**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

**For the Quarterly Period Ended March 31, 2007**

**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 Numbers:  001-33078**

**UNIVERSAL COMPRESSION PARTNERS, L.P.**

(Exactname of registrant as specified in its charter)

| **DELAWARE**                    |   | **22-3935108**      |
|---------------------------------|--------|---------------------|
| (State or Other Jurisdiction of |   | (I.R.S. Employer    |
| Incorporation or Organization)  |   | Identification No.) |

 

| **4444 BRITTMOORE ROAD**                 |   | ** ** |
|------------------------------------------|--------|------------|
| **HOUSTON, TEXAS**                       |   | **77041**  |
| (Address of Principal Executive Offices) |   | (Zip Code) |

 

**(713)335-7000**

(Registrant’stelephone number, including area code)

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.   Yes  x   No  o

Indicate by check mark whetherthe registrant is a large accelerated filer, accelerated filer, ornon-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

| Large Accelerated Filer o |   | Accelerated Filer o |   | Non-Accelerated Filer x |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).   Yes  o   No  x

As of May 7, 2007, there were 6,325,000 common units and6,325,000 subordinated units outstanding.

 

----

**PART I. FINANCIAL INFORMATION**

**ITEM 1. Financial Statements**

**UNIVERSAL COMPRESSION PARTNERS,L.P.CONSOLIDATED BALANCE SHEETS(In thousands)(unaudited)**
| ** **                                                                                                                     | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                     |       |                         |       |                            |       |
| Current assets:                                                                                                                |       |                         |       |                            |       |
| Cash and cash  equivalents                                                                                                     |       | $                            | 1,470      |                            | $          | 2,430 |   |
| Accounts  receivable, net of allowance for bad debts of $20 and zero as of March 31,  2007 and December 31, 2006, respectively |       | 3,100                        |       | 5,676                           |       |
| Accounts  receivable, affiliate                                                                                                |       | 17,588                       |       | 4,732                           |       |
| Total current  assets                                                                                                          |       | 22,158                       |       | 12,838                          |       |
| Contract compression  equipment                                                                                                |       | 200,709                      |       | 193,957                         |       |
| Accumulated  depreciation                                                                                                      |       | (43,078                      | )          | (40,759                         | )          |
| Net property and  equipment                                                                                                    |       | 157,631                      |       | 153,198                         |       |
| Goodwill                                                                                                                       |       | 36,549                       |       | 36,549                          |       |
| Other assets                                                                                                                   |       | 1,020                        |       | 1,076                           |       |
| Total assets                                                                                                                   |       | $                            | 217,358    |                            | $          | 203,661 |   |
| **LIABILITIES  AND PARTNERS’ CAPITAL**                                                                                    |       |                         |       |                            |       |
| Current liabilities:                                                                                                           |       |                         |       |                            |       |
| Accounts  payable, trade                                                                                                       |       | $                            | 446        |                            | $          | 1,641 |   |
| Accounts  payable, affiliate                                                                                                   |       | 17,170                       |       | 5,204                           |       |
| Accrued  liabilities                                                                                                           |       | 937                          |       | 234                             |       |
| Accrued interest                                                                                                               |       | 665                          |       | 597                             |       |
| Total current  liabilities                                                                                                     |       | 19,218                       |       | 7,676                           |       |
| Long-term debt                                                                                                                 |       | 125,000                      |       | 125,000                         |       |
| Derivative financial  instrument                                                                                               |       | 2,076                        |       | 1,528                           |       |
| Total  liabilities                                                                                                             |       | 146,294                      |       | 134,204                         |       |
| Commitments and  contingencies (Note 9)                                                                                        |       |                         |       |                            |       |
| Partners’ capital:                                                                                                        |       |                         |       |                            |       |
| Common units                                                                                                                   |       | 122,121                      |       | 122,142                         |       |
| Subordinated  units                                                                                                            |       | (55,330                      | )          | (57,468                         | )          |
| General partner  units                                                                                                         |       | 5,535                        |       | 5,496                           |       |
| Accumulated  other comprehensive loss                                                                                          |       | (1,262                       | )          | (713                            | )          |
| Total partners’  capital                                                                                                  |       | 71,064                       |       | 69,457                          |       |
| Total liabilities and  partners’ capital                                                                                  |       | $                            | 217,358    |                            | $          | 203,661 |   |

 

See accompanying notes tounaudited consolidated financial statements.

2

----

**UNIVERSALCOMPRESSION PARTNERS, L.P.CONSOLIDATED STATEMENT OF OPERATIONS(In thousands, except per unit amounts)(unaudited)**
| ** **                                                  | ** ** | **Three Months** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                  | ** ** | **Ended**             | ** ** |
| ** **                                                  | ** ** | **March 31,**    | ** ** |
| ** **                                                  | ** ** | **2007**              | ** ** |
|                                                        |       |                  |       |
| Revenue                                                     |       | $                     | 17,585     |   |
| Costs and expenses:                                         |       |                  |       |
| Cost of sales  (excluding depreciation expense)             |       | 7,018                 |       |
| Depreciation                                                |       | 2,782                 |       |
| Selling, general  and administrative expenses               |       | 3,259                 |       |
| Interest  expense, net                                      |       | 2,133                 |       |
| Other (income)  expense, net                                |       | (6                    | )          |
| Total costs and  expenses                                   |       | 15,186                |       |
| Income before income  taxes                                 |       | 2,399                 |       |
| Income tax expense                                          |       | 56                    |       |
| Net income                                                  |       | $                     | 2,343      |   |
|                                                        |       |                  |       |
| General partner  interest in net income                     |       | $                     | 47         |   |
| Limited partner  interest in net income                     |       | $                     | 2,296      |   |
|                                                        |       |                  |       |
| Weighted average  limited partners’ units outstanding: |       |                  |       |
| Basic                                                       |       | 12,650                |       |
| Diluted                                                     |       | 12,671                |       |
|                                                        |       |                  |       |
| Earnings per limited partner  unit—Basic               |       | $                     | 0.18       |   |
| Earnings per limited partner unit—Diluted              |       | $                     | 0.18       |   |

 

See accompanying notes to unaudited consolidatedfinancial statements.

3

----

**UNIVERSALCOMPRESSION PARTNERS, L.P.CONSOLIDATED STATEMENT OF CASH FLOWS(In thousands)(unaudited)**
| ** **                                                                      | ** ** | **Three Months** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                      | ** ** | **Ended**             | ** ** |
| ** **                                                                      | ** ** | **March 31,**    | ** ** |
| ** **                                                                      | ** ** | **2007**              | ** ** |
| Cash flows from  operating activities:                                          |       |                  |       |
| Net income                                                                      |       | $                     | 2,343      |   |
| Adjustments to  reconcile net income to cash provided by operating activities:  |       |                  |       |
| Depreciation                                                                    |       | 2,782                 |       |
| Amortization of  debt issuance cost                                             |       | 56                    |       |
| Unit based  compensation expense                                                |       | 588                   |       |
| (Increase)  decrease in accounts receivable                                     |       | 2,576                 |       |
| Increase  (decrease) in accounts payable                                        |       | (1,195                | )          |
| Increase (decrease)  in accrued liabilities                                     |       | 771                   |       |
| Net cash  provided by operating activities                                      |       | 7,921                 |       |
| Cash flows from  investing activities:                                          |       |                  |       |
| Additions to  contract compression equipment                                    |       | (6,079                | )          |
| Net cash used in  investing activities                                          |       | (6,079                | )          |
| Cash flows from financing  activities:                                          |       |                  |       |
| Distribution to  unitholders                                                    |       | (3,585                | )          |
| (Increase)  decrease in net accounts receivable/accounts payable with affiliate |       | 783                   |       |
| Net cash used in  financing activities                                          |       | (2,802                | )          |
| Net decrease in cash  and cash equivalents                                      |       | (960                  | )          |
| Cash and cash  equivalents at beginning of period                               |       | 2,430                 |       |
| Cash and cash equivalents at end of period                                      |       | $                     | 1,470      |   |

 

See accompanying notes to unaudited consolidatedfinancial statements.

