GENERAL

Energy Partners, Ltd. (we, our, us, the Company) was incorporated in January 1998 and operates in a single segment as an independent oil and natural gas exploration and production company. Our current operations are concentrated in the shallow to moderate depth waters in the Gulf of Mexico, focusing on the area from Ship Shoal in the west to our East Bay field in the east as well as the deepwater in depths less than 5,000 feet. The Company maintains a website at www.eplweb.com which contains information about the Company including links to the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The Company's website and the information contained in it and connected to it shall not be deemed incorporated by reference into this report on Form 10-Q.

We continue to strive toward implementing our long-term growth strategy to increase our oil and natural gas reserves and production while focusing on reducing finding and development costs and operating costs to remain competitive with our industry peers. We are implementing this strategy through drilling exploratory and development wells from our inventory of available prospects that we have evaluated for geologic and mechanical risk and future reserve or resource potential. During the nine months ended September 30, 2008, we were successful in 13 of 14 drilling operations and 5 of 7 recompletion/workover operations. We also evaluate acquisition opportunities including acquisitions in our offshore areas as a complement to the drilling and development activities we have budgeted for those areas. We also consider strategic divestiture opportunities from time to time. Our drilling program is predominately comprised of moderate risk, higher or moderate reserve potential opportunities, as well as some high risk, higher reserve potential opportunities and low risk lower reserve potential opportunities, in order to achieve a balanced program of reserve growth.

Our revenue, profitability and future growth rate depend substantially on factors beyond our control, such as economic, political and regulatory developments, tropical weather and the price and availability of other sources of energy. Oil and natural gas prices historically have been volatile and may fluctuate widely in the future. Sustained periods of low prices for oil and natural gas could materially and adversely affect our financial position, our results of operations, the quantities of oil and natural gas reserves that we can economically produce and our access to capital.

We continue to generate prospects and strive to maintain an extensive inventory of drillable prospects in-house and exposure to new opportunities through relationships with industry partners. Our policy is to fund our exploration and development expenditures with internally generated cash flow, which allows us to preserve our balance sheet to finance acquisitions and other capital projects. However, from time to time, we may use our $150 million revolving credit facility (bank credit facility) to fund working capital needs as further discussed in Liquidity and Capital Resources.

On March 26 and 27, 2008, we completed the sale of two Gulf of Mexico Shelf properties located in our Western offshore area (March 2008 Property Sale) for $15.0 million after giving effect to preliminary closing adjustments. We recorded a gain on the sale of $7.0 million.

In late August and early September 2008 Hurricanes Gustav and Ike traversed the Gulf of Mexico and adjacent land areas. As a result of these two hurricanes, nearly all of our production was shut in at one time or another during the three months ended September 30, 2008. We are continuing to work to bring production back to pre-storm levels, but are subject to constraints due to damage to third party sales pipelines. Total offshore repair costs incurred during the three months ended September 30, 2008 for Hurricanes Gustav and Ike were $3.9 million all of which represents uninsured amounts that are reflected in lease operating expense. We maintain insurance coverage for property damage due to windstorms with a per-storm deductible of $10 million. Any amount incurred over $10 million per-storm will be recorded as insurance receivables. We also maintain business interruption insurance on our South Timbalier 41, 42 and 46 properties. Recovery of lost revenue from these properties will begin accruing during the fourth quarter of 2008 if the no claim period provided for under the policy has elapsed.

We use the successful efforts method of accounting for our investment in oil and natural gas properties. Under this method, we capitalize lease acquisition costs, costs to drill and complete exploration wells in which proven reserves are discovered and costs to drill and complete development wells. Exploratory drilling costs are charged to expense if and when activities result in no reserves in commercial quantities. Seismic, geological and geophysical, and delay rental expenditures are expensed as they are incurred. We conduct various exploration and development activities jointly with others and, accordingly, recorded amounts for our oil and natural gas properties reflect only our proportionate interest in such activities. Our 2007 Annual Report includes a discussion of our critical accounting policies, which have not changed significantly since the end of the last fiscal year.

OVERVIEW

During the nine months ended September 30, 2008, we were successful in 13 of the 14 drilling operations and 5 of 7 recompletion/workover operations.

