FORT WORTH, Texas--(Business Wire)--
Encore Acquisition Company (NYSE: EAC) ("Encore" or the "Company")
today reported unaudited third quarter 2008 results.
The following table highlights certain reported amounts for the
third quarter of 2008 as compared to the third quarter of 2007 (in
millions, except average price amounts):
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Qtr Ended Sept 30,
------------------
2008 2007
-------- --------
Oil and natural gas revenues $ 335.3 $ 191.7
Average realized combined price ($/BOE) $ 92.00 $ 56.45
Development and exploration costs incurred $ 186.3 $ 78.0
Unproved acreage costs incurred $ 17.3 $ 16.8
Acquisition related costs incurred $ 52.7 $ 30.1
Adjusted EBITDAX $ 204.7 $ 121.4
Net income $ 206.3 $ 12.0
Net income excluding certain items $ 64.9 $ 24.9
Weighted average diluted shares outstanding 53.5 54.2
*T
Adjusted EBITDAX increased 69 percent to $204.7 million for the
third quarter of 2008 as compared to $121.4 million for the third
quarter of 2007. Adjusted EBITDAX is defined as adjusted earnings
before interest, income taxes, depletion, depreciation, and
amortization, impairment of long-lived assets, non-cash equity-based
compensation expense, non-cash derivative fair value gains and losses,
minority interest, and exploration expense. Adjusted EBITDAX is
reconciled to its most directly comparable GAAP measures in the
attached financial schedules.
Encore recorded record net income in the third quarter of 2008 of
$206.3 million ($3.80 per diluted share) as compared to $12.0 million
($0.22 per diluted share) in the third quarter of 2007. Net income for
the third quarter of 2008 included a pre-tax net derivatives gain of
$239.4 million comprising settlement payments of $22.7 million,
premium amortization of $14.8 million, and a mark-to-market gain of
$276.9 million. Net income for the third quarter of 2007 included a
pre-tax net derivatives loss of $15.8 million comprising settlement
payments of $7.1 million, premium amortization of $11.7 million, and a
mark-to-market gain of $3.0 million.
Encore reported net income excluding certain items for the third
quarter of 2008 of $64.9 million ($1.15 per diluted share), a 160
percent increase over net income excluding certain items for the third
quarter of 2007 of $24.9 million ($0.46 per diluted share). Net income
excluding certain items for the third quarter of 2008 excludes
derivative gains and losses not related to the current period,
non-cash compensation expense related to Encore Energy Partners LP
("ENP"), and impairment of long-lived assets. Net income excluding
certain items for the third quarter of 2007 excludes derivative gains
and losses not related to the current period, non-cash compensation
expense related to ENP, and loss on divestiture of oil and natural gas
properties. Net income excluding certain items is reconciled to its
most directly comparable GAAP measure of net income in the attached
financial schedules.
Jon S. Brumley, Encore's Chief Executive Officer and President,
stated, "The third quarter was a terrific quarter for Encore. We were
pleased with our production growth, but more importantly we are very
excited about our plans for 2009. Since Encore's inception, we have
been espousing the importance of shallow declining properties, a
strong hedging position, and high rate of return projects. In no other
time in Encore's history have these three factors been more important.
Because of our long-life portfolio, our savvy hedging program, and our
high return budget, we will be able to exit 2009 in an even stronger
position than today. In 2009, Encore will be able to grow three to
five percent, repurchase $40 million of stock, and repay $55 million
of debt. Our properties and hedging position place us in a unique
position relative to our peers. We are ready for 2009 whether
commodity prices are high or low."
Oil and natural gas revenues increased 75 percent in the third
quarter of 2008 to $335.3 million as compared to the $191.7 million in
the third quarter of 2007, as the Company continued to reap the
benefits of the high commodity price environment, as well as enjoy
strong operating results.
The Company's NYMEX oil differential in the third quarter of 2008
was $10.46 per Bbl as compared to $7.37 per Bbl in the third quarter
of 2007. The average NYMEX oil price rose to $118.67