4

----

**UNIVERSALCOMPRESSION PARTNERS, L.P.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**1.****     Basis of Presentation**

UniversalCompression Partners, L.P. (the “Partnership”) is a publicly held Delawarelimited partnership formed on June 22, 2006, to acquire certain contractcompression customer service agreements and a related compressor fleet used toservice those customers from Universal Compression Partners Predecessor.  Universal Compression Partners Predecessor’soperations are owned by Universal Compression Holdings, Inc. and itssubsidiaries (“Universal Compression Holdings”).

These unauditedconsolidated financial statements should be read in conjunction with theconsolidated financial statements presented in the Partnership’s Annual Reporton Form 10-K for the period from June 22, 2006 through December 31, 2006. Thatreport contains a more comprehensive summary of the Partnership’s majoraccounting policies. In the opinion of management, the accompanying unauditedconsolidated financial statements contain all appropriate adjustments, all ofwhich are normally recurring adjustments unless otherwise noted, considerednecessary to present fairly the financial position of the Partnership and itsconsolidated subsidiaries and the results of operations and cash flows for therespective periods. Operating results for the three-month period ended March31, 2007 are not necessarily indicative of the results that may be expected forthe twelve months ending December 31, 2007.

Because thePartnership was formed on June 22, 2006, Consolidated Statement of Operationsand Consolidated Statement of Cash Flows are not presented for the three monthsended March 31, 2006. Financial statements and notes for Universal CompressionPartners Predecessor can be found elsewhere in this report.

*Goodwill*

The Partnership performs animpairment test for goodwill assets annually, or more often if indicators ofpotential impairment exist. The Partnership’s goodwill impairment test involvesa comparison of its reporting unit’s fair value with its carrying value. Thefair value is determined using discounted cash flows and other market-relatedvaluation models. Certain estimates and judgments are required in theapplication of the fair value models. As of February 2007, the Partnership performedits annual impairment analysis in accordance with the FinancialAccounting Standards Board’s (“FASB”) Statementof Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and OtherIntangible Assets,” and determined that no impairment had occurred.  Iffor any reason the fair value of the Partnership’s goodwill or that of itsreporting unit declines below the carrying value in the future, the Partnershipmay incur charges for the impairment.

*Unit-Based Compensation*

Effective June 22, 2006, the Partnershipadopted SFAS No. 123R, “Share-Based Payment,” which requires thatcompensation cost relating to share-based payment transactions be recognized inthe financial statements.  That cost willbe measured based on the fair value of the equity or liability instrumentsissued.

*Income Taxes*

As a partnership, all income, gains, losses, expenses,deductions and tax credits generated by the Partnership generally flow throughto the unitholders of the Partnership. However, Texas, through the recently enacted margin tax, imposes anentity-level income tax on partnerships.

In May 2006, the State of Texas enacted a margin taxthat will become effective for tax reports originally due on or after January1, 2008.  This margin tax requires thePartnership to pay a tax of 1.0% on its “margin,” as defined in the law, basedon 2007 results.  The margin tax base towhich the tax rate will be applied is either the lesser of 70% of our totalrevenues for federal income tax purposes or total revenue less cost of goodssold or compensation for federal income tax purposes.  For the three months ended March 31, 2007,the Partnership accrued $56,000 of Texas margin tax.

*SegmentReporting*

SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information,” established standards for entities toreport information about the operating segments and geographic areas in whichthey operate. The Partnership operates in only one segment and all of itsoperations are located in the United States.

5

----

*Earnings Per Limited Partner Unit*

The computation of earnings per limited partner unitis based on the weighted average number of common and subordinated unitsoutstanding during the applicable period. Basic earnings per limited partnerunit is determined by dividing net income, after deducting the amount allocatedto the general partner interest (including its incentive distribution in excessof its 2% interest), by the weighted average number of outstanding limitedpartner units during the period.

The only potentially dilutive securities issued by thePartnership are unit options and phantom units, neither of which would impactthe calculation of net income for dilutive earnings per unit purposes.  The dilutive effects of unit option and phantomunit grants outstanding for the three months ended March 31, 2007 were 21,000units.  For the three months ended March31, 2007, no unit options or phantom units were excluded from the computationof diluted earnings per unit.

**2. New AccountingPronouncements**

In June 2006, the FASB issued FASB Interpretation (“FIN”)No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109.”  FIN 48 was issued toclarify the accounting for uncertainty in income taxes recognized in an entity’sfinancial statements by prescribing a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return.  FIN 48 is effective for fiscal years beginningafter December 15, 2006.  The Partnershipadopted the provisions of FIN 48 on January 1, 2007.  The adoption of FIN 48 did not have an impacton its consolidated financial statements.

In June 2006, the FASB’s Emerging Issues Task Force (“EITF”)reached a consensus on Issue 06-3, “How Taxes Collected from Customers andRemitted to Governmental Authorities Should Be Presented in the IncomeStatement (That Is, Gross versus Net Presentation),” that concludes that thepresentation of taxes within EITF 06-3’s scope is an accounting policy decisionthat should be disclosed. If the taxes are reported on a gross basis, companiesare required to disclose the amounts of those taxes if such amounts are deemedsignificant. This pronouncement is effective for interim and annual reportingperiods beginning after December 15, 2006. The Partnership presents the taxes within the scope of EITF 06-3 on anet basis.  The adoption of EITF 06-3 didnot have an impact on the Partnership’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements,” which defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles and expandsdisclosures about fair value measurements. SFAS No. 157 is effective forfiscal years beginning after November 15, 2007. The Partnership iscurrently evaluating the impact that the adoption of SFAS No. 157 willhave on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities,” whichpermits entities to choose to measure many financial instruments and certainother items at fair value that are not currently required to be measured atfair value.  SFAS No. 159 will beeffective for the Partnership on January 1, 2008.  The Partnership is currently evaluating theimpact that the adoption of SFAS No. 159 will have on its consolidatd financialstatements.

**3. Related PartyTransactions**

Upon the closing of the Partnership’s initial publicoffering, it entered into an omnibus agreement (“Omnibus Agreement”) withUniversal Compression Holdings, its general partner and others. The OmnibusAgreement will terminate on a change of control of the Partnership’s generalpartner or the removal or withdrawal of its general partner, and certainprovisions will terminate upon a change of control of Universal CompressionHoldings (see Note 10).

Under the Omnibus Agreement, Universal CompressionHoldings agreed that, for a period that will terminate on December 31, 2008,the Partnership’s obligation to reimburse Universal Compression Holdings for(1) any cost of sales that it incurs in the operation of the Partnership’sbusiness will be capped at an amount equal to $16.95 per horsepower (aftertaking into account any such costs the Partnership incurs and pays directly) ona quarterly basis; and (2) any selling, general and administrative costsallocated to the Partnership will be capped at $2.5 million per quarter (aftertaking into account any such costs the Partnership incurs and pays directly).These caps may be subject to increases in connection with expansions of thePartnership’s operations through the acquisition or construction of new assetsor businesses.  For the three monthsended March 31, 2007, the Partnership’s cost of sales and selling, general andadministrative expense exceeded the caps by $1.4 million and $0.2 million,respectively.  The excess amounts overthe caps are being accounted for as a capital contribution.

