ex99-1.htm

The unaudited pro forma condensed consolidated financial statements are presented for Eagle Rock Energy Partners, L.P. (the “Partnership”). The following unaudited pro forma condensed consolidated balance sheet as of September 30, 2009 and the unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2009 and 2008 and the years ended December 31, 2008 and 2007 should be read in conjunction with the December 31, 2008 and 2007 audited historical financial statements of the Partnership, including the related notes, filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on March 13, 2009 and April 1, 2008, respectively, as well as the unaudited consolidated financial statements as of September 30, 2009 and 2008 of the Partnership, including the related notes, filed with the SEC on Form 10-Q on November 9, 2009 and November 10, 2008, respectively.

The following unaudited pro forma condensed consolidated balance sheet as of September 30, 2009 is presented to illustrate the estimated effects of the pending sale of the Partnership’s fee mineral and royalty interests business, as well as its equity investment in Ivory Working Interests, L.P. (the “Minerals Business”) to BSAP II GP L.L.C. (“Black Stone Minerals”), a subsidiary of Black Stone Minerals Company, L.P.,, pursuant to a Purchase and Sale Agreement, dated December 21, 2009, by and among the Partnership’s wholly-owned subsidiaries Eagle Rock Pipeline GP, LLC and EROC Production LLC and Black Stone Minerals, as if the transaction had occurred on September 30, 2009. The unaudited pro forma condensed consolidated statement of operations for the years ended December 31, 2008 and 2007 and for the nine months ended September 30, 2009 and 2008 are presented to illustrate the estimated effects of the pending Minerals Business sale as if the transaction had occurred on May 1, 2007, due to the Partnership acquiring the Minerals Business on April 30, 2007. The pro forma adjustments and assumptions are described in Note 2 in the accompanying notes to the unaudited pro forma condensed consolidated financial statements.

The unaudited pro forma condensed financial statements are based on assumptions that we believe are reasonable under the circumstances and are intended for informational purposes only. They are not necessarily indicative of the financial results that would have occurred if the transactions described herein had taken place on the dates indicated, nor are they indicative of the future consolidated results.

	September 30, 2009			Adjustments for Minerals Business Sale				Pro Forma September 30, 2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	9,168		$	174,500		(a)	$	9,168
					(694	)	(a)
					(500	)	(a)
					(173,306	)	(c)
Accounts receivable		73,792			(2,486	)	(b)		71,306
Risk management assets		26,017			(92	)	(a)		25,925
Prepayments and other current assets		2,140			—				2,140
Total current assets		111,117			(2,578	)			108,539
PROPERTY, PLANT AND EQUIPMENT —Net		1,313,386			(121,739	)	(b)		1,191,647
INTANGIBLE ASSETS —Net		139,273			—				139,273
DEFERRED TAX ASSET		1,663			—				1,663
RISK MANAGEMENT ASSETS		5,725			—				5,725
OTHER ASSETS		19,678			(10,936	)	(b)		8,742
TOTAL		1,590,842			(135,253	)			1,455,589

LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		65,666			(757	)	(b)		64,909
Due to affiliate		10,859			—				10,859
Accrued liabilities		11,364			—				11,364
Income taxes payable		992			—				992
Risk management liabilities		34,988			(626	)	(a)		34,362
Total current liabilities		123,869			(1,383	)			122,486
LONG-TERM DEBT		774,383			(173,306	)	(c)		601,077
ASSET RETIREMENT OBLIGATIONS		19,728			—				19,728
DEFERRED TAX LIABILITY		42,051			—				42,051
RISK MANAGEMENT LIABILITIES		31,406			(160	)	(a)		31,246
OTHER LONG-TERM LIABILITIES		568			—				568
COMMITMENTS AND CONTINGENCIES
MEMBERS’ EQUITY:
Common unitholders		533,651			40,096		(d)		573,247
					(500	)	(a)
Subordinated unitholders		70,360			—				70,360
General partner unitholders		(5,174	)		—				(5,174	)
Total members’ equity		598,837			39,596				638,433
TOTAL	$	1,590,842		$	(135,253	)		$	1,455,589

