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 in 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" 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:
• Overview of Business

• Results of Operations

o Comparison of Quarter Ended September 30, 2009 to Quarter Ended September 30, 2008

o Comparison of Nine Months Ended September 30, 2009 to Nine Months Ended September 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 and New Mexico;

• the Williston Basin in North Dakota and Montana; and

• the Arkoma Basin in Arkansas and Oklahoma.

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. In August 2009, we acquired the Rockies and Permian Basin Assets. Because these assets 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, the Williston Basin Assets, and the Rockies and Permian Basin Assets for all periods presented.
These results are not indicative of our future results, which could differ materially from our historical results.

Table of Contents

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

                                                 Three months ended September 30,                Increase / (Decrease)
                                                   2009                    2008                    $                  %
Revenues (in thousands):
Oil                                           $        35,280         $        67,221        $      (31,941 )          -48 %
Natural gas                                             5,650                  15,444                (9,794 )          -63 %

Total oil and natural gas revenues                     40,930                  82,665               (41,735 )          -50 %
Marketing                                                 102                   1,445                (1,343 )          -93 %

Total revenues                                $        41,032         $        84,110        $      (43,078 )          -51 %


Average realized prices:
Oil ($/Bbl)                                   $         60.98         $        109.80        $       (48.82 )          -44 %
Natural gas ($/Mcf)                           $          3.40         $          9.87        $        (6.47 )          -66 %
Combined ($/BOE)                              $         47.83         $         94.68        $       (46.85 )          -49 %

Total production volumes:
Oil (MBbls)                                               579                     612                   (33 )           -5 %
Natural gas (MMcf)                                      1,663                   1,565                    98              6 %
Combined (MBOE)                                           856                     873                   (17 )           -2 %

Average daily production volumes:
Oil (Bbls/D)                                            6,289                   6,654                  (365 )           -5 %
Natural gas (Mcf/D)                                    18,077                  17,014                 1,063              6 %
Combined (BOE/D)                                        9,301                   9,490                  (189 )           -2 %

Average NYMEX prices:
Oil (per Bbl)                                 $         68.24         $        118.67        $       (50.43 )          -42 %
Natural gas (per Mcf)                         $          3.40         $         10.27        $        (6.87 )          -67 %

Oil revenues decreased 48 percent from $67.2 million in the third quarter of 2008 to $35.3 million in the third quarter of 2009 as a result of a $48.82 per Bbl decrease in our average realized oil price and a 33 MBbls decrease in our oil production volumes. Our lower average realized oil price decreased oil revenues by approximately $28.2 million and was primarily due to a lower average NYMEX price, which decreased from $118.67 per Bbl in the third quarter of 2008 to $68.24 per Bbl in the third quarter of 2009. Our lower oil production volumes decreased oil revenues by approximately $3.7 million and was primarily due to natural production declines in our Elk Basin field.
Natural gas revenues decreased 63 percent from $15.4 million in the third quarter of 2008 to $5.7 million in the second quarter of 2009 as a result of a $6.47 per Mcf decrease in our average realized natural gas price, partially offset by a 98 MMcf increase in our natural gas production volumes. Our lower average realized natural gas price decreased natural gas revenues by approximately $10.8 million and was primarily due to a lower average NYMEX price, which decreased from $10.27 per Mcf in the third quarter of 2008 to $3.40 per Mcf in the third quarter of 2009. Our higher natural gas production volumes increased natural gas revenues by approximately $1.0 million.
The following table shows 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.

