Summary of ENCORE ENERGY PARTNERS LP

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis contains forward-looking statements, which give our current expectations or forecasts of future events. Actual results could differ materially from those discussed in these forward-looking statements due to many factors, including, but not limited to, those set forth under "Item 1A. Risk Factors" and elsewhere in our 2008 Annual Report on Form 10-K. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in "Item 1. Financial Statements" of this Report and Exhibit 99.3 to our Current Report on Form 8-K filed with the SEC on May 7, 2009, which recast "Item 8. Financial Statements and Supplementary Data" included in our 2008 Annual Report on Form 10-K.
Introduction
In this management's discussion and analysis of financial condition and results of operations, the following are discussed and analyzed:
• Overview of Business

• Results of Operations

• Comparison of Quarter Ended June 30, 2009 to Quarter Ended June 30, 2008

• Comparison of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2008

• Capital Commitments, Capital Resources, and Liquidity

• Critical Accounting Policies and Estimates

• New Accounting Pronouncements

Overview of Business
We are a Delaware limited partnership formed by EAC to acquire, exploit, and develop oil and natural gas properties and to acquire, own, and operate related assets. Our primary business objective is to make quarterly cash distributions to our unitholders at our current distribution rate and, over time, increase our quarterly cash distributions. Our properties and oil and natural gas reserves are located in four core areas:
• the Big Horn Basin in Wyoming and Montana;

• the Permian Basin in West Texas;

• the Williston Basin in North Dakota and Montana; and

• the Arkoma Basin in Arkansas.

In February 2008, we acquired the Permian and Williston Basin Assets. In January 2009, we acquired the Arkoma Basin Assets. In June 2009, we acquired the Williston Basin Assets. Because these properties were acquired from an affiliate, the acquisitions were accounted for as transactions between entities under common control, similar to a pooling of interests, whereby the assets and liabilities of the acquired properties were recorded at Encore Operating's carrying value and our historical financial information was recast to include the acquired properties for all periods presented. Accordingly, our consolidated financial statements reflect our historical results combined with those of the Permian and Williston Basin Assets, the Arkoma Basin Assets, and the Williston Basin Assets for all periods presented.
These results are not indicative of our future results, which could differ materially from our historical results.
On June 28, 2009, we entered into a purchase and sale agreement with Encore Operating to acquire the Rockies and Permian Basin Assets. The acquisition is expected to close in August 2009. Our historical results of operations and other operating and financial information do not include any information related to the Rockies and Permian Basin Assets.

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                           ENCORE ENERGY PARTNERS LP
Results of Operations
Comparison of Quarter Ended June 30, 2009 to Quarter Ended June 30, 2008
   Revenues. The following table illustrates the components of our revenues for
the periods indicated, as well as each period's respective production volumes
and average prices:

                                                   Three months ended June 30,                    Decrease
                                                   2009                   2008                 $              %
Revenues (in thousands):
Oil                                           $       23,182         $       51,603        $ (28,421 )         -55 %
Natural gas                                            3,955                 14,654          (10,699 )         -73 %

Total oil and natural gas revenues                    27,137                 66,257          (39,120 )         -59 %
Marketing                                                109                    903             (794 )         -88 %

Total revenues                                $       27,246         $       67,160        $ (39,914 )         -59 %


Average realized prices:
Oil ($/Bbl)                                   $        54.16         $       112.10        $  (57.94 )         -52 %
Natural gas ($/Mcf)                           $         3.22         $        10.71        $   (7.49 )         -70 %
Combined ($/BOE)                              $        42.89         $        96.24        $  (53.35 )         -55 %

Total production volumes:
Oil (MBbls)                                              428                    460              (32 )          -7 %
Natural gas (MMcf)                                     1,228                  1,369             (141 )         -10 %
Combined (MBOE)                                          633                    688              (55 )          -8 %

Average daily production volumes:
Oil (Bbls/D)                                           4,704                  5,059             (355 )          -7 %
Natural gas (Mcf/D)                                   13,498                 15,042           (1,544 )         -10 %
Combined (BOE/D)                                       6,953                  7,566             (613 )          -8 %