The Partnership purchased $4.7 million of newcompression equipment from Universal Compression Holdings and UniversalCompression Holdings contributed $1.2 million of cost to overhaul compressionequipment to the Partnership during the three months ended March 31, 2007.  These costs relate to overhauls on equipmentthat was contributed to the Partnership by

6

----

Universal CompressionHoldings on the date of the Partnership’s initial public offering and where theoverhaul was in-progress on that date.

For the three months ended March 31, 2007, the Partnershiphad revenue and cost of sales with affiliates related to leases of compressionequipment of $0.1 million and $0.4 million, respectively.

**4. Long-Term Debt**

As of March 31, 2007, the Partnership had approximately $125.0 millionoutstanding under its $225 million revolving credit facility.  Covenants in the credit facilitiesrequire that the Partnership maintain various financial ratios.  As of March 31, 2007, the Partnership was incompliance with all financial covenants.

**5. CashDistributions**

On February 2, 2007, the board of directors ofthe Partnership’s general partner approved a cash distribution of $0.278 perunit, or $3.6 million.  The distributionfor the quarter ended December 31, 2006 was paid on February 14,2007, and reflects the pro rata portion of the quarterly distribution rate of$0.35, covering the period from the closing of the initial public offering,October 20, 2006, through December 31, 2006.

On April 30, 2007, the board of directors of thePartnership’s general partner approved a cash distribution of $0.35 per unit,or $4.5 million.  The distributionreflects the Partnership’s minimum quarterly distribution and covers the timeperiod from January 1, 2007 through March 31, 2007.  The record date for this distribution is May10, 2007 and payment is expected to occur on May 15, 2007.

**6. Unit-BasedCompensation**

The followingtable presents the unit-based compensation expense included in the Partnership’sresults of operations (in thousands):
| ** **                             | ** ** | **Three Months** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **Ended**             | ** ** |
| ** **                             | ** ** | **March 31,**    | ** ** |
| ** **                             | ** ** | **2007**              | ** ** |
| Unit options                           |       | $                     | 586        |   |
| Phantom units                          |       | 2                     |       |
| Total unit-based  compensation expense |       | $                     | 588        |   |

 

There was no unit-based compensation cost capitalizedduring the three months ended March 31, 2007. During the three months ended March 31, 2007, no unit options or phantomunits were granted, exercised or cancelled.

**7. Accounting for InterestRate Swap Agreements**

In accordance with SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities,” as amended, all derivativeinstruments must be recognized on the balance sheet at fair value, and changesin such fair values are recognized in earnings unless specific hedging criteriaare met. Changes in the values of derivatives that meet these hedging criteriawill ultimately offset related earnings effects of the hedged item pendingrecognition in earnings.

As of March 31, 2007, the Partnership had an interestrate swap agreement with a notional amount of $125.0 million related to thePartnership’s floating rate debt. The swap terminates in December 2011 and hasa weighted average fixed rate of 5.28%. The Partnership’s balance sheet at March 31, 2007 included a $2.1million derivative liability related to the interest rate swap agreement.  Because the terms of the hedged item and thisswap do not substantially coincide, the Partnership performs calculations todetermine if the swap agreement is still effective and to calculate anyineffectiveness.  As of March 31, 2007,this swap was considered effective and for the three months ended March 31,2007 there was no ineffectiveness.

7

----

**8. Comprehensive Income**

Comprehensive income consisted of the following (in thousands):
| ** **                     | ** ** | **Three Months** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **Ended**             | ** ** |
| ** **                     | ** ** | **March 31,**    | ** ** |
| ** **                     | ** ** | **2007**              | ** ** |
| Net income                     |       | $                     | 2,343      |   |
| Other comprehensive income:    |       |                  |       |
| Interest rate swap gain (loss) |       | (549                  | )          |
| Comprehensive  income          |       | $                     | 1,794      |   |

 

**9. Commitments andContingencies**

In the ordinary course of business, the Partnership isinvolved in various pending or threatened legal actions. In the opinion ofmanagement, the amount of ultimate liability, if any, with respect to theseactions will not have a material adverse effect on the Partnership’s financialposition, results of operations or cash flows, however, because of the inherentuncertainty of litigation, the Partnership cannot provide assurance that theresolution of any particular claim or proceeding to which it is a party willnot have a material adverse effect on the Partnership’s financial position,results of operations or cash flows for the period in which that resolutionoccurs.

**10. ProposedMerger Between Universal Compression Holdings and Hanover Compressor Company**

*In February 2007, UniversalCompression Holdings and Hanover Compressor Company (“Hanover”) entered into amerger agreement. Upon consummation of the transactions set forth in the mergeragreement, each common share of Hanover will be converted into 0.325 shares ofcommon stock of a newly created holding company, and each common share ofUniversal Compression Holdings will be converted into one share of the holdingcompany. Hanover will be treated as the acquirer for accounting purposes.*

The mergeragreement has been unanimously approved by both companies’ boards of directors.Completion of the merger is subject to a number of conditions, including theapproval of the stockholders of both companies and customary regulatoryapprovals, including the expiration of the applicable waiting period under theHart-Scott-Rodino Antitrust Improvements Act of 1976 (“Hart-Scott-Rodino Act”).  In March 2007, the Antitrust Division of theUnited States’ Department of Justice requested additional information regardingthe proposed merger under the notification requirements of theHart-Scott-Rodino Act.  UniversalCompression Holdings is cooperating with the government with respect to thatrequest.

The merger agreementrequires Universal Compression Holdings and Hanover to continue to operatetheir businesses in the ordinary course of business and to obtain the otherparty’s consent prior to engaging in certain specified activities, such asissuing or repurchasing securities, acquiring or disposing of businesses abovespecified thresholds, incurring new debt other than below specified thresholdsand for specified purposes, paying dividends or granting awards with respect totheir common stock (other than under employee compensation arrangements).  These agreements are subject to specifiedexceptions, including those (1) permitting Universal Compression Holdings torepurchase up to an additional $75 million of its common stock in accordancewith its previously announced open-market stock repurchase program, (2)permitting the Partnership to make cash distributions in accordance with itspartnership agreement, (3) permitting Universal Compression Holdings to makecontributions of its domestic compression assets to the Partnership, subject tocertain limitations, and (4) permitting Universal Compression Holdings toredeem its 7 1/4% senior notes due 2010.

Upon the closing of the proposed merger, thePartnership would remain a subsidiary of Universal Compression Holdings, andUniversal Compression Holdings would become a wholly owned subsidiary of a new,publicly traded holding company.

The closing of the proposed merger of UniversalCompression Holdings and Hanover will constitute a change of control ofUniversal Compression Holdings under the Omnibus Agreement, which will cause atermination of the non-competition and equipment-sharing provisions of theOmnibus Agreement.  The Partnershipexpects to negotiate and enter into suitable substitute arrangements withUniversal Compression Holdings that would take effect upon the termination ofthese provisions of the Omnibus Agreement, although it cannot provide anyassurance that it will be able to do so.

8

----

**UNIVERSAL COMPRESSION PARTNERSPREDECESSORCOMBINED STATEMENT OF OPERATIONS ANDCOMPREHENSIVE INCOME(In thousands)(unaudited)**
| ** **                                      | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|
| ** **                                      | ** ** | **March 31,**               | ** ** |
| ** **                                      | ** ** | **2006**                         | ** ** |
|                                            |       |                             |       |
| Revenue                                         |       | $                                | 94,045     |   |
|                                            |       |                             |       |
| Cost of sales  (excluding depreciation expense) |       | 32,914                           |       |
| Selling, general and  administrative expenses   |       | 9,451                            |       |
| Depreciation                                    |       | 18,809                           |       |
| Other (income) expense,  net                    |       | (50                              | )          |
| Net income and comprehensive income             |       | $                                | 32,921     |   |

 

See accompanying notes tounaudited combined financial statements.