Table of Contents

                           ENCORE ENERGY PARTNERS LP

                                                                      Three months ended September 30,
                                                                        2009                   2008
Average realized oil price ($/Bbl)                                 $      60.98          $       109.80
Average NYMEX ($/Bbl)                                              $      68.24          $       118.67
Differential to NYMEX                                              $      (7.26 )        $        (8.87 )
Average realized oil price to NYMEX percentage                               89 %                    93 %

Average realized natural gas price ($/Mcf)                         $       3.40          $         9.87
Average NYMEX ($/Mcf)                                              $       3.40          $        10.27
Differential to NYMEX                                              $          -          $        (0.40 )
Average realized natural gas price to NYMEX percentage                      100 %                    96 %

Our average realized oil price as a percentage of the average NYMEX price was 89 percent in the third quarter of 2009 as compared to 93 percent in the third quarter of 2008. Our average realized natural gas price as a percentage of the average NYMEX price was 100 percent in the third quarter of 2009 as compared to 96 percent in the third quarter of 2008. As a result of the incremental NGLs value and narrower differentials, the price we received for natural gas sold under certain contracts increased to a level comparable to NYMEX in the third quarter of 2009.
Marketing revenues decreased 93 percent from $1.4 million in the third quarter of 2008 to $0.1 million in the third 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 ENERGY PARTNERS LP
   Expenses. The following table provides the components of our expenses for the
periods indicated:

                                                     Three months ended September 30,                Increase / (Decrease)
                                                      2009                     2008                    $                  %
Expenses (in thousands):
Production:
Lease operating                                  $         9,017         $          12,967        $     (3,950 )
Production, ad valorem, and severance taxes                4,693                     8,210              (3,517 )

Total production expenses                                 13,710                    21,177              (7,467 )           -35 %
Other:
Depletion, depreciation, and amortization                 14,458                    13,820                 638
Exploration                                                3,034                        47               2,987
General and administrative                                 2,912                     3,772                (860 )
Marketing                                                     54                     1,316              (1,262 )
Derivative fair value gain                                (4,822 )                 (70,443 )            65,621
Other operating                                            1,303                       440                 863

Total operating expenses                                  30,649                   (29,871 )            60,520            -203 %
Interest                                                   2,984                     1,767               1,217
Income tax provision (benefit)                               (38 )                     332                (370 )

Total expenses                                   $        33,595         $         (27,772 )      $     61,367            -221 %


Expenses (per BOE):
Production:
Lease operating                                  $         10.54         $           14.85        $      (4.31 )
Production, ad valorem, and severance taxes                 5.48                      9.40               (3.92 )

Total production expenses                                  16.02                     24.25               (8.23 )           -34 %
Other:
Depletion, depreciation, and amortization                  16.89                     15.83                1.06
Exploration                                                 3.55                      0.05                3.50
General and administrative                                  3.40                      4.32               (0.92 )
Marketing                                                   0.06                      1.51               (1.45 )
Derivative fair value gain                                 (5.63 )                  (80.68 )             75.05
Other operating                                             1.52                      0.50                1.02

Total operating expenses                                   35.81                    (34.22 )             70.03            -205 %
Interest                                                    3.49                      2.02                1.47
Income tax provision (benefit)                             (0.04 )                    0.38               (0.42 )

Total expenses                                   $         39.26         $          (31.82 )      $      71.08            -223 %

Production expenses. Total production expenses decreased 35 percent from $21.2 million in the third quarter of 2008 to $13.7 million in the third quarter of 2009. Our production margin decreased 56 percent from $61.5 million in the third quarter of 2008 to $27.2 million in the third quarter of 2009. Total oil and natural gas wellhead revenues per BOE decreased by 49 percent and total production expenses per BOE decreased by 34 percent. On a per BOE basis, our production margin decreased 55 percent to $31.81 per BOE in the third quarter of 2009 as compared to $70.43 per BOE in the third quarter of 2008.
Production expense attributable to LOE decreased $4.0 million from $13.0 million in the third quarter of 2008 to $9.0 million in the third quarter of 2009 as a result of a $4.31 decrease in the per BOE rate and lower production volumes. Our lower average LOE per BOE rate decreased LOE by approximately $3.7 million and was primarily due to lower prices paid to oilfield service companies and suppliers and decreases in natural gas prices resulting in lower electricity costs and gas plant fuel costs. Our lower production volumes decreased LOE by approximately $0.3 million.
Production expense attributable to production taxes decreased $3.5 million from $8.2 million in the third quarter of 2008 to $4.7 million in the third quarter of 2009 primarily due to lower wellhead revenues, which exclude the effects of commodity derivative contracts. As a percentage of wellhead revenues, production taxes increased to 11.5 percent in the third quarter of 2009 as compared to 9.9 percent in the third quarter of 2008 primarily due to higher ad valorem taxes, which are based on production volumes as opposed to a percentage of wellhead revenues.