Three Months Ended September 30, 2008

Our operating results for the three months ended September 30, 2008 reflect continued production from our existing core oil and natural gas properties with a decline late in the quarter due primarily to the impact of Hurricanes Gustav and Ike, which caused nearly all of our production to be shut in at one time or another during the three months ended September 30, 2008.

A 66% increase in the selling price per barrel of oil equivalent (Boe) (excluding the impact of derivative instruments) in the three months ended September 30, 2008 over the three months ended September 30, 2007 reflected the strong market prices for oil and natural gas production and partially offset the impact of production declines of 48% from the three months ended September 30, 2007.

Our three months ended September 30, 2008 revenues declined 14% from the comparable three month period ended September 30, 2007 due primarily to declines in production volumes addressed above, partially offset by increases in the average selling price of our production during these periods.

In addition to the factors addressed above, our net income of $34.4 million for the three months ended September 30, 2008 (which includes the after-tax gain on derivative instruments of $17.9 million) reflects decreases in lease operating expenses (Loe) due in part to our efforts to reduce and control these costs in 2008.

Our operating cash flows for the three months ended September 30, 2008 allowed us to pay off our bank credit facility resulting in a $30 million reduction in long-term debt. The borrowing base on our bank credit facility remains subject to redetermination based on the proved reserves of the oil and natural gas properties that serve as collateral for the bank credit facility as set out in the reserve report delivered to the banks in April and October. The borrowing base is expected to be redetermined in November 2008.

Our primary current challenge is restoring Gulf of Mexico production that remains shut in due to damage to third party sales pipelines caused by Hurricanes Gustav and Ike in late August and early September 2008. While we expect to bring most production back online during the 2008 fourth quarter, we expect our production, oil and natural gas revenue and operating cash flows to decline in the fourth quarter as compared to earlier quarters in 2008. We also expect that production from our existing core oil and natural gas properties will continue to reflect natural declines beyond 2008.

Nine Months Ended September 30, 2008

Our operating results for the nine months ended September 30, 2008 compared to the nine month ended September 30, 2007 reflects a decline in production from our existing core oil and natural gas properties due primarily to natural reservoir declines, the impact of the hurricanes and the sales of producing properties in June 2007 and March 2008. The June 2007 sale of onshore producing properties (the June 2007 Property Sale) contributed 2,742 Boe per day through the June 12, 2007 sale date. These impacts were offset in part by successful drilling results for 2008.

Higher oil and natural gas prices contributed favorably to our revenues for the nine month ended September 30, 2008 during which we realized a 61% increase in our average selling price per Boe (exclusive of derivative instruments) over the nine months ended September 30, 2007.

Our nine months ended September 30, 2008 revenues declined 7%, from the nine month period ended September 30, 2007 due primarily to declines in production volumes addressed above, partially offset by increases in the average selling price of our production during these periods.

In addition to the factors addressed above, our net income of $40.8 million for the nine month period ended September 30, 2008 (which includes the after-tax loss on derivative instruments of $10.8 million) reflects decreases in Loe resulting primarily from the June 2007 Property Sale and our efforts to reduce and control these costs in 2008. Our decrease in G&A expenses for the nine months ended September 30, 2008 reflects primarily non-recurring G&A expenses during the nine months ended September 30, 2007 related to the exploration of strategic alternatives and the repurchase of 8,700,000 shares of our common stock at $23.00 per share, refinancing of the bank credit facility and acquisition of substantially all of our existing $150 million aggregate principal amount senior notes due 2010 (Transactions).

Our operating cash flows for the nine months ended September 30, 2008 allowed us to pay off our bank credit facility during the period, resulting in a $30 million reduction in long-term debt.

IMPACT OF CURRENT CAPITAL AND COMMODITY MARKETS

The credit and capital markets are undergoing significant volatility. In many cases the markets have produced downward pressure on credit availability and stock prices for certain issuers without regard to those issuers' underlying strength. Our exposure to the current credit and capital market crisis is primarily related to our bank credit facility and counterparty performance risks.

Our bank credit facility is available until March 2011. The borrowing base under our bank credit facility is subject to redetermination semiannually. To date, we have not experienced any difficulties accessing our bank credit facility. Should current credit market volatility be prolonged for a number of years, future extensions of our bank credit facility may contain terms that are less favorable than those of our current bank credit facility. The bond market has also been negatively impacted, which has resulted in more restrictive access by issuers and with higher costs. While we currently have no plans to access the bond market, if we decide to do so in the future, the terms, size and cost of a new debt issue may be less favorable than for our Floating Rate Notes and Fixed Rate Notes. Given the volatility in the capital markets, we may not be able to sell stock at acceptable levels if necessary.