9

----

**UNIVERSAL COMPRESSION PARTNERSPREDECESSORCOMBINED STATEMENT OF CASH FLOWS(In thousands)(unaudited)**
| ** **                                                                     | ** ** | **Three Months** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                     | ** ** | **Ended**             | ** ** |
| ** **                                                                     | ** ** | **March 31,**    | ** ** |
| ** **                                                                     | ** ** | **2006**              | ** ** |
| Cash flows from  operating activities:                                         |       |                  |       |
| Net income                                                                     |       | $                     | 32,921     |   |
| Adjustments to  reconcile net income to cash provided by operating activities: |       |                  |       |
| Depreciation                                                                   |       | 18,809                |       |
| Gain on asset  sales                                                           |       | (48                   | )          |
| (Increase)  decrease in receivables                                            |       | (11,931               | )          |
| Increase  (decrease) in accrued liabilities                                    |       | (1,044                | )          |
| Net cash  provided by operating activities                                     |       | 38,707                |       |
| Cash flows from  investing activities:                                         |       |                  |       |
| Additions to  property and equipment                                           |       | (17,616               | )          |
| Proceeds from  sale of property and equipment                                  |       | 205                   |       |
| Net cash used in  investing activities                                         |       | (17,411               | )          |
| Cash flows from  financing activities:                                         |       |                  |       |
| Net  distributions to parent                                                   |       | (21,296               | )          |
| Net cash used in  financing activities                                         |       | (21,296               | )          |
| Increase (decrease) in  cash and cash equivalents                              |       | ─               |       |
| Cash and cash  equivalents at beginning of period                              |       | ─               |       |
| Cash and cash equivalents at end of period                                     |       | $                     | ─    |   |

 

See accompanying notes tounaudited combined financial statements.

10

----

**UNIVERSALCOMPRESSION PARTNERS PREDECESSORNOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS**

**1. Basis ofPresentation and Summary of Significant Accounting Policies**

*Organization*

These notes apply to the unaudited combined financialstatements of the natural gas contract compression business that is provided inthe United States of America (“United States”) by Universal CompressionHoldings, Inc. (along with its subsidiaries, “Universal Compression Holdings”)and its subsidiaries (the “Predecessor”).

In October 2006, a subsidiary of Universal CompressionHoldings, Universal Compression Partners, L.P. (along with its subsidiaries, “thePartnership”), completed an initial public offering of 6,325,000 common unitsrepresenting limited partner interests in the Partnership, at a price of $21.00per unit, including 825,000 common units sold pursuant to the exercise of theunderwriters’ overallotment option. As of the closing of the initial publicoffering, Universal Compression Holdings contributed to the Partnership aportion of the Predecessor’s business comprising contract compression servicescontracts with nine customers and a fleet of compressor units to service thosecustomers, comprising approximately 330,000 horsepower, or approximately 17%(by available horsepower) of the Predecessor’s business.  For financial reporting purposes, thePredecessor is deemed to be the predecessor of the Partnership.  A subsidiary of Universal CompressionHoldings is the general partner of the Partnership.

*Basis ofPresentation*

The combined financial statements include the accountsof the Predecessor and have been prepared in accordance with accountingprinciples generally accepted in the Unites States. The combined statements ofoperations include all revenue and costs directly attributable to thePredecessor. In addition, cost of sales (excluding depreciation expense) andselling, general and administrative expenses include costs incurred byUniversal Compression Holdings and allocated to the Predecessor based onallocation factors that it believes are reasonable. These costs include, amongother things, indirect field labor, vehicle fuel cost, vehicle and fieldoperations facilities repair and maintenance costs, miscellaneous supplies costand centralized corporate functions such as legal, accounting, treasury,insurance administration and claims processing, risk management, health, safetyand environmental, information technology, human resources, credit, payroll,taxes and other corporate services and the use of facilities that support thesefunctions. These allocations may not be necessarily indicative of the costs andexpense that would result if the Partnership was an independent entity.

*ComprehensiveIncome*

The Predecessor had no items of other comprehensiveincome for the period presented in the Combined Statement of Operations andComprehensive Income. As a result, net income and comprehensive income are thesame for the period presented.

*SegmentReporting*

SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information,” established standards for entities toreport information about the operating segments and geographic areas in whichthey operate.  The Predecessor onlyoperates in one segment and all of its operations are located in the UnitedStates.

*Non-cash Financing andInvesting Activities*

Net distributions to parent on the Combined Statementof Cash Flows for the three months ended March 31, 2006 exclude certainnon-cash transactions related to net transfers of contract compressionequipment (from)/to the Predecessor and from/(to) other subsidiaries ofUniversal Compression Holdings.

**2. Related PartyTransactions**

The Predecessor has no employees. The employeessupporting the Predecessor are employees of Universal Compression Holdings.Services provided by Universal Compression Holdings to the Predecessor includesupport of the contract compression services provided by the Predecessor to itscustomers utilizing equipment owned by the Predecessor, such as designing,sourcing, installing, operating, servicing, repairing and maintaining theequipment. Additionally, Universal Compression Holdings provides to thePredecessor centralized corporate functions such as legal, accounting,treasury, insurance administration and claims processing, risk management, health,safety and environmental, information technology, human resources, credit,payroll, taxes and other corporate services and the use of facilities thatsupport these functions. Costs incurred by Universal Compression Holdings onbehalf of the Predecessor and that can be directly identified to thePredecessor are included in the Predecessor’s results of operations. Costs

11

----

incurred by UniversalCompression Holdings that are indirectly attributable to the Predecessor andUniversal Compression Holdings’ other operations are allocated among thePredecessor and Universal Compression Holdings’ other operations. For the threemonths ended March 31, 2006, Universal Compression Holdings’ definedcontribution 401(k) plan and employees’ supplemental savings plan expenseallocated to the Predecessor was $0.3 million. The allocation methodologiesvary based on the nature of the charge and include, among other things,revenue, employee headcount and net assets. Management believes that theallocation methodologies used to allocate indirect cost to it are reasonable.

The Predecessor purchases new natural gas compressionequipment from Universal Compression Holdings and other services related toexisting equipment that are capitalized such as overhauls and repackaging. In addition,the Predecessor has transferred used and idle natural gas compression equipmentto subsidiaries of Universal Compression Holdings. Such transfers were recordedat historical cost and treated as a decrease in net parent equity.

The Predecessor’s balance sheets contain no cash. Allpayments made on behalf of the Predecessor, such as direct costs, indirectcosts and capital expenditures discussed above, are paid by UniversalCompression Holdings and have been recorded as increases in net parent equity.All payments received on behalf of the Predecessor, such as receipts forrevenue earned or sales of assets, are received by Universal CompressionHoldings and have been recorded as decreases in net parent equity.

**3. UniversalCompression Holdings Stock-Based Compensation**

Universal Compression Holdings grants stock optionsand restricted stock to designated employees. Effective January 1, 2006,Universal Compression Holdings adopted SFAS No. 123R, “Share-Based Payment,”which requires that compensation cost relating to share-based paymenttransactions be recognized in the financial statements. That cost will bemeasured based on the fair value of the equity or liability instruments issued.

A portion of the stock-based compensation expenseincurred by Universal Compression Holdings is an indirect cost allocated to thePredecessor based on factors discussed in Note 2.  In the three months ended March 31, 2006, theadoption of SFAS No. 123R by Universal Compression Holdings impacted thePredecessor’s results of operation by increasing selling, general andadministrative expenses by $0.5 million as compared to the expense that wouldhave been recognized under APB 25.

**4. Commitments andContingencies**

In the ordinary course of business, the Predecessor isinvolved in various pending or threatened legal actions. In the opinion ofmanagement, the amount of ultimate liability, if any, with respect to theseactions will not have a material adverse effect on the Predecessor’s financialposition, results of operations or cash flows, however, because of the inherentuncertainty of litigation, the Predecessor cannot provide assurance that theresolution of any particular claim or proceeding to which it is a party willnot have a material adverse effect on the Predecessor’s financial position,results of operations or cash flows for the period in which that resolutionoccurs.