Table of Contents

ENCORE ENERGY PARTNERS LP Depletion, depreciation, and amortization expense ("DD&A"). DD&A expense increased $0.6 million from $13.8 million in the third quarter of 2008 to $14.5 million in the third quarter of 2009, as a result of a $1.06 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 $0.9 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 $0.3 million.
Exploration expense. Exploration expense increased $3.0 million from $47 thousand in the third quarter of 2008 to $3.0 million in the third quarter of 2009. During the third quarter of 2009, we expensed 1.0 net exploratory dry hole totaling $3.0 million. No dry holes were expensed in the third quarter of 2008.
General and administrative expense ("G&A"). G&A expense decreased $0.9 million from $3.8 million in the third quarter of 2008 to $2.9 million in the third quarter of 2009 primarily due to a decrease in non-cash unit-based compensation expense.
Marketing expenses. Marketing expenses decreased $1.3 million from $1.3 million in the third quarter of 2008 to $0.1 million in the third 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 gain. During the third quarter of 2009, we recorded a $4.8 million derivative fair value gain as compared to $70.4 million in the third quarter of 2008, the components of which were as follows:

                                       Three months ended September 30,
                                          2009                   2008           Increase
                                                           (in thousands)
 Ineffectiveness                    $             18       $             (6 )   $      24
 Mark-to-market loss                           4,957                    823         4,134
 Premium amortization                          5,918                  2,274         3,644
 Settlements                                 (15,715 )              (73,534 )      57,819

 Total derivative fair value gain   $         (4,822 )     $        (70,443 )   $  65,621

Interest expense. Interest expense increased $1.2 million from $1.8 million in the third quarter of 2008 to $3.0 million in the third quarter of 2009 primarily due to higher weighted average outstanding borrowings under our revolving credit facility. Our weighted average interest rate was 5.3 percent for the third quarter of 2009 as compared to 4.6 percent for the third quarter of 2008.

Table of Contents

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

                                                   Nine months ended September 30,                     Decrease
                                                    2009                     2008                  $               %
Revenues (in thousands):
Oil                                           $         88,433         $        197,587        $ (109,154 )         -55 %
Natural gas                                             15,143                   45,410           (30,267 )         -67 %

Total oil and natural gas revenues                     103,576                  242,997          (139,421 )         -57 %
Marketing                                                  381                    5,207            (4,826 )         -93 %

Total revenues                                $        103,957         $        248,204        $ (144,247 )         -58 %


Average realized prices:
Oil ($/Bbl)                                   $          50.35         $         103.08        $   (52.73 )         -51 %
Natural gas ($/Mcf)                           $           3.39         $           9.63        $    (6.24 )         -65 %
Combined ($/BOE)                              $          41.41         $          89.90        $   (48.49 )         -54 %

Total production volumes:
Oil (MBbls)                                              1,756                    1,917              (161 )          -8 %
Natural gas (MMcf)                                       4,470                    4,717              (247 )          -5 %
Combined (MBOE)                                          2,501                    2,703              (202 )          -7 %

Average daily production volumes:
Oil (Bbls/D)                                             6,433                    6,996              (563 )          -8 %
Natural gas (Mcf/D)                                     16,375                   17,215              (840 )          -5 %
Combined (BOE/D)                                         9,162                    9,865              (703 )          -7 %

Average NYMEX prices:
Oil (per Bbl)                                 $          57.22         $         113.59        $   (56.37 )         -50 %
Natural gas (per Mcf)                         $           3.93         $           9.74        $    (5.81 )         -60 %