	For the Year Ended December 31, 2008			Adjustments for Minerals Business Sale				Pro Forma For the Year Ended December 31, 2008
REVENUE:
Natural gas, natural gas liquids, oil, condensate and sulfur sales	$	1,233,919		$	—			$	1,233,919
Gathering, compression, processing and treating services		38,871			—				38,871
Minerals and royalty income		42,994			(42,994	)	(f)		—
Commodity risk management gains		161,765			(3,454	)	(f)		158,311
Other revenue		716			—				716
Total revenue		1,478,265			(46,448	)			1,431,817
COSTS AND EXPENSES:
Cost of natural gas and natural gas liquids		891,433			—				891,433
Operations and maintenance		73,620			—				73,620
Taxes other than income		19,936			(1,672	)	(f)		18,264
General and administrative		45,701			(119	)	(f)		45,582
Other operating (income)expenses		10,699			—				10,699
Impairment of property and plants		143,857			(1,448	)	(f)		142,409
Goodwill impairment		30,994			—				30,994
Depreciation, depletion, and amortization		116,754			(7,499	)	(f)		109,255
Total costs and expenses		1,332,994			(10,738	)			1,322,256
OPERATING (LOSS) INCOME		145,271			(35,710	)			109,561
OTHER INCOME (EXPENSE):
Interest income		793			(23	)	(f)		770
Other income		5,328			(4,011	)	(f)		1,317
Interest expense, net		(32,884	)		7,460		(g)		(25,424	)
Interest rate risk management losses		(32,931	)		—				(32,931	)
Other expense		(955	)		—				(955	)
Total other expense		(60,649	)		3,426				(57,223	)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX		84,622			(32,284	)			52,338
INCOME TAX BENEFIT		(1,134	)		(4	)	(f)		(1,138	)
INCOME FROM CONTINUING OPERATIONS	$	85,756		$	(32,280	)		$	53,476

	For the Year Ended December 31, 2008		Adjustments for Minerals Business Sale (1)	Pro Forma For the Year Ended December 31, 2008
NET (LOSS) INCOME PER COMMON UNIT — BASIC AND DILUTED:
Basic income from continuing operations per unit:
Common units	$	1.16		$	0.72
Subordinated units	$	1.16		$	0.72
General partner units	$	1.16		$	0.72
Basic weighted average units outstanding:
Common units		51,534			51,534
Subordinated units		20,691			20,691
General partner units		845			845

Diluted income from continuing operations per unit:
Common units (1)	$	1.16		$	0.72
Subordinated units	$	1.16		$	0.72
General partner units	$	1.16		$	0.72
Diluted weighted average units outstanding:
Common units		51,699			51,699
Subordinated units		20,691			20,691
General partner units		845			845

(1) Due to the fact that the Partnership has determined that it is more dilutive to apply the two-class method versus the treasury stock method, nonvested shares that vest solely on the basis of a service condition are included in the denominator of the computation of the diluted earnings per unit calculation which is equal to basic weighted average shares outstanding.