Current market conditions also may increase counterparty risks related to our commodity derivative instruments. Our commodity derivatives are with major financial institutions each of which is a party to our bank credit facility. Should one of these financial counterparties not perform, we may not realize the benefit of some of our derivative instruments.

Oil and natural gas prices are volatile and have declined significantly since September 30, 2008. This will reduce our revenues and cash flows from operations. We attempt to mitigate the impact of lower commodity prices on a portion of our cash flows by entering into oil and natural gas derivative instruments for a portion of our production (see Note 5 - Derivative Transactions). If the economic crisis continues, or if there is an extended period of reduced economic activity caused by a recession, commodity prices may stay depressed or reduce further, causing a prolonged downturn which would further reduce our revenues and cash flow from operations and may result in impairments of our oil and natural gas properties. This could cause us to alter our business plans including reducing our exploration and development programs.

Thus far, our liquidity and financial position have not been materially impacted by these factors. However, further deterioration in the credit and commodity markets could adversely affect our financial position, results of operations and cash flows.

RESULTS OF OPERATIONS

The following table presents information about our oil and natural gas
operations.



                                                   Three Months Ended           Nine Months Ended
                                                      September 30,               September 30,
                                                   2008          2007           2008          2007
Net production (per day):
Oil (Bbls)                                           5,189         8,271          5,994         8,862
Natural gas (Mcf)                                   42,445        92,579         51,687        98,322
Total barrels of oil equivalent                     12,263        23,701         14,608        25,249
Average sales prices, excluding impact of
derivatives:
Oil (per Bbl)                                    $  114.61     $   70.89     $   107.67     $   61.09
Natural gas (per Mcf)                                10.22          6.62           9.95          7.17
Total (per Boe)                                      83.87         50.60          79.38         49.37
Oil and natural gas revenues (in thousands):
Oil                                              $  54,712     $  53,941     $  176,829     $ 147,802
Natural gas                                         39,914        56,386        140,894       192,511

Total                                               94,626       110,327        317,723       340,313
Impact of derivatives instruments (1):
Oil (per Bbl)
Unrealized                                       $   56.25     $   (0.92 )   $     0.73     $   (1.27 )
Realized                                             (3.85 )          -          (10.63 )          -

Total                                                52.40         (0.92 )        (9.90 )       (1.27 )
Natural gas (per Mcf)
Unrealized                                       $    0.75     $   (0.09 )   $    (0.03 )   $    0.13
Realized                                                -           0.15          (0.01 )        0.05

Total                                                 0.75          0.06          (0.04 )        0.18
Average costs (per Boe):
Lease operating expense                          $   14.19     $    8.73     $    11.21     $    7.72
Depreciation, depletion and amortization             20.15         19.13          21.18         19.40
Accretion expense                                     0.98          0.52           0.81          0.48
Taxes, other than on earnings                         2.69          1.09           2.18          1.08
G&A                                                  10.68          5.72           8.72          7.02
Increase (decrease) in oil and natural gas
revenues between periods presented
due to:
Changes in prices of oil                         $  33,269                   $  112,658
Changes in production volumes of oil               (32,498 )                    (83,631 )

Total increase in oil sales                            771                       29,027
Changes in prices of natural gas                 $  30,655                   $   72,851
Changes in production volumes of natural gas       (47,127 )                   (124,467 )

Total decrease in natural gas sales                (16,472 )                    (51,616 )

(1) See Other Income and Expense section for further discussion of the impact of derivative instruments.

REVENUES AND NET INCOME

Our oil and natural gas revenues decreased $15.7 million or 14% in the three months ended September 30, 2008 from the three months ended September 30, 2007. During the quarter, oil and natural gas prices increased 66% from the three months ended September 30, 2007 but this increase was more than offset by production 48% lower than in the three months ended September 30, 2007 primarily from natural reservoir declines combined with deferred production from shut-ins as a result of Hurricanes Gustav and Ike, which reduced our Boe per day by 4,361 for the three months ended September 30, 2008.