Average NYMEX prices:
Oil (per Bbl)                                 $        59.83         $       124.30        $  (64.47 )         -52 %
Natural gas (per Mcf)                         $         3.49         $        10.94        $   (7.45 )         -68 %

Oil revenues decreased 55 percent from $51.6 million in the second quarter of 2008 to $23.2 million in the second quarter of 2009 as a result of a $57.94 per Bbl decrease in our average realized oil price and a 32 MBbls decrease in our oil production volumes. Our lower average realized oil price decreased oil revenues by approximately $24.8 million and was primarily due to a lower average NYMEX price, which decreased from $124.30 per Bbl in the second quarter of 2008 to $59.83 per Bbl in the second quarter of 2009. Our lower oil production volumes decreased oil revenues by approximately $3.6 million and was primarily due to natural production declines in our Elk Basin field.
Natural gas revenues decreased 73 percent from $14.7 million in the second quarter of 2008 to $4.0 million in the second quarter of 2009 as a result of a $7.49 per Mcf decrease in our average realized natural gas price and a 141 MMcf decrease in our natural gas production volumes. Our lower average realized natural gas price decreased natural gas revenues by approximately $9.2 million and was primarily due to a lower average NYMEX price, which decreased from $10.94 per Mcf in the second quarter of 2008 to $3.49 per Mcf in the second quarter of 2009. Our lower natural gas production volumes decreased natural gas revenues by approximately $1.5 million and was primarily due to natural production declines in our Crockett County properties.

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                           ENCORE ENERGY PARTNERS LP
   The table below illustrates the relationship between our oil and natural gas
realized prices as a percentage of average NYMEX prices for the periods
indicated. Management uses the realized price to NYMEX margin analysis to
analyze trends in our oil and natural gas revenues.

                                                                       Three months ended June 30,
                                                                       2009                  2008
Average realized oil price ($/Bbl)                                 $     54.16          $      112.10
Average NYMEX ($/Bbl)                                              $     59.83          $      124.30
Differential to NYMEX                                              $     (5.67 )        $      (12.20 )
Average realized oil price to NYMEX percentage                              91 %                   90 %

Average realized natural gas price ($/Mcf)                         $      3.22          $       10.71
Average NYMEX ($/Mcf)                                              $      3.49          $       10.94
Differential to NYMEX                                              $     (0.27 )        $       (0.23 )
Average realized natural gas price to NYMEX percentage                      92 %                   98 %

Our average realized oil price as a percentage of the average NYMEX price was 91 percent in the second quarter of 2009 as compared to 90 percent in the second quarter of 2008.
Our average realized natural gas price as a percentage of the average NYMEX price was 92 percent in the second quarter of 2009 as compared to 98 percent in the second quarter of 2008. The natural gas index prices related to our West Texas natural gas contracts widened in their relationship to NYMEX causing a wider differential in the second quarter of 2009.
Marketing revenues decreased 88 percent from $0.9 million in the second quarter of 2008 to $0.1 million in the second quarter of 2009 primarily as a result of a reduction in natural gas throughput in our Wildhorse pipeline. Natural gas volumes are purchased from numerous gas producers at the inlet of the pipeline and resold downstream to various local and off-system markets.

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                           ENCORE ENERGY PARTNERS LP
Expenses. The following table summarizes our expenses for the periods indicated:

                                                      Three months ended June 30,                 Increase / (Decrease)
                                                     2009                   2008                    $                  %
Expenses (in thousands):
Production:
Lease operating                                  $       6,949         $         7,635        $         (686 )
Production, ad valorem, and severance taxes              3,062                   6,308                (3,246 )

Total production expenses                               10,011                  13,943                (3,932 )          -28 %
Other:
Depletion, depreciation, and amortization               11,294                  10,316                   978
Exploration                                                 18                      38                   (20 )
General and administrative                               2,807                   3,252                  (445 )
Marketing                                                   61                   1,609                (1,548 )
Derivative fair value loss                              37,440                  76,428               (38,988 )
Other operating                                            658                     391                   267

