Summary of ENCORE ACQUISITION CO

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 stated in the 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 in "Item 8. Financial Statements and Supplementary Data" of 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:
• Second Quarter 2009 Highlights

• 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

Second Quarter 2009 Highlights
Our financial and operating results for the second quarter of 2009 included the following:
• Our average daily production volumes increased 8 percent to 41,407 BOE/D as compared to 38,214 BOE/D in the second quarter of 2008. Oil represented 64 percent of our total production volumes as compared to 71 percent in the second quarter of 2008.

• We invested $100.4 million in oil and natural gas activities, of which $71.9 million was invested in development, exploitation, and exploration activities, yielding 24 gross (7.0 net) productive wells, and $28.3 million was invested in acquisitions, primarily related to the acquisition of the Vinegarone Assets.

• In June, we sold the Williston Basin Assets to ENP for approximately $25.7 million in cash, including post-closing adjustments. Also in June, we entered into a purchase and sale agreement with ENP, which provides for the sale of the Rockies and Permian Basin Assets to ENP for $190 million in cash, subject to customary purchase price adjustments. This transaction is expected to close in August 2009.

• In June, we entered into purchase and sale agreements with EXCO Resources, Inc., which provides for the acquisition from EXCO of certain oil and natural gas properties and related assets in the Mid-Continent and East Texas for $375 million in cash, subject to customary purchase price adjustments and closing conditions. This transaction is expected to close in August 2009.

• In May, ENP issued 2,760,000 common units under its shelf registration statement at a price to the public of $15.60 per common unit. The net proceeds of approximately $40.8 million were used to fund a portion of the purchase price of the Williston Basin Assets and the Vinegarone Assets.

• In April, we issued $225 million of our 9.5% Senior Subordinated Notes due 2016 at 92.228 percent of par value. We used the net proceeds of approximately $202.5 million to reduce outstanding borrowings under our revolving credit facility.

• Subsequent to the end of the second quarter of 2009, ENP issued 9,430,000 common units under its shelf registration statement at a price to the public of $14.30 per common unit. ENP expects to use the net proceeds of approximately $129.1 million to fund a portion of the purchase price of the Rockies and Permian Basin Assets.

Table of Contents

                           ENCORE ACQUISITION COMPANY
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,                 Increase / (Decrease)
                                                   2009                   2008                    $                  %
Revenues (in thousands):
Oil wellhead                                  $      133,677         $      288,352        $      (154,675 )
Oil hedges                                                 -                 (1,428 )                1,428

Total oil revenues                            $      133,677         $      286,924        $      (153,247 )          -53 %

Natural gas wellhead                          $       29,486         $       67,889        $       (38,403 )          -57 %

Combined wellhead                             $      163,163         $      356,241        $      (193,078 )
Combined hedges                                            -                 (1,428 )                1,428

Total combined oil and natural gas
revenues                                             163,163                354,813               (191,650 )          -54 %
Marketing                                                315                  2,521                 (2,206 )          -88 %

Total revenues                                $      163,478         $      357,334        $      (193,856 )          -54 %


Average realized prices:
Oil wellhead ($/Bbl)                          $        55.02         $       117.22        $        (62.20 )
Oil hedges ($/Bbl)                                         -                  (0.58 )                 0.58

Total oil revenues ($/Bbl)                    $        55.02         $       116.64        $        (61.62 )          -53 %

Natural gas wellhead ($/Mcf)                  $         3.67         $        11.12        $         (7.45 )          -67 %

Combined wellhead ($/BOE)                     $        43.30         $       102.44        $        (59.14 )
Combined hedges ($/BOE)                                    -                  (0.41 )                 0.41

Total combined oil and natural gas
revenues ($/BOE)                              $        43.30         $       102.03        $        (58.73 )          -58 %


Total production volumes:
Oil (MBbls)                                            2,430                  2,460                    (30 )           -1 %
Natural gas (MMcf)                                     8,030                  6,105                  1,925             32 %
Combined (MBOE)                                        3,768                  3,477                    291              8 %

Average daily production volumes:
Oil (Bbls/D)                                          26,701                 27,032                   (331 )           -1 %
Natural gas (Mcf/D)                                   88,236                 67,090                 21,146             32 %
Combined (BOE/D)                                      41,407                 38,214                  3,193              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 53 percent from $286.9 million in the second quarter of 2008 to $133.7 million in the second quarter of 2009 as a result of a $61.62 per Bbl decrease in our average realized oil price and a 30 MBbls decrease in our oil production volumes. Our lower oil production volumes decreased oil revenues by approximately $3.5 million and was primarily due to natural production declines in our Elk Basin field.
Our average realized oil price decreased primarily due to our lower average oil wellhead price, which decreased oil revenues by approximately $151.1 million, or $62.20 per Bbl. Our average oil wellhead price decreased primarily due to a lower average NYMEX price, which decreased from $124.30 per Bbl in the second quarter of 2008 to $59.83 Bbl in the second quarter of 2009. Oil revenues in the second quarter of 2008 were also reduced by approximately $1.4 million, or $0.58 per Bbl, for commodity derivative contracts previously designated as hedges.