Our oil and natural gas revenues decreased $22.6 million or 7% in the nine months ended September 30, 2008 from the nine months ended September 30, 2007. During the year to date period, oil and natural gas prices increased 61% but the increase was more than offset by lower production of 42% primarily due to natural reservoir declines combined with the June 2007 Property Sale (that contributed 2,742 Boe per day through the June 12, 2007 sale date) and deferred production from shut-ins during the third quarter as a result of Hurricanes Gustav and Ike, which reduced our Boe per day by 1,464 for the nine months ended September 30, 2008.

Our net income was $34.4 million in the three months ended September 30, 2008 compared to a net loss of $4.0 million in the the three months ended September 30, 2007. In addition to the factors addressed above, the change in net income in the three months ended September 30, 2008 as compared to the three months ended September 30 2007 was primarily attributable to:

• gains on derivative instruments in the three months ended September 30, 2008

• lower depreciation, depletion and amortization primarily reflecting the decline in production in 2008;

• lower exploration expenditures reflecting our focus in 2008 on lower risk exploration opportunities;

• lower dry hole costs resulting from the notable improvement in our 2008 drilling results as compared to 2007 and lower overall exploratory activity;

• lower impairments due primarily to the more significant impairments recorded in the three months under September 30, 2007 and higher oil and natural gas price trends in 2008; and

• Loe and G&A expenses for the reasons summarized below.

Our net income was $40.8 million in the nine months ended September 30, 2008 compared to a net loss of $6.5 million in the nine months ended September 30, 2007. The change in net income in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 was primarily attributable the same factors that affected the three months ended September 30, 2008 and 2007 net income summarized above, except that our nine months ended September 30, 2008 results reflect a loss on derivative instruments. Additionally, our total costs and expenses were reduced in the nine months ended September 30, 2007, by a gain on insurance recoveries of $8.1 million, the impact of which was more than offset by the loss on early extinguishment of debt of $10.8 million recorded in that period.

OPERATING EXPENSES

Operating expenses during the three and nine months ended September 30, 2008 and 2007 were affected as follows.

Loe decreased by $3.0 million or 16% to $16 million in the three months ended September 30, 2008 compared with $19.0 million in the three months ended September 30, 2007, reflecting that we had higher operating costs due primarily to workovers in the three months ended September 30, 2007. We incurred $3.9 million in Loe, $1.9 million of which was incremental to normally occurring Loe, in the three months ended September 30, 2008, resulting from the impact of the hurricanes. Loe decreased by $8.3 million or 16% to $44.9 million in the nine months ended September 30, 2008, compared with $53.2 million in the nine months ended September 30, 2007, primarily due to the June 2007 Property Sale discussed above and the absence of unusual repair costs incurred during the nine months ended September 30, 2007, as well as an ongoing efforts to reduce Loe costs during 2008, offset by new wells in new fields. On a per Boe basis, costs have increased due primarily to decreased production volumes and hurricane-related costs.

Taxes, other than on earnings, increased, due to increased commodity prices offset by reduced production, $0.6 million or 25% to $3.0 million in the three months ended September 30, 2008 from $2.4 million in the three months ended September 30, 2007, and $1.3 million or 18% to $8.7 million in the nine months ended September 30, 2008 compared with $7.4 million in the nine months ended September 30, 2007.

Exploration expenditures, including dry hole costs and impairments, decreased $20.0 million or 88% to $2.7 million in the three months ended September 30, 2008 from $22.7 million in the three months ended September 30, 2007. The expense in the three months ended September 30, 2008 is comprised of $0.6 million of dry hole costs, $0.1 million of impairment expense and $2.0 million of seismic expenditures and delay rentals. The expense in the three months ended September 30, 2007 is comprised of $13.4 million of dry hole costs for three exploratory wells or portions thereof which were found to be not commercially productive, $7.6 million from the impairment of properties at two of our fields which had reached the end of their economic lives and $1.7 million of seismic

expenditures and delay rentals. Exploration expenditures, including dry hole costs and impairments, decreased $50.7 million or 62% to $31.2 million in the nine months ended September 30, 2008 from $81.9 million in the nine months ended September 30, 2007. The expense in the nine months ended September 30, 2008 is comprised of $22.6 million of dry hole costs for three exploratory wells or portions thereof which were found to be not commercially productive, $1.8 million from partial impairments of two properties whose remaining economic lives are shorter than previously anticipated and $6.8 million of seismic expenditures and delay rentals. The expense in the nine months ended September 30, 2007 is comprised of $58.1 million of dry hole costs for nine exploratory wells or portions thereof which were found to be not commercially productive, $14.6 million from the impairment of properties at four of our fields which had reached the end of their economic lives and $9.2 million of seismic expenditures and delay rentals. Our exploration expenditures, including dry hole charges, will vary depending on the amount of our capital budget dedicated to exploration activities, the cost of services to drill wells and the level of success we achieve in exploratory drilling activities.