Total operating expenses                                62,289                 105,977               (43,688 )          -41 %
Interest                                                 2,351                   1,909                   442
Income tax provision (benefit)                             200                    (135 )                 335

Total expenses                                   $      64,840         $       107,751        $      (42,911 )          -40 %


Expenses (per BOE):
Production:
Lease operating                                  $       10.98         $         11.09        $        (0.11 )
Production, ad valorem, and severance taxes               4.84                    9.16                 (4.32 )

Total production expenses                                15.82                   20.25                 (4.43 )          -22 %
Other:
Depletion, depreciation, and amortization                17.85                   14.98                  2.87
Exploration                                               0.03                    0.06                 (0.03 )
General and administrative                                4.44                    4.72                 (0.28 )
Marketing                                                 0.10                    2.34                 (2.24 )
Derivative fair value loss                               59.17                  111.01                (51.84 )
Other operating                                           1.04                    0.57                  0.47

Total operating expenses                                 98.45                  153.93                (55.48 )          -36 %
Interest                                                  3.72                    2.77                  0.95
Income tax provision (benefit)                            0.32                   (0.20 )                0.52

Total expenses                                   $      102.49         $        156.50        $       (54.01 )          -35 %

Production expenses. Total production expenses decreased 28 percent from $13.9 million in the second quarter of 2008 to $10.0 million in the second quarter of 2009. Our production margin decreased 67 percent from $52.3 million in the second quarter of 2008 to $17.1 million in the second quarter of 2009. Total oil and natural gas wellhead revenues per BOE decreased by 55 percent and total production expenses per BOE decreased by 22 percent. On a per BOE basis, our production margin decreased 64 percent to $27.07 per BOE in the second quarter of 2009 as compared to $75.99 per BOE in the second quarter of 2008.
Production expense attributable to LOE decreased $0.7 million from $7.6 million in the second quarter of 2008 to $6.9 million in the second quarter of 2009 primarily as a result of lower production volumes.
Production expense attributable to production, ad valorem, and severance taxes ("production taxes") decreased $3.2 million from $6.3 million in the second quarter of 2008 to $3.1 million in the second quarter of 2009 primarily due to lower wellhead revenues. As a percentage of oil and natural gas wellhead revenues, production taxes increased to 11.3 percent in the second quarter of 2009 as compared to 9.5 percent in the second quarter of 2008 primarily due to higher ad valorem taxes, which are based on a flat rate of production volumes as opposed to a percentage of wellhead revenues.
Depletion, depreciation, and amortization expense ("DD&A"). DD&A expense increased $1.0 million from $10.3 million in the second quarter of 2008 to $11.3 million in the second quarter of 2009, primarily due to a $2.87 increase in the per BOE rate, partially offset by lower production volumes. Our higher average DD&A per BOE rate increased DD&A expense by approximately

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ENCORE ENERGY PARTNERS LP $1.8 million and was primarily due to the decrease in our proved reserves as a result of lower average commodity prices. Our lower production volumes decreased DD&A expense by approximately $0.8 million.
General and administrative expense ("G&A"). G&A expense decreased $0.4 million from $3.3 million in the second quarter of 2008 to $2.8 million in the second quarter of 2009 primarily due to a decrease in non-cash unit-based compensation expense.
Marketing expenses. Marketing expenses decreased $1.5 million from $1.6 million in the second quarter of 2008 to $0.1 million in the second quarter of 2009 primarily due to a reduction in natural gas throughput in our Wildhorse pipeline. Natural gas volumes are purchased from numerous gas producers at the inlet of the pipeline and resold downstream to various local and off-system markets.
Derivative fair value loss. During the second quarter of 2009, we recorded a $37.4 million derivative fair value loss as compared to $76.4 million in the second quarter of 2008, the components of which were as follows:

                                        Three months ended June 30,          Increase /
                                         2009                 2008           (Decrease)
                                                       (in thousands)
 Ineffectiveness                    $             6       $          39     $        (33 )
 Mark-to-market loss                         50,251              73,156          (22,905 )
 Premium amortization                         5,854               2,250            3,604
 Settlements                                (18,671 )               983          (19,654 )

 Total derivative fair value loss   $        37,440       $      76,428     $    (38,988 )

Interest expense. Interest expense increased $0.4 million from $1.9 million in the second quarter of 2008 to $2.4 million in the second quarter of 2009 primarily due to higher weighted average outstanding borrowings under our revolving credit facility. Our weighted average interest rate was 5.0 percent for the second quarter of 2009 as compared to 4.7 percent for the second quarter of 2008.

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                           ENCORE ENERGY PARTNERS LP
Comparison of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2008
   Revenues. The following table illustrates the components of our revenues for
the periods indicated, as well as each period's respective production volumes
and average prices:

                                                   Six months ended June 30,                    Decrease
                                                  2009                  2008                 $              %

Revenues (in thousands):
Oil                                           $     38,915         $       92,444        $ (53,529 )         -58 %
Natural gas                                          7,873                 23,743          (15,870 )         -67 %

Total oil and natural gas revenues                  46,788                116,187          (69,399 )         -60 %
Marketing                                              279                  3,762           (3,483 )         -93 %

Total revenues                                $     47,067         $      119,949        $ (72,882 )         -61 %


Average realized prices:
Oil ($/Bbl)                                   $      45.61         $        99.81        $  (54.20 )         -54 %
Natural gas ($/Mcf)                           $       3.31         $         9.34        $   (6.03 )         -65 %
Combined ($/BOE)                              $      37.45         $        86.07        $  (48.62 )         -56 %

Total production volumes:
Oil (MBbls)                                            853                    926              (73 )          -8 %
Natural gas (MMcf)                                   2,377                  2,542             (165 )          -6 %
Combined (MBOE)                                      1,249                  1,350             (101 )          -7 %

Average daily production volumes:
Oil (Bbls/D)                                         4,714                  5,089             (375 )          -7 %
Natural gas (Mcf/D)                                 13,132                 13,967             (835 )          -6 %
Combined (BOE/D)                                     6,903                  7,417             (514 )          -7 %

Average NYMEX prices:
Oil (per Bbl)                                 $      51.61         $       111.02        $  (59.41 )         -54 %
Natural gas (per Mcf)                         $       4.20         $         9.48        $   (5.28 )         -56 %

Oil revenues decreased 58 percent from $92.4 million in the first six months of 2008 to $38.9 million in the first six months of 2009 as a result of a $54.20 per Bbl decrease in our average realized oil price and a 73 MBbls decrease in our oil production volumes. Our lower average realized oil price decreased oil revenues by approximately $46.2 million and was primarily due to a lower average NYMEX price, which decreased from $111.02 per Bbl in the first six months of 2008 to $51.61 per Bbl in the first six months of 2009. Our lower oil production volumes decreased oil revenues by approximately $7.3 million and was primarily due to natural production declines in our Elk Basin field.
Natural gas revenues decreased 67 percent from $23.7 million in the first six months of 2008 to $7.9 million in the first six months of 2009 as a result of a $6.03 per Mcf decrease in our average realized natural gas price and a 165 MMcf decrease in our natural gas production volumes. Our lower average realized natural gas price decreased natural gas revenues by approximately $14.3 million and was primarily due to a lower average NYMEX price, which decreased from $9.48 per Mcf in the first six months of 2008 to $4.20 per Mcf in the first six months of 2009. Our lower natural gas production volumes decreased natural gas revenues by approximately $1.5 million and was primarily due to natural production declines in our Crockett County properties.