	For the Year Ended December 31, 2007			Adjustments for Minerals Business Sale				Pro Forma For the Year Ended December 31, 2007
REVENUE:
Natural gas, natural gas liquids, oil, condensate and sulfur sales	$	733,326		$	—			$	733,326
Gathering, compression, processing and treating services		27,417			—				27,417
Minerals and royalty income		15,004			(15,004	)	(f)		—
Commodity risk management losses		(133,834	)		2,135		(f)		(131,699	)
Other revenue		110			—				110
Total revenue		642,023			(12,869	)			629,154
COSTS AND EXPENSES:
Cost of natural gas and natural gas liquids		553,248			—				553,248
Operations and maintenance		52,793			—				52,793
Taxes other than income		8,340			(768	)	(f)		7,572
General and administrative		27,799			(59	)	(f)		27,740
Other operating (income)expenses		2,847			—				2,847
Impairment of property and plants		5,749			(5,412	)	(f)		337
Depreciation, depletion, and amortization		80,559			(8,026	)	(f)		72,533
Total costs and expenses		731,335			(14,265	)			717,070
OPERATING LOSS		(89,312	)		1,396				(87,916	)
OTHER INCOME (EXPENSE):
Interest income		1,160			(18	)	(f)		1,142
Other income		696			(478	)	(f)		218
Interest expense, net		(38,936	)		8,003		(e)		(30,933	)
Interest rate risk management losses		(11,988	)		—				(11,988	)
Other expense		(8,226	)		—				(8,226	)
Total other expense		(57,294	)		7,507				(49,787	)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX		(146,606	)		8,903				(137,703	)
INCOME TAX PROVISION		158			(4	)	(f)		154
LOSS FROM CONTINUING OPERATIONS	$	(146,764	)	$	8,907			$	(137,857	)

	For the Year Ended December 31, 2007			Adjustments for Minerals Business Sale	Pro Forma For the Year Ended December 31, 2007
NET (LOSS) INCOME PER COMMON UNIT — BASIC AND DILUTED:
Basic and diluted loss from continuing operations per unit:
Common units	$	(2.15	)		$	(1.99	)
Subordinated units	$	(3.15	)		$	(2.99	)
General partner units	$	(3.15	)		$	(2.99	)
Basic and diluted weighted average units outstanding:
Common units		37,008				37,008
Subordinated units		20,691				20,691
General partner units		845				845

	For the Nine Months Ended September 30, 2009			Adjustments for Minerals Business Sale				Pro Forma For the Nine Months Ended September 30, 2009
REVENUE:
Natural gas, natural gas liquids, oil, condensate and sulfur sales	$	468,589		$	—			$	468,589
Gathering, compression, processing and treating services		35,043			—				35,043
Minerals and royalty income		10,788			(10,788	)	(f)		—
Commodity risk management losses		(57,137	)		1,715		(f)		(55,422	)
Other revenue		1,770			—				1,770
Total revenue		459,053			(9,073	)			449,980
COSTS AND EXPENSES:
Cost of natural gas and natural gas liquids		358,802			—				358,802
Operations and maintenance		54,624			—				54,624
Taxes other than income		8,790			(972	)	(f)		7,818
General and administrative		34,882			(85	)	(f)		34,797
Other operating (income)expenses		(3,552	)		—				(3,552	)
Impairment of property and plants		516			(274	)	(f)		242
Depreciation, depletion, and amortization		86,237			(4,767	)	(f)		81,470
Total costs and expenses		540,299			(6,098	)			534,201
OPERATING LOSS		(81,246	)		(2,975	)			(84,221	)
OTHER INCOME (EXPENSE):
Interest income		183			—				183
Other income		1,835			(1,011	)	(f)		824
Interest expense, net		(17,282	)		2,883		(g)		(14,399	)
Interest rate risk management losses		(3,924	)		—				(3,924	)
Other expense		(801	)		—				(801	)
Total other expense		(19,989	)		1,872				(18,117	)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX		(101,235	)		(1,103	)			(102,338	)
INCOME TAX PROVISION (BENEFIT)		1,634			(3	)	(f)		1,631
LOSS FROM CONTINUING OPERATIONS	$	(102,869	)	$	(1,100	)		$	(104,969	)

	For the Nine Months Ended September 30, 2009			Adjustments for Minerals Business Sale	Pro Forma For the Nine Months Ended September 30, 2009
NET (LOSS) INCOME PER COMMON UNIT — BASIC AND DILUTED:

Basic and diluted loss from continuing operations per unit:
Common units	$	(1.35	)		$	(1. 37	)
Subordinated units	$	(1.43	)		$	(1. 44	)
General partner units	$	(1.35	)		$	(1. 37	)
Basic and diluted weighted average units outstanding:
Common units		53,276				53,276
Subordinated units		20,691				20,691
General partner units		845				845