Depreciation, depletion and amortization (DD&A) decreased $19.0 million or 46% to $22.7 million in the three months ended September 30, 2008 from $41.7 million in the three months ended September 30, 2007. This decrease was primarily due to decreased production volumes of $21.8 million, partially due to Hurricanes Gustav and Ike. DD&A decreased $48.9 million or 37% to $84.8 million in the nine months ended September 30, 2008 from $133.7 million in the nine months ended September 30, 2007. This decrease was primarily due to decreased production volumes of $46.8 million, from both natural reservoir declines as well as Hurricanes Gustav and Ike and $11.4 million from the June 2007 Property Sale.

G&A expenses decreased $0.4 million or 3% to $12.1 million in the three months ended September 30, 2008 from $12.5 million in the three months ended September 30, 2007 which includes cash and non-cash stock based compensation of $2.4 million and $3.0 million in the three months ended September 30, 2008 and 2007, respectively. During the three months ended September 30, 2008 personnel costs decreased $0.7 million compared to the three months ended September 30, 2007. G&A expenses decreased $13.5 million or 28% to $34.9 million in the nine months ended September 30, 2008 from $48.4 million in the first nine months of 2007 which includes cash and non-cash stock based compensation of $6.9 million and $7.3 million in the nine months ended September 30, 2008 and 2007, respectively. This decrease was primarily due to decreased personnel costs of $3.2 million and $9.4 million of financial and legal advisory fees that were incurred during the nine months ended September 30, 2007 related to the exploration of strategic alternatives and the Transactions.

OTHER INCOME AND EXPENSE

Interest expense decreased $1.8 million or 14% to $11.1 million in the three months ended September 30, 2008 from $12.9 million in the three months ended September 30, 2007. This change was primarily attributable to both a lower interest rate and a lower average borrowing during the third quarter of 2008. Interest expense increased to $34.5 million in the nine months ended September 30, 2008 from $33.3 million in the nine months ended September 30, 2007. The increase was primarily attributable to the net increase in the average borrowings due to the issuance of $450 million in aggregate principal amount of senior unsecured notes (Senior Unsecured Notes) in April 2007 combined with borrowings on our bank credit facility, offset by the repurchase of $145.5 million in aggregate principal amount of the $150 million of Senior Notes completed in May 2007.

A loss on early extinguishment of debt for the refinancing of the bank credit facility and the repurchase of the Senior Notes of approximately $10.8 million was recorded during the nine months ended September 30, 2007. This loss includes the write-off of previously capitalized unamortized deferred financing costs related to the previous bank credit facility and the Senior Notes as well as the consent fees relating to the tender offer for the Senior Notes.

Included in Other income (expense) in our three months ended September 30, 2008 is an unrealized gain of $29.8 million representing the change in fair market value of derivative instruments to be settled in the future and a loss on $1.8 million in derivative instruments settled during the quarter for a total gain of $27.9 million. Included in Other income (expense) in our three months ended September 30, 2007 is an unrealized loss of $1.5 million representing the change in fair market value of derivative instruments to be settled in the future and a gain of $1.3 million in derivative instruments settled during the quarter for a total loss of $0.2 million. Included in Other income (expense) in our nine months ended September 30, 2008 is an unrealized gain of $0.8 million due to the change in fair market value of derivative instruments to be settled in the future and a loss of $17.6 million in contracts settled during the nine months for a total loss of $16.9 million. Included in Other income (expense) in our nine months ended September 30, 2007 is an unrealized gain of $0.4 million due to the change in fair market value of derivative instruments to be settled in the future and a gain of $1.3 million in derivative instruments settled during the nine months for a total gain of $1.7 million.

LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth our cash flows for the nine months ended
September 30, 2008 and 2007 (in thousands):



                                                   2008           2007         Change
. . .