Oil revenues decreased 55 percent from $197.6 million in the first nine months of 2008 to $88.4 million in the first nine months of 2009 as a result of a $52.73 per Bbl decrease in our average realized oil price and a 161 MBbls decrease in our oil production volumes. Our lower average realized oil price decreased oil revenues by approximately $92.6 million and was primarily due to a lower average NYMEX price, which decreased from $113.59 per Bbl in the first nine months of 2008 to $57.22 per Bbl in the first nine months of 2009. Our lower oil production volumes decreased oil revenues by approximately $16.5 million and was primarily due to natural production declines in our Elk Basin field.
Natural gas revenues decreased 67 percent from $45.4 million in the first nine months of 2008 to $15.1 million in the first nine months of 2009 as a result of a $6.24 per Mcf decrease in our average realized natural gas price and a 247 MMcf decrease in our natural gas production volumes. Our lower average realized natural gas price decreased natural gas revenues by approximately $27.9 million and was primarily due to a lower average NYMEX price, which decreased from $9.74 per Mcf in the first nine months of 2008 to $3.93 per Mcf in the first nine months of 2009. Our lower natural gas production volumes decreased natural gas revenues by approximately $2.4 million and was primarily due to natural production declines in our Crockett County properties.

Table of Contents

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

                                                                      Nine months ended September 30,
                                                                        2009                   2008
Average realized oil price ($/Bbl)                                 $      50.35          $       103.08
Average NYMEX ($/Bbl)                                              $      57.22          $       113.59
Differential to NYMEX                                              $      (6.87 )        $       (10.51 )
Average realized oil price to NYMEX percentage                               88 %                    91 %

Average realized natural gas price ($/Mcf)                         $       3.39          $         9.63
Average NYMEX ($/Mcf)                                              $       3.93          $         9.74
Differential to NYMEX                                              $      (0.54 )        $        (0.11 )
Average realized natural gas price to NYMEX percentage                       86 %                    99 %

Our average realized oil price as a percentage of the average NYMEX price was 88 percent in the first nine months of 2009 as compared to 91 percent in the first nine months of 2008.
Our average realized natural gas price as a percentage of the average NYMEX price was 86 percent in the first nine months of 2009 as compared to 99 percent in the first nine months of 2008. The natural gas index prices related to our West Texas natural gas contracts widened in their relationship to NYMEX causing a larger differential in the first nine months of 2009.
Marketing revenues decreased 93 percent from $5.2 million in the first nine months of 2008 to $0.4 million in the first nine 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.

Table of Contents

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

                                                      Nine months ended September 30,                 Increase / (Decrease)
                                                       2009                     2008                    $                  %
Expenses (in thousands):
Production:
Lease operating                                  $         31,120         $         34,069        $       (2,949 )
Production, ad valorem, and severance taxes                11,586                   23,711               (12,125 )

Total production expenses                                  42,706                   57,780               (15,074 )          -26 %
Other:
Depletion, depreciation, and amortization                  43,684                   42,496                 1,188
Exploration                                                 3,074                      115                 2,959
General and administrative                                  9,135                   11,899                (2,764 )
Marketing                                                     245                    5,318                (5,073 )
Derivative fair value loss                                 21,711                   21,572                   139
Other operating                                             2,730                    1,294                 1,436

Total operating expenses                                  123,285                  140,474               (17,189 )          -12 %
Interest                                                    7,551                    5,316                 2,235
Income tax provision                                          163                      194                   (31 )

Total expenses                                   $        130,999         $        145,984        $      (14,985 )          -10 %


Expenses (per BOE):
Production:
Lease operating                                  $          12.44         $          12.60        $        (0.16 )
Production, ad valorem, and severance taxes                  4.63                     8.77                 (4.14 )

Total production expenses                                   17.07                    21.37                 (4.30 )          -20 %
Other:
Depletion, depreciation, and amortization                   17.46                    15.72                  1.74
Exploration                                                  1.23                     0.04                  1.19
General and administrative                                   3.65                     4.40                 (0.75 )
Marketing                                                    0.10                     1.97                 (1.87 )
Derivative fair value loss                                   8.68                     7.98                  0.70
Other operating                                              1.09                     0.48                  0.61

Total operating expenses                                    49.28                    51.96                 (2.68 )           -5 %
. . .