Table of Contents

ENCORE ACQUISITION COMPANY In the second quarter of 2009 and 2008, our average daily production volumes were decreased by 2,065 BOE/D and 1,943 BOE/D, respectively, for net profits interests related to our CCA properties, which reduced our oil wellhead revenues by approximately $8.6 million and $18.3 million, respectively.
Natural gas revenues decreased 57 percent from $67.9 million in the second quarter of 2008 to $29.5 million in the second quarter of 2009 as a result of a $7.45 per Mcf decrease in our average realized natural gas price, partially offset by a 1,925 MMcf increase in our natural gas production volumes. Our lower average realized natural gas price decreased natural gas revenues by approximately $59.8 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 higher natural gas production increased natural gas revenues by approximately $21.4 million and was primarily due to successful development programs in our Permian Basin and Mid-Continent areas.
The table below illustrates the relationship between our oil and natural gas wellhead prices as a percentage of average NYMEX prices for the periods indicated. Management uses the wellhead price to NYMEX margin analysis to analyze trends in our oil and natural gas revenues.

                                                        Three months ended June 30,
                                                         2009                2008
 Average oil wellhead ($/Bbl)                        $     55.02        $      117.22
 Average NYMEX ($/Bbl)                               $     59.83        $      124.30
 Differential to NYMEX                               $     (4.81 )      $       (7.08 )
 Average oil wellhead to NYMEX percentage                     92 %                 94 %

 Average natural gas wellhead ($/Mcf)                $      3.67        $       11.12
 Average NYMEX ($/Mcf)                               $      3.49        $       10.94
 Differential to NYMEX                               $      0.18        $        0.18
 Average natural gas wellhead to NYMEX percentage            105 %                102 %

Our average oil wellhead price as a percentage of the average NYMEX price was 92 percent in the second quarter of 2009 as compared to 94 percent in the second quarter of 2008.
Our average natural gas wellhead price as a percentage of the average NYMEX price was 105 percent in the second quarter of 2009 as compared to 102 percent in the second quarter of 2008. Certain of our natural gas marketing contracts determine the price that we are paid based on the value of the dry gas sold plus a portion of the value of liquids extracted. Since title of the natural gas sold under these contracts passes at the inlet of the processing plant, we report inlet volumes of natural gas in Mcf as production. Additionally in the second quarter of 2009, we recorded a one-time positive $1.0 million value price adjustment for NGLs marketed by a third party. As a result, the price we were paid per Mcf for natural gas sold under certain contracts during the second quarter of 2009 increased to a level above NYMEX.
Marketing revenues decreased 88 percent from $2.5 million in the second quarter of 2008 to $0.3 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.

Table of Contents

                           ENCORE ACQUISITION COMPANY
   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                                  $       40,451         $       40,697        $          (246 )
Production, ad valorem, and severance taxes              17,033                 35,043                (18,010 )

Total production expenses                                57,484                 75,740                (18,256 )          -24 %
Other:
Depletion, depreciation, and amortization                74,434                 51,026                 23,408
Exploration                                              15,934                 11,593                  4,341
General and administrative                               13,779                 11,559                  2,220
Marketing                                                   515                  3,725                 (3,210 )
Derivative fair value loss                               61,106                256,390               (195,284 )
Other operating                                          14,835                  3,226                 11,609

Total operating expenses                                238,087                413,259               (175,172 )          -42 %
Interest                                                 19,126                 16,785                  2,341
Income tax benefit                                      (31,558 )              (21,322 )              (10,236 )

Total expenses                                   $      225,655         $      408,722        $      (183,067 )          -45 %


Expenses (per BOE):
Production:
Lease operating                                  $        10.74         $        11.70        $         (0.96 )
Production, ad valorem, and severance taxes                4.52                  10.08                  (5.56 )