12

----

**ITEM 2. *Management’s Discussion and Analysis ofFinancial Condition and Results of Operations***

*Referencesin Management’sDiscussion and Analysis of Financial Condition and Results of Operations to “we,”“our,” “us” or like terms refer to Universal Compression Partners, L.P.  References to “our predecessor” or like termsrefer to the natural gas contract compression business that is provided in theUnited States of America by Universal Compression Holdings, Inc. and itssubsidiaries (“Universal Compression Holdings”).   In connection with our initial public offeringwhich was completed in October 2006, approximately 17% (by availablehorsepower) of our predecessor’s business was contributed to us by UniversalCompression Holdings. The following discussion analyzes the historicalfinancial condition and results of operations of us and our predecessor and should be read in conjunction with ourunaudited financial statements, and notes thereto, and our predecessor’sunaudited combined financial statements and notes thereto appearingelsewhere in this report, as well as our consolidated financial statements andour predecessor’s combined financial statements and Management’s Discussion andAnalysis of Financial Condition and Results of Operations in our annual reporton Form 10-K for the period from June 22, 2006 through December 31, 2006.*

**DISCLOSUREREGARDING FORWARD-LOOKING STATEMENTS**

This report contains “forward-looking statements”within the meaning of Section 21E of the Securities Exchange Act of 1934, asamended. All statements other than statements of historical fact contained inthis report are forward-looking statements, including, withoutlimitation, statements regarding future financial position, business strategy,proposed acquisitions, budgets, litigation, projected costs and plans andobjectives of management for future operations. You can identify many of thesestatements by looking for words such as “believes,” “expects,” “will,” “intends,”“projects,” “anticipates,” “estimates” or similar words or the negativethereof.

Such forward-lookingstatements in this report include, without limitation, statements regarding:

·                                          ourbusiness growth strategy and projected costs;

·                                          ourfuture financial position;

·                                          thesufficiency of available cash flows to make cash distributions;

·                                          theexpected amount of our capital expenditures;

·                                          anticipatedcost savings, future revenue, gross margin and other financial or operationalmeasures related to our business;

·                                          thefuture value of our equipment;

·                                          plansand objectives of our management for our future operations;

·                                          anypotential contribution of additional assets from Universal Compression Holdingsto us and the effect of any such contribution; and

·                                          theability of Universal Compression Holdings and Hanover Compressor Company (“Hanover”)to successfully complete their anticipated merger.

Such forward-lookingstatements are subject to various risks and uncertainties that could causeactual results to differ materially from those anticipated as of the date ofthis report.  Although we believe thatthe expectations reflected in these forward-looking statements are basedon reasonable assumptions, no assurance can be given that these expectationswill prove to be correct.  These forwardlooking statements are also affected by the risk factors and forward lookingstatements described in our Annual Report on Form 10-K for the period from June22, 2006 through December 31, 2006 and those set forth from time to time in ourfilings with the Securities and Exchange Commission (“SEC”), which areavailable through our website and through the SEC’s Electronic Data Gatheringand Retrieval System (“EDGAR”) at www.sec.gov. Important factors that couldcause our actual results to differ materially from the expectations reflectedin these forward-looking statements include, among other things:

·                                          conditionsin the oil and gas industry, including a sustained decrease in the level ofsupply or demand for natural gas and the impact on the price of natural gas;

·                                          competitionamong the various providers of natural gas compression services;

·                                          theability of Universal Compression Holdings and Hanover to obtain necessaryapprovals for the proposed merger and the success of the merger if approved andconsummated;

·                                          employmentworkforce factors, including our ability to hire, train and retain keyemployees;

·                                          changesin safety and environmental regulations pertaining to the production andtransportation of natural gas;

·                                          actsof war or terrorism or governmental or military responses thereto;

·                                          introductionof competing technologies by other companies;

·                                          ourability to retain and grow our customer base;

·                                          ourlevel of indebtedness and ability to fund our business; and

·                                          liabilityclaims related to the use of our products and services.

13

----

All forward-looking statementsincluded in this report are based on information available to us on the date ofthis report. Except as required by law, we undertake no obligation to publiclyupdate or revise any forward-looking statement, whether as a result ofnew information, future events or otherwise. All subsequent written and oralforward-looking statements attributable to us or persons acting on ourbehalf are expressly qualified in their entirety by the cautionary statementscontained throughout this report.

**Overview**

We are a Delaware limited partnership recently formedby Universal Compression Holdings to provide natural gas contract compressionservices to customers throughout the United States. Our contract compressionservices include designing, sourcing, owning, installing, operating, servicing,repairing and maintaining equipment to provide compression to our customers.

In October 2006,we completed an initial public offering of 6,325,000 of our common units at aprice of $21.00 per unit, including 825,000 common units sold pursuant to theexercise of the underwriters’ overallotment option. The common units sold tothe public represent a 49% limited partner interest in us.

**Proposed Merger Between UniversalCompression Holdings and Hanover**

In February 2007, Universal Compression Holdings andHanover entered into a merger agreement. Upon consummation of the transactionsset forth in the merger agreement, each common share of Hanover will beconverted into 0.325 shares of common stock of a newly created holding company,and each common share of Universal Compression Holdings will be converted intoone share of the holding company. Hanover will be treated as the acquirer for accountingpurposes.

The merger agreement has been unanimously approved byboth companies’ boards of directors. Completion of the merger is subject to anumber of conditions, including the approval of the stockholders of bothcompanies and customary regulatory approvals, including the expiration of theapplicable waiting period under the Hart-Scott-Rodino Antitrust ImprovementsAct of 1976 (“Hart-Scott-Rodino Act”). In March 2007, the Antitrust Division of the United States’ Departmentof Justice requested additional information regarding the proposed merger underthe notification requirements of the Hart-Scott-Rodino Act.  Universal Compression Holdings is cooperatingwith the government with respect to that request.

The merger agreement requires Universal CompressionHoldings and Hanover to continue to operate their businesses in the ordinarycourse of business and to obtain the other party’s consent prior to engaging incertain specified activities, such as issuing or repurchasing securities,acquiring or disposing of businesses above specified thresholds, incurring newdebt other than below specified thresholds and for specified purposes, payingdividends or granting awards with respect to their common stock (other thanunder employee compensation arrangements). These agreements are subject to specified exceptions, including those(1) permitting Universal Compression Holdings to repurchase up to an additional$75 million of its common stock in accordance with its previously announcedopen-market stock repurchase program, (2) permitting us to make cashdistributions in accordance with our partnership agreement, (3) permittingUniversal Compression Holdings to make contributions of its domesticcompression assets to us, subject to certain limitations, and (4) permittingUniversal Compression Holdings to redeem its 7 1/4% senior notes due 2010.

Upon the closing of the proposed merger, we wouldremain a subsidiary of Universal Compression Holdings, and UniversalCompression Holdings would become a wholly owned subsidiary of a new, publiclytraded holding company.

The closing of the proposed merger of UniversalCompression Holdings and Hanover will constitute a change of control ofUniversal Compression Holdings under the omnibus agreement (“Omnibus Agreement”),among us, our general partner, Universal Compression Holdings and others, whichwill cause a termination of the non-competition and equipment-sharingprovisions of the Omnibus Agreement.  Weexpect to negotiate and enter into suitable substitute arrangements withUniversal Compression Holdings that would take effect upon the termination ofthese provisions of the Omnibus Agreement, although we cannot provide anyassurance that we will be able to do so.

