v)
    
    risk management and other corporate activities.
  ($ in millions)
    
    
    
    
    
    
    
    
    
    Southeast Texas andThree months ended June 30, 2007
    
    Panhandle
    
    South Texas
    
    Louisiana
    
    Upstream
    
    Corporate
    
    TotalSegment assets
    
    $
    581.8
    
    
    $
    75.5
    
    
    $
    277.7
    
    
    $
    162.2
    
    
    $
    44.7
    
    
    $
    1,141.9
 
 NOTE 14. INCOME TAXES
    
 NOTE 15. EQUITY-BASED COMPENSATION
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Number of Restricted
    
    Weighted AverageUnits
    

Fair ValueOutstanding at December 31, 2006
    
    
    122,450
    
    
    $
    18.75Granted
    
    
    345,271
    
    
    $
    23.35Vested
    
    
    Forfeitures
    
    
    (17,700
    )
    
    $
    21.45Outstanding at June 30, 2007
    
    
    450,021
    
    
    $
    22.22
 
 NOTE 16. SUBSEQUENT EVENTS
        14