Total production expenses                                 15.26                  21.78                  (6.52 )          -30 %
Other:
Depletion, depreciation, and amortization                 19.75                  14.67                   5.08
Exploration                                                4.23                   3.33                   0.90
General and administrative                                 3.66                   3.32                   0.34
Marketing                                                  0.14                   1.07                  (0.93 )
Derivative fair value loss                                16.22                  73.73                 (57.51 )
Other operating                                            3.94                   0.93                   3.01

Total operating expenses                                  63.20                 118.83                 (55.63 )          -47 %
Interest                                                   5.08                   4.83                   0.25
Income tax benefit                                        (8.38 )                (6.13 )                (2.25 )

Total expenses                                   $        59.90         $       117.53        $        (57.63 )          -49 %

Production expenses. Total production expenses decreased 24 percent from $75.7 million in the second quarter of 2008 to $57.5 million in the second quarter of 2009. Our production margin decreased 62 percent from $280.5 million in the second quarter of 2008 to $105.7 million in the second quarter of 2009. Total oil and natural gas wellhead revenues per BOE decreased by 58 percent and total production expenses per BOE decreased by 30 percent. On a per BOE basis, our production margin decreased 65 percent to $28.04 per BOE in the second quarter of 2009 as compared to $80.66 per BOE in the second quarter of 2008.
Production expense attributable to LOE remained flat at $40.5 million in the second quarter of 2009 as compared to $40.7 million in the second quarter of 2008. Our higher production volumes increased LOE by approximately $3.4 million. The $0.96 decrease in our average LOE per BOE rate decreased LOE by approximately $3.6 million and was primarily due to decreases in natural gas prices resulting in lower electricity costs and gas plant fuel costs, as well as lower prices paid to oilfield service companies and suppliers, partially offset by an increase of $3.2 million for retention bonuses to be paid in August 2009 related to our 2008 strategic alternatives process.
Production expense attributable to production, ad valorem, and severance taxes ("production taxes") decreased $18.0 million from $35.0 million in the second quarter of 2008 to $17.0 million in the second quarter of 2009 primarily due to lower wellhead revenues, which exclude the effects of commodity derivative contracts. As a percentage of oil and natural gas wellhead revenues, production taxes increased to 10.4 percent in the second quarter of 2009 as compared to 9.8 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.

Table of Contents

ENCORE ACQUISITION COMPANY Depletion, depreciation, and amortization expense ("DD&A"). DD&A expense increased $23.4 million from $51.0 million in the second quarter of 2008 to $74.4 million in the second quarter of 2009 as a result of a $5.08 increase in the per BOE rate and higher production volumes. Our higher average DD&A per BOE rate increased DD&A expense by approximately $19.1 million and was primarily due to the decrease in our proved reserves as a result of lower average commodity prices. Our higher production volumes increased DD&A expense by approximately $4.3 million.
Exploration expense. Exploration expense increased $4.3 million from $11.6 million in the second quarter of 2008 to $15.9 million in the second quarter of 2009. During the second quarter of 2009, we expensed 2.9 net exploratory dry holes totaling $9.5 million. During the second quarter of 2008, we expensed 2.0 net exploratory dry holes totaling $6.6 million. Impairment of unproved acreage increased $1.6 million from $4.2 million in the second quarter of 2008 to $5.8 million in the second quarter of 2009, primarily due to our larger unproved property base, as well as the impairment of certain acreage through the normal course of evaluation. The following table illustrates the components of exploration expense for the periods indicated:

                                       Three months ended June 30,          Increase /
                                        2009                 2008           (Decrease)
                                                      (in thousands)
  Dry holes                        $        9,467       $        6,612     $      2,855
  Geological and seismic                      525                  455               70
  Delay rentals                               136                  357             (221 )
  Impairment of unproved acreage            5,806                4,169            1,637

  Total                            $       15,934       $       11,593     $      4,341

General and administrative expense ("G&A"). G&A expense increased $2.2 million from $11.6 million in the second quarter of 2008 to $13.8 million in the second quarter of 2009 primarily due to an increase of $1.4 million for retention bonuses to be paid in August 2009 related to our 2008 strategic alternatives process and the expensing of transaction costs related to our 2009 acquisitions pursuant to SFAS 141R.
Marketing expenses. Marketing expenses decreased $3.2 million from $3.7 million in the second quarter of 2008 to $0.5 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 $61.1 million derivative fair value loss as compared to $256.4 million in the second quarter of 2008, the components of which were as follows:

                                         Three months ended June 30,
                                          2009                 2008           Decrease
                                                       (in thousands)
  Ineffectiveness                    $            6       $           39     $      (33 )
  Mark-to-market loss                        78,082              219,433       (141,351 )
  Premium amortization                        6,764               17,293        (10,529 )
  Settlements                               (23,746 )             19,625        (43,371 )

