1364541--4/2/2007--EAGLE_ROCK_ENERGY_PARTNERS_L

related topics

{tax, income, asset}

{debt, indebtedness, cash}

{gas, price, oil}

{stock, price, operating}

{operation, natural, condition}

{investment, property, distribution}

{regulation, change, law}

{operation, international, foreign}

{acquisition, growth, future}

{competitive, industry, competition}

{cost, regulation, environmental}

{control, financial, internal}

{customer, product, revenue}

Risks Related to Our Business Because of the natural decline in production from existing wells, our success depends on our ability to obtain new sources of supplies of natural gas and NGLs, which are dependent on certain factors beyond our control. Any decrease in supplies of natural gas or NGLs could adversely affect our business and operating results. Natural gas, NGLs and other commodity prices are volatile, and a reduction in these prices could adversely affect our cash flow and our ability to make distributions. Our hedging activities may have a material adverse effect on our earnings, profitability, cash flows and financial condition. We typically do not obtain independent evaluations of natural gas reserves dedicated to our gathering and pipeline systems; therefore, volumes of natural gas on our systems in the future could be less than we anticipate. We depend on certain natural gas producer customers for a significant portion of our supply of natural gas. The loss of any of these customers could result in a decline in our volumes, revenues and cash available for distribution. We may not successfully balance our purchases and sales of natural gas, which would increase our exposure to commodity price risks. If third-party pipelines and other facilities interconnected to our systems become unavailable to transport or produce natural gas and NGLs, our revenues and cash available for distribution could be adversely affected. Our industry is highly competitive, and increased competitive pressure could adversely affect our business and operating results. A change in the jurisdictional characterization of some of our assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of our assets, which may cause our revenues to decline and operating expenses to increase. We are subject to compliance with stringent environmental laws and regulations that may expose us to significant costs and liabilities. Our construction of new assets may not result in revenue increases and is subject to regulatory, environmental, political, legal and economic risks, which could adversely affect our results of operations and financial condition. If we do not make acquisitions on economically acceptable terms, our future growth will be limited. We do not own all of the land on which our pipelines and facilities are located, which could disrupt our operations. Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. If a significant accident or event occurs that is not fully insured, our operations and financial results could be adversely affected. Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities. Restrictions in our amended and restated credit facility limit our ability to make distributions and limit our ability to capitalize on acquisitions and other business opportunities. Increases in interest rates, which have recently experienced record lows, could adversely impact our unit price and our ability to issue additional equity, to incur debt to make acquisitions or for other purposes or to make cash distributions at our intended levels. Due to our lack of industry and geographic diversification, adverse developments in our midstream operations or operating areas would reduce our ability to make distributions to our unitholders. We are exposed to the credit risks of our key producer customers, and any material nonpayment or nonperformance by our key producer customers could reduce our ability to make distributions to our unitholders. Terrorist attacks, and the threat of terrorist attacks, have resulted in increased costs to our business. Continued hostilities in the Middle East or other sustained military campaigns may adversely impact our results of operations. If we fail to develop or maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud. Risks Inherent in an Investment in Us We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner, to enable us to make cash distributions to holders of our common units and subordinated units at the initial distribution rate under our cash distribution policy. The amount of cash we have available for distribution to holders of our common units and subordinated units depends primarily on our cash flow and not solely on profitability. Eagle Rock Holdings, L.P., owns a 54.0% limited partner interest in us and will control our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner has conflicts of interest, which may permit it to favor its own interests. Affiliates of our general partner are not limited in their ability to compete with us, which could cause conflicts of interest and limit our ability to acquire additional assets or businesses which in turn could adversely affect our results of operations and cash available for distribution to our unitholders. Cost reimbursements due to our general partner and its affiliates for services provided, which will be determined by our general partner, will be substantial and will reduce our cash available for distribution. Our general partner intends to limit its liability regarding our obligations. Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions. Our partnership agreement limits our general partner s fiduciary duties to holders of our common units and subordinated units. Our partnership agreement restricts the remedies available to holders of our common units and subordinated units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty. Holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors. Even if holders of our common units are dissatisfied, they cannot initially remove our general partner without its consent. Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units. Control of our general partner may be transferred to a third party without unitholder consent. We may issue additional units without limited partner approval, which would dilute ownership interests. Affiliates of our general partner, certain private investors, and employees, may sell common units in the public markets, which sales could have an adverse impact on the trading price of the common units. Our general partner has a limited call right that may require limited partners to sell their units at an undesirable time or price. Liability of a limited partner may not be limited if a court finds that unitholder action constitutes control of our business. Unitholders may have liability to repay distributions that were wrongfully distributed to them. The price of our common units may fluctuate significantly. We will incur increased costs as a result of being a publicly traded partnership. Tax Risks to Common Unitholders The tax efficiency of our partnership structure depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service were to treat us as a corporation or if we become subject to a material amount of entity-level taxation for state tax purposes, it would reduce the amount of cash available for distribution. If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our cash available for distribution. Limited partners may be required to pay taxes on their share of our income even if they do not receive any cash distributions from us. Tax gain or loss on disposition of our common units could be more or less than expected. Tax-exempt entities and foreign persons face unique tax issues from owning common units that may result in adverse tax consequences to them. We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units. The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes. Limited partners will likely be subject to state and local taxes and return filing requirements in states where they do not live as a result of investing in our common units.

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1364541--4/2/2007--EAGLE_ROCK_ENERGY_PARTNERS_L_P