14

----

**ItemsImpacting the Comparability of Our Financial Results**

Our future andhistorical results of operations may not be comparable to the historicalresults of operations for the periods presented below for our predecessor, forthe reasons described below: 

·                                          Onlyapproximately 17% (by available horsepower) of our predecessor was contributedto us upon closing of our initial public offering. Accordingly, the results ofoperations of our predecessor reflect a substantially larger business than thebusiness contributed to us;

·                                          Dueto the contribution only of operating horsepower in connection with the initialpublic offering, our utilization was initially 100%, which is higher than thehistorical utilization achieved by our predecessor. As of March 31, 2007, ourspot utilization rate was 93.4%.  Weexpect our utilization rate to continue to decline over time, ultimatelyapproximating the utilization rates of our predecessor;

·                                          Becausethe average horsepower of the compression assets contributed to us inconnection with the initial public offering was larger than the averagehorsepower of the fleet of our predecessor, we generate lower revenue perhorsepower and incur lower costs per horsepower than our predecessor, however,we expect this difference to become less pronounced over time as we acquireadditional assets and grow our business;

·                                          Becauseour revenue per horsepower is currently lower than that for our predecessor andbecause our selling, general and administrative expenses are allocated to us byUniversal Compression Holdings based on horsepower, our selling, general andadministrative expenses are higher as a percentage of revenue than historicallyexperienced by our predecessor;

·                                          Becausewe own a substantially smaller fleet of compressors than our predecessor, ouroperating costs per horsepower may be subject to more variability than those ofour predecessor. This additional variability in our operating costs perhorsepower may result from, among other things, the fact that repair costsassociated with our compressors that experience unanticipated downtime will beallocated over our smaller fleet of compressors;

·                                          Weanticipate incurring incremental selling, general and administrative expensesof approximately $2.5 million per year as a result of being a publicly tradedlimited partnership, including costs associated with annual and quarterlyreports to unitholders, financial statement audit, tax return and Schedule K-1preparation and distribution, investor relations activities, registrar andtransfer agent fees, incremental director and officer liability insurance costsand director compensation; and

·                                          AtMarch 31, 2007, we had $125.0 million outstanding under our $225 millionrevolving credit facility and will incur related interest expense, whereas ourpredecessor historically had no debt.

15

----

**OperatingHighlights**

The following table summarizes total availablehorsepower, average operating horsepower and horsepower utilization percentagesof us and our predecessor for the periods presented.  We were formed in June 2006, but we commencedoperations on October 20, 2006.  As aresult, operating data is shown for us for the period in 2006 in which we hadoperations.
| ** **                                  | ** ** | ** **                                              | ** ** | ** **                     | ** ** | **Universal**         | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | ** **                                              | ** ** | ** **                     | ** ** | **Compression**       | ** ** |
| ** **                                  | ** ** | ** **                                              | ** ** | ** **                     | ** ** | **Partners**          | ** ** |
| ** **                                  | ** ** | **Universal Compression Partners, L.P.** | ** ** | **Predecessor**                | ** ** |
| ** **                                  | ** ** | **Three Months**                                   | ** ** | **October 20, 2006** | ** ** | **Three Months** | ** ** |
| ** **                                  | ** ** | **Ended**                                               | ** ** | **through**                    | ** ** | **Ended**             | ** ** |
| ** **                                  | ** ** | **March 31,**                                      | ** ** | **December 31,**          | ** ** | **March 31,**    | ** ** |
| ** **                                  | ** ** | **2007**                                                | ** ** | **2006**                       | ** ** | **2006**              | ** ** |
|                                        |       |                                                    |       |                           |       |                  |       |
| Total Available  Horsepower (at period end) |       | 358,445                                                 |       | 343,010                        |       | 1,968,481             |       |
| Average Operating  Horsepower               |       | 331,039                                                 |       | 330,276                        |       | 1,803,029             |       |
| Horsepower Utilization:                     |       |                                                    |       |                           |       |                  |       |
| Spot (at period  end)                       |       | 93.4                                                    | %          | 96.9                           | %          | 91.7                  | %          |
| Average                                     |       | 94.8                                                    | %          | 98.6                           | %          | 91.7                  | %          |

 

**Financial Results of Operations**

*The three months ended March 31, 2007 —Universal Compression Partners, L.P.*

The followingtable summarizes our revenue, gross margin, gross margin percentage, expensesand net income:
| ** **                                    | ** ** | **Three Months**   | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **Ended**               | ** ** |
| ** **                                    | ** ** | **March 31,**      | ** ** |
| ** **                                    | ** ** | **2007**                | ** ** |
| ** **                                    | ** ** | **(In thousands)** | ** ** |
|                                          |       |                    |       |
| Revenue                                       |       | $                       | 17,585     |   |
| Gross margin (1)                              |       | 10,567                  |       |
| Gross margin percentage                       |       | 60.1                    | %          |
| Expenses:                                     |       |                    |       |
| Selling, general and  administrative expenses |       | $                       | 3,259      |   |
| Depreciation                                  |       | 2,782                   |       |
| Interest expense, net                         |       | 2,133                   |       |
| Other (income) expense,  net                  |       | (6                      | )          |
| Income tax expense                            |       | 56                      |       |
| Net income                                    |       | $                       | 2,343      |   |

----

(1)             For a reconciliationof gross margin to its most directly comparable financial measure calculatedand presented in accordance with GAAP, please read Part I, Item 2(“Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Non-GAAP Financial Measures”) of this report.

16

----

*Revenue.*  Revenueper average monthly operating horsepower was $17.71 for the three months endedMarch 31, 2007.  Average monthlyoperating horsepower was 331,039 for the three months ended March 31, 2007.

*Gross Margin.*  Grossmargin (defined as revenue less cost of sales, excluding depreciation expense)was $10.6 million for the three months ended March 31, 2007.  Cost of sales includes direct costs such aslabor and parts associated with the maintenance and repair of our compressorfleet, oil and fluids, transportation cost of units and remote monitoring cost.Cost of sales includes indirect costs such as fuel cost and repair andmaintenance cost related to our service vehicle fleet, field supplies, tools,facilities and communication cost, among others. Gross margin, a non-GAAPfinancial measure, is reconciled to netincome, its most directly comparable financial measure calculated and presentedin accordance with GAAP within Part I, Item 2 (“Management’s Discussionand Analysis of Financial Condition and Results of Operations — Non-GAAP FinancialMeasures”) of this report.

*Gross Margin Percentage. *Grossmargin percentage (defined as gross margin as a percentage of revenue) was60.1% for the three months ended March 31, 2007.

*Selling, General and Administrative (“SG&A”)Expenses.  *SG&A expenses are primarily comprised of anallocation from Universal Compression Holdings of expenses for the three monthsended March 31, 2007.  Theseallocated costs include costs for personnel support and related expendituresfor legal, accounting, treasury, insurance administration and claimsprocessing, risk management, information technology, human resources, credit,payroll, internal audit, taxes, facilities management, investor relations, ERP,training, executive, sales and business development.  In addition, we incurred directly, expensesfor ad valorem taxes, compensation related to our unit options and phantomunits and professional service fees related to the preparation of our K-1schedules.  SG&A expenses represented 18.5% of revenues for the three monthsended March 31, 2007.

*Depreciation. *Depreciation expense is related to our contract compression fleet and was $2.8 millionfor the three months ended March 31, 2007.

*Interest expense, net. * Interestexpense for the three months ended March 31, 2007 includes interest on the$125.0 million of borrowings outstanding as of the date of the initial publicoffering under our $225 million revolving credit facility and amortization ofdeferred financing costs incurred to obtain that facility.

*Incometax expense.*  Incometax expense reflects taxes incurred under the Texas margins tax.

17

----

*The three months ended March 31, 2006 —Universal Compression Partners Predecessor*

The following table summarizesthe revenue, gross margin, gross margin percentage, expenses and net income ofour predecessor for the period presented:
| ** **                                    | ** ** | **Three Months**   | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **Ended**               | ** ** |
| ** **                                    | ** ** | **March 31,**      | ** ** |
| ** **                                    | ** ** | **2006**                | ** ** |
| ** **                                    | ** ** | **(In thousands)** | ** ** |
|                                          |       |                    |       |
| Revenue                                       |       | $                       | 94,045     |   |
| Gross margin(1)                               |       | 61,131                  |       |
| Gross margin  percentage                      |       | 65.0                    | %          |
| Expenses:                                     |       |                    |       |
| Selling, general  and administrative expenses |       | 9,451                   |       |
| Depreciation                                  |       | 18,809                  |       |
| Other (income)  expense, net                  |       | (50                     | )          |
| Net income                                    |       | $                       | 32,921     |   |

----

(1)             For a reconciliationof gross margin to its most directly comparable financial measure calculatedand presented in accordance with GAAP, please read Part I, Item 2(“Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Non-GAAP Financial Measures”) of this report.

*Revenue.*  Revenueper average monthly operating horsepower was $17.39 for the three months endedMarch 31, 2006.  Average monthlyoperating horsepower was 1,803,029 for the three months ended March 31, 2006.

*Gross Margin.*  Grossmargin, a non-GAAP financial measure, isreconciled to net income, its most directly comparable financial measurecalculated and presented in accordance with GAAP within Part I, Item 2,(“Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Non-GAAP Financial Measures”) of this report.  Gross margin for the three months ended March 31, 2006 was $61.1million.

*Gross Margin Percentage. *Gross margin percentage was65.0% for the three months ended March 31,2006.

*SG&A Expenses. *SG&A**expensesare allocations of indirect corporate overhead from Universal CompressionHoldings to cover costs of centralized corporate functions such as legal,accounting, treasury, insurance administration and claims processing, riskmanagement, health, safety and environmental, information technology, humanresources, credit, payroll, taxes and other corporate services. SG&A expensesalso include an allocation of costs from Universal Compression Holdings relatedto costs associated with its office building and other facilities that we use.The allocated SG&A expenses represented10.0% of revenues for the three months ended March 31, 2006.

*Depreciation. *Depreciation expense isrelated to our predecessor’s contractcompression fleet and was $18.8 million for the three months ended March 31, 2006.

18

----

**Liquidity and Capital Resources**

We haveestablished our own bank accounts but Universal Compression Holdings’ personnelwill continue to manage our cash and investments.

Our primary sources ofcash are operating activities and financing activities.  Our primary uses of cash are operatingexpenditures and capital expenditures. The following table summarizes our sources of cash for the three monthsended March 31, 2007 (in thousands):
| ** **                       | ** ** | **Three Months** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **Ended**             | ** ** |
| ** **                       | ** ** | **March 31,**    | ** ** |
| ** **                       | ** ** | **2007**              | ** ** |
| Net cash  provided by (used in): |       |                  |       |
| Operating  activities            |       | $                     | 7,921      |   |
| Investing  activities            |       | (6,079                | )          |
| Financing activities             |       | (2,802                | )          |
|                                  |            |                       |            |  |

 
| ** **                                         | ** ** | **As of**     | ** ** |
|----------------------------------------------------|------------|--------------------|------------|
| ** **                                         | ** ** | **March 31,** | ** ** |
| ** **                                         | ** ** | **2007**           | ** ** |
| Cash and cash  equivalents                         |       | $                  | 1,470      |   |
| Working capital, net of  cash and cash equivalents |       | 1,470              |       |
|                                                    |            |                    |            |  |

 

*Investing Activities. * Capital expenditures for the three monthsended March 31, 2007 were $6.1 million, consisting of $4.7 million for fleetadditions and $1.4 million for compressor maintenance activities.  There were no asset sales for the threemonths ended March 31, 2007.

*Financing Activities. *Net cash used in financing activities for thethree months ended March 31, 2007 was $2.8 million which was the result ofdistributions to unitholders and changes in accounts receivable and accountspayable with affiliates.

*Capital Requirements.*The natural gas compression business is capital intensive, requiringsignificant investment to maintain and upgrade existing operations. Both ourand our predecessor’s capital requirements have consisted primarily of, and weanticipate that our capital requirements will continue to consist of, thefollowing:

·                                          maintenancecapital expenditures, which are capital expenditures made to maintain theexisting operating capacity of our assets and related cash flows furtherextending the useful lives of the assets; and

·                                          expansioncapital expenditures, which are capital expenditures made to expand or toreplace partially or fully depreciated assets or to expand the operatingcapacity or revenue generating capabilities of existing or new assets, whetherthrough construction, acquisition or modification.

Given ourobjective of growth through acquisitions, expansion capital expenditureprojects and other internal growth projects, we anticipate that we willcontinue to invest significant amounts of capital to grow and acquire assets.We will actively consider a variety of assets for potential acquisitions andexpansion projects. We expect to fund future capital expenditures withborrowings under our credit facility, the issuance of additional partnershipunits and future debt offerings.

*Long-term Debt.*Asof March 31, 2007, we had approximately $125.0 million in outstanding debtobligations under our $225 million revolving credit facility.   All amounts under the $225 million revolvingcredit facility mature in October 2011. Covenants within our credit facility required that we maintain variousfinancial ratios.  As of March 31,2007, we were in compliance with all financial covenants.

Weexpect our future sources of liquidity to include cash generated fromoperations, borrowings under our revolving credit facility, issuance ofadditional partnership units and debt offerings. We believe that cash generatedfrom these sources will be sufficient to meet our short-term working capitalrequirements, long-term capital expenditure requirements and quarterly cashdistributions.

*Distributions to Unitholders. *Our partnership agreementrequires us to distribute all of our “available cash” quarterly. Under thepartnership agreement, available cash is defined to generally mean, for eachfiscal quarter, (i) our cash on hand at the end of the quarter in excess of theamount of reserves our general partner determines is necessary or appropriateto provide for the conduct of our

19

----

business, to comply with applicable law, any of ourdebt instruments or other agreements or to provide for future distributions toour unitholders for any one or more of the upcoming four quarters, plus, (ii)if our general partner so determines, all or a portion of our cash on hand onthe date of determination of available cash for the quarter.

On February 2, 2007, the board of directors ofour general partner approved a cash distribution of $0.278 per unit, or $3.6million.  The distribution for thequarter ended December 31, 2006 was paid on February 14, 2007, andreflects the pro rata portion of the quarterly distribution rate of $0.35,covering the period from the closing of the initial public offering, October20, 2006, through December 31, 2006.

On April 30, 2007, the board of directors of ourgeneral partner approved a cash distribution of $0.35 per unit, or $4.5million.  The distribution reflects ourminimum quarterly distribution and covers the time period from January 1, 2007through March 31, 2007.  The record datefor this distribution is May 10, 2007 and payment is expected to occur on May15, 2007.

**Non-GAAP FinancialMeasures**

We and our predecessor define gross margin as totalrevenue less cost of sales (excluding depreciation expense).  Gross margin is included as a supplementaldisclosure because it is a primary measure used by our and our predecessor’smanagement as it represents the results of revenue and cost of sales (excludingdepreciation expense), which are key components of our and our predecessor’soperations.  As an indicator of our andour predecessor’s operating performance, gross margin should not be consideredan alternative to, or more meaningful than, net income as determined inaccordance with GAAP.  Our and ourpredecessor’s gross margin may not be comparable to a similarly titled measureof another company because other entities may not calculate gross margin in thesame manner.