  Total derivative fair value loss   $       61,106       $      256,390     $ (195,284 )

Other operating expense. Other operating expense increased $11.6 million from $3.2 million in the second quarter of 2008 to $14.8 million in the second quarter of 2009. Other operating expense for the second quarter of 2009 includes a $5.6 million adjustment to the carrying value of pipe and other tubular inventory whose market value had declined below cost and a $4.7 million adjustment to the carrying value of certain receivables, primarily from ExxonMobil related to our West Texas joint venture.
Interest expense. Interest expense increased $2.3 million from $16.8 million in the second quarter of 2008 to $19.1 million in the second quarter of 2009 primarily due to the issuance of $225 million of our 9.50% Notes, partially offset by a reduction in LIBOR. We received net proceeds of approximately $202.5 million from the issuance of the 9.5% Notes, which we used to reduce outstanding borrowings under our revolving credit facility. Our weighted average interest rate was 6.1 percent for the second quarter of 2009 as compared to 5.4 percent for the second quarter of 2008.

Table of Contents

                           ENCORE ACQUISITION COMPANY
   The following table illustrates the components of interest expense for the
periods indicated:

                                        Three months ended June 30,          Increase /
                                         2009                 2008           (Decrease)
                                                       (in thousands)
  6.25% Senior Subordinated Notes   $        2,436       $        2,431     $          5
  6.0% Senior Subordinated Notes             4,644                4,636                8
  9.5% Senior Subordinated Notes             4,169                    -            4,169
  7.25% Senior Subordinated Notes            2,751                2,749                2
  Revolving credit facilities                3,966                7,215           (3,249 )
  Other                                      1,160                 (246 )          1,406

  Total                             $       19,126       $       16,785     $      2,341

Income taxes. In the second quarter of 2009, we recorded an income tax benefit of $31.6 million as compared to $21.3 million in the second quarter of 2008. In the second quarter of 2009, we had a loss before income taxes and noncontrolling interest of $93.1 million as compared to $72.0 million in the second quarter of 2008. Our effective tax rate increased to 33.9 percent in the second quarter of 2009 as compared to 29.6 percent in the second quarter of 2008 primarily due to a permanent increase in the production activities deduction.

Table of Contents

                           ENCORE ACQUISITION COMPANY
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,                Increase / (Decrease)
                                                  2009                 2008                  $                  %
Revenues (in thousands):
Oil wellhead                                  $     221,966         $  510,315        $      (288,349 )
Oil hedges                                                -             (2,857 )                2,857

Total oil revenues                            $     221,966         $  507,458        $      (285,492 )          -56 %


Natural gas wellhead                          $      54,740         $  116,201        $       (61,461 )          -53 %


Combined wellhead                             $     276,706         $  626,516        $      (349,810 )
Combined hedges                                           -             (2,857 )                2,857

Total combined oil and natural gas
revenues                                            276,706            623,659               (346,953 )          -56 %
Marketing                                             1,121              6,577                 (5,456 )          -83 %

Total revenues                                $     277,827         $  630,236        $      (352,409 )          -56 %


Average realized prices:
Oil wellhead ($/Bbl)                          $       45.14         $   102.81        $        (57.67 )
Oil hedges ($/Bbl)                                        -              (0.58 )                 0.58

Total oil revenues ($/Bbl)                    $       45.14         $   102.23        $        (57.09 )          -56 %


Natural gas wellhead ($/Mcf)                  $        3.48         $     9.73        $         (6.25 )          -64 %


Combined wellhead ($/BOE)                     $       36.70         $    90.10        $        (53.40 )
Combined hedges ($/BOE)                                   -              (0.41 )                 0.41

Total combined oil and natural gas
revenues ($/BOE)                              $       36.70         $    89.69        $        (52.99 )          -59 %


Total production volumes:
Oil (MBbls)                                           4,918              4,964                    (46 )           -1 %
Natural gas (MMcf)                                   15,727             11,937                  3,790             32 %
Combined (MBOE)                                       7,539              6,953                    586              8 %

Average daily production volumes:
Oil (Bbls/D)                                         27,170             27,274                   (104 )            0 %
Natural gas (Mcf/D)                                  86,890             65,586                 21,304             32 %
Combined (BOE/D)                                     41,652             38,205                  3,447              9 %

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 56 percent from $507.5 million in the first six months of 2008 to $222.0 million in the first six months of 2009 as a result of a . . .