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                           ENCORE ENERGY PARTNERS LP
   The table below illustrates the relationship between our oil and natural gas
realized prices as a percentage of average NYMEX prices for the periods
indicated:

                                                                      Six months ended June 30,
                                                                      2009                 2008
Average realized oil price ($/Bbl)                                $      45.61         $       99.81
Average NYMEX ($/Bbl)                                             $      51.61         $      111.02
Differential to NYMEX                                             $      (6.00 )       $      (11.21 )
Average realized oil price to NYMEX percentage                              88 %                  90 %

Average realized natural gas price ($/Mcf)                        $       3.31         $        9.34
Average NYMEX ($/Mcf)                                             $       4.20         $        9.48
Differential to NYMEX                                             $      (0.89 )       $       (0.14 )
Average realized natural gas price to NYMEX percentage                      79 %                  99 %

Our average realized oil price as a percentage of the average NYMEX price remained relatively constant at 88 percent in the first six months of 2009 as compared to 90 percent in the first six months of 2008.
Our average realized natural gas price as a percentage of the average NYMEX price was 79 percent in the first six months of 2009 as compared to 99 percent in the first six months of 2008. The natural gas index prices related to our West Texas natural gas contracts widened in their relationship to NYMEX causing a wider differential in the first six months of 2009.
Marketing revenues decreased 93 percent from $3.8 million in the first six months of 2008 to $0.3 million in the first six months of 2009 primarily as a result of a reduction in natural gas throughput in our Wildhorse pipeline. Natural gas volumes are purchased from numerous gas producers at the inlet of the pipeline and resold downstream to various local and off-system markets.

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                           ENCORE ENERGY PARTNERS LP
   Expenses. The following table summarizes our expenses for the periods
indicated:

                                                      Six months ended June 30,                 Increase / (Decrease)
                                                     2009                  2008                   $                  %
Expenses (in thousands):
Production:
Lease operating                                  $     14,831         $       14,329        $          502
Production, ad valorem, and severance taxes             5,402                 11,539                (6,137 )

Total production expenses                              20,233                 25,868                (5,635 )          -22 %
Other:
Depletion, depreciation, and amortization              22,285                 20,520                 1,765
Exploration                                                40                     67                   (27 )
General and administrative                              4,996                  6,424                (1,428 )
Marketing                                                 191                  4,002                (3,811 )
Derivative fair value loss                             26,533                 92,015               (65,482 )
Other operating                                         1,375                    793                   582

Total operating expenses                               75,653                149,689               (74,036 )          -49 %
Interest                                                4,567                  3,549                 1,018
Income tax provision (benefit)                            201                   (138 )                 339

Total expenses                                   $     80,421         $      153,100        $      (72,679 )          -47 %


Expenses (per BOE):
Production:
Lease operating                                  $      11.87         $        10.62        $         1.25
Production, ad valorem, and severance taxes              4.32                   8.55                 (4.23 )

Total production expenses                               16.19                  19.17                 (2.98 )          -16 %
Other:
Depletion, depreciation, and amortization               17.84                  15.20                  2.64
Exploration                                              0.03                   0.05                 (0.02 )
General and administrative                               4.00                   4.76                 (0.76 )
Marketing                                                0.15                   2.96                 (2.81 )
Derivative fair value loss                              21.24                  68.17                (46.93 )
Other operating                                          1.10                   0.59                  0.51

Total operating expenses                                60.55                 110.90                (50.35 )          -45 %
Interest                                                 3.66                   2.63                  1.03
Income tax provision (benefit)                           0.16                  (0.10 )                0.26

Total expenses                                   $      64.37         $       113.43        $       (49.06 )          -43 %

Production expenses. Total production expenses decreased 22 percent from $25.9 million in the first six months of 2008 to $20.2 million in the first six months of 2009. Our production margin decreased 71 percent from $90.3 million in the first six months of 2008 to $26.6 million in the first six months of 2009. Total oil and natural gas wellhead revenues per BOE decreased by 56 percent and total production expenses per BOE decreased by 16 percent. On a per BOE basis, our production margin decreased 68 percent to $21.26 per BOE in the first six months of 2009 as compared to $66.90 per BOE in the first six months of 2008.
Production expense attributable to LOE increased $0.5 million from . . .