The following table reconciles our and our predecessor’snet income to gross margin (in thousands):
| ** **                                  | ** ** | ** **              | ** ** | **Universal**         | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **Universal**           | ** ** | **Compression**       | ** ** |
| ** **                                  | ** ** | **Compression**         | ** ** | **Partners**          | ** ** |
| ** **                                  | ** ** | **Partners, L.P.** | ** ** | **Predecessor**       | ** ** |
| ** **                                  | ** ** | **Three Months**   | ** ** | **Three Months** | ** ** |
| ** **                                  | ** ** | **Ended**               | ** ** | **Ended**             | ** ** |
| ** **                                  | ** ** | **March 31,**      | ** ** | **March 31,**    | ** ** |
| ** **                                  | ** ** | **2007**                | ** ** | **2006**              | ** ** |
|                                        |       |                    |       |                  |       |
| **Net  income**                             |       | $                       | 2,343      |                  | $          | 32,921 |   |
| Depreciation                                |       | 2,782                   |       | 18,809                |       |
| Selling, general and administrative expense |       | 3,259                   |       | 9,451                 |       |
| Interest expense, net                       |       | 2,133                   |       | ─               |       |
| Other (income) expense, net                 |       | (6                      | )          | (50                   | )          |
| Income tax expense                          |       | 56                      |       | ─               |       |
| **Gross margin**                            |       | $                       | 10,567     |                  | $          | 61,131 |   |

 

**ITEM 3.  *Quantitative and Qualitative Disclosures About MarketRisk***

We are exposed to market risk due to variable interestrates under our financing and interest rate swap arrangement.

As of March 31, 2007, the notional amount of theinterest rate swap agreement related to our revolving credit facility was$125.0 million and the fair value of this interest rate swap agreement as ofMarch 31, 2007 was a liability of approximately $2.1 million.  The swap agreement terminates in December2011 and has a fixed rate of 5.28%.  Asof March 31, 2007, all of our outstanding variable rate debt has been convertedto a fixed rate through the swap agreement.

20

----

**ITEM 4T. Controlsand Procedures**

*Management’s Evaluation of Disclosure Controls and Procedures*

As required by Rule 13a-15(b) under the SecuritiesExchange Act of 1934 (the “Exchange Act”), our general partner’s management,including the Chief Executive Officer and Chief Financial Officer of ourgeneral partner, evaluated as of the end of the period covered by this report,the effectiveness of the Partnership’s disclosure controls and procedures asdefined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and ChiefFinancial Officer of our general partner concluded that the Partnership’sdisclosure controls and procedures, as of the end of the period covered by thisreport, were effective for the purpose of ensuring that information required tobe disclosed by the Partnership in this report is recorded, processed,summarized and reported within the time periods specified by the rules andforms under the Exchange Act and is accumulated and communicated to management,including the Chief Executive Officer and Chief Financial Officer of ourgeneral partner, as appropriate to allow timely decisions regarding requireddisclosures.

21

----

**PART II. OTHER INFORMATION**

**ITEM 1.**                    LegalProceedings

Additional information concerning legal proceedings ofUniversal Compression Partners, L.P. and Universal Compression PartnersPredecessor is contained in Note 9 and Note 4, respectively, to the unauditedconsolidated and combined financial statements included in Part I, Item 1 (“FinancialStatements”) of this report, which we have incorporated by reference into thisItem 1.

**ITEM 1a.**              Risk Factors

In addition to the other information included in thisQuarterly Report on Form 10-Q and the risk factors reported in our AnnualReport on Form 10-K for the period from June 22, 2006 through December 31,2006, you should consider the following risk factor in evaluating our businessand future prospects.  If any of therisks contained in this Quarterly Report or our Annual Report occur, ourbusiness, results of operations, financial condition and ability to make cashdistributions to our unitholders could be materially adversely affected.

***Wehave adopted certain valuation methodologies that may result in a shift ofincome, gain, loss and deduction between the general partner and theunitholders.  The IRS may challenge thistreatment, which could adversely affect the value of the common units.***

When we issue additional units or engage in certainother transactions, we determine the fair market value of our assets andallocate any unrealized gain or loss attributable to our assets to the capitalaccounts of our unitholders and our general partner.  Our methodology may be viewed as understatingthe value of our assets.  In that case,there may be a shift of income, gain, loss and deduction between certainunitholders and the general partner, which may be unfavorable to suchunitholders.  Moreover, subsequentpurchasers of common units may have a greater portion of their Internal RevenueCode Section 743(b) adjustment allocated to our tangible assets and a lesserportion allocated to our intangible assets. The IRS may challenge our valuation methods, or our allocation of theSection 743(b) adjustment attributable to our tangible and intangible assets,and allocations of income, gain, loss and deduction between the general partnerand certain of our unitholders.

A successful IRS challenge to these methods orallocations could adversely affect the amount of taxable income or loss beingallocated to our unitholders. It also could affect the amount of gain from ourunitholders’ sale of common units and could have a negative impact on the valueof the common units or result in audit adjustments to our unitholders’ taxreturns without the benefit of additional deductions.

**ITEM 6.**                    *Exhibits*
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                     |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                                |
| 31.1        |       | Certification of the Chief Executive Officer of UCO  GP, LLC (as ultimate general partner of the general partner of Universal  Compression Partners, L.P.) pursuant to Rule 13a-14 under the Securities  Exchange Act of 1934.                                                                      |
| 31.2        |       | Certification of the Chief Financial Officer of UCO  GP, LLC (as ultimate general partner of the general partner of Universal  Compression Partners, L.P.) pursuant to Rule 13a-14 under the Securities  Exchange Act of 1934.                                                                      |
| 32.1        |       | Certifications of the Chief Executive Officer and  Chief Financial Officer of UCO GP, LLC (as ultimate general partner of the  general partner of Universal Compression Partners, L.P.) pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |

 

22

----

**SIGNATURES**

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.
|                   | Universal Compression Partners, L.P. |
|-------------------|--------------------------------------|
|              |                                 |   |
| Date: May 9, 2007 | By:                                  | UCO GENERAL PARTNER, LP |
|              |                                 | its General Partner |
|              |                                 |   |
|              | By:                                  | UCO GP, LLC |
|              |                                 | its General Partner |
|              |                                 |   |
|              | By:                                  |  /s/ DANIEL K.  SCHLANGER |
|              |                                 | Daniel K. Schlanger |
|              |                                 | Senior Vice President, Chief Financial Officer and  Director, UCO GP, LLC |
|              |                                 | As General Partner of UCO General Partner, LP |
|              |                                 | As General Partner of Universal Compression  Partners, L.P. |
|              |                                 | (Principal Financial Officer) |
|              |                                 |   |
|              |                                 |   |
|              | By:                                  |  /s/ KENNETH  R. BICKETT |
|              |                                 | Kenneth R. Bickett |
|              |                                 | Vice President and Controller, UCO GP, LLC |
|              |                                 | As General Partner of UCO General Partner, LP |
|              |                                 | As General Partner of Universal Compression  Partners, L.P. |
|              |                                 | (Principal Accounting Officer) |

 

23

----

EXHIBIT INDEX
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                     |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                                |
| 31.1        |       | Certification of the Chief Executive Officer of UCO  GP, LLC (as ultimate general partner of the general partner of Universal  Compression Partners, L.P.) pursuant to Rule 13a-14 under the Securities  Exchange Act of 1934.                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                |
| 31.2        |       | Certification of the Chief Financial Officer of UCO  GP, LLC (as ultimate general partner of the general partner of Universal  Compression Partners, L.P.) pursuant to Rule 13a-14 under the Securities  Exchange Act of 1934.                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                |
| 32.1        |       | Certifications of the Chief Executive Officer and  Chief Financial Officer of UCO GP, LLC (as ultimate general partner of the  general partner of Universal Compression Partners, L.P.) pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |

 

24

----