	For the Nine Months Ended September 30, 2008			Adjustments for Minerals Business Sale				Pro Forma For the Nine Months Ended September 30, 2008
REVENUE:
Natural gas, natural gas liquids, oil, condensate and sulfur sales	$	1,008,891		$	—			$	1,008,891
Gathering, compression, processing and treating services		27,741			—				27,741
Minerals and royalty income		34,606			(34,606	)	(f)		—
Commodity risk management losses		(97,769	)		3,977		(f)		(93,792	)
Other revenue		610			—				610
Total revenue		974,079			(30,629	)			943,450
COSTS AND EXPENSES:
Cost of natural gas and natural gas liquids		726,400			—				726,400
Operations and maintenance		54,772			—				54,772
Taxes other than income		14,975			(1,355	)	(f)		13,620
General and administrative		31,161			(37	)	(f)		34,124
Other operating (income)expenses		10,134			—				10,134
Depreciation, depletion, and amortization		80,799			(6,191	)	(f)		74,608
Total costs and expenses		918,241			(7,583	)			910,658
OPERATING INCOME		55,838			(23,046	)			32,792
OTHER INCOME (EXPENSE):
Interest income		673			(14	)	(f)		659
Other income		2,867			(2,850	)	(f)		17
Interest expense, net		(23,576	)		5,875		(e)		(17,701	)
Interest rate risk management losses		(5,375	)		—				(5,375	)
Other expense		(652	)		—				(652	)
Total other expense		(26,063	)		3,011				(23,052	)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX		29,775			(20,035	)			9,740
INCOME TAX BENEFIT		(1,497	)		(4	)	(f)		(1,501	)
INCOME FROM CONTINUING OPERATIONS	$	31,272		$	(20,031	)		$	11,241

	For the Nine Months Ended September 30, 2008		Adjustments for Minerals Business Sale	Pro Forma For the Nine Months Ended September 30, 2008
NET (LOSS) INCOME PER COMMON UNIT — BASIC AND DILUTED:

Basic (loss) income from continuing operations per unit:
Common units	$	0.43		$	0.16
Subordinated units	$	0.43		$	0.16
General partner units	$	0.43		$	0.16
Basic weighted average units outstanding:
Common units		50,762			50,762
Subordinated units		20,691			20,691
General partner units		845			845

Diluted (loss) income from continuing operations per unit:
Common units (1)	$	0.43		$	0.16
Subordinated units	$	0.43		$	0.16
General partner units	$	0.43		$	0.16
Diluted weighted average units outstanding:
Common units		50,900			50,900
Subordinated units		20,691			20,691
General partner units		845			845

The historical information is derived from the historical financial statements of Eagle Rock Energy Partners, L.P., which are incorporated by reference in the Form 8-K. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2009 is presented to illustrate the estimated effects of the pending Minerals Business sale as if the transaction had occurred on September 30, 2009. The unaudited pro forma condensed consolidated statement of operations for the years ended December 31, 2008 and 2007 are presented to illustrate the estimated effects of the pending Minerals Business sale as if the transaction had occurred on May 1, 2007, due to Eagle Rock Energy Partners, L.P. acquiring the Minerals Business on April 30, 2007. The transaction affecting the unaudited pro forma condensed consolidated financial statements is the Minerals Business Sale, which includes Eagle Rock Energy Partners, L.P.’s historical Minerals Business segment and a portion of its Corporate segment relating to the interest in the Ivory Working Interests, L.P. and the commodity risk management gains and losses attributable to the Minerals Business’ production..

(g) Reflects reduction in interest expense from the net repayment of outstanding borrowings under the revolving credit facility as a result of the Minerals Business sale. Interest savings are based on Eagle Rock Energy Partners, L.P.’s weighted average annualized borrowing cost of 4.3%, 4.0%, 2.2% and 4.4% in 2008 and 2007 and the nine months ended September 30, 2009 and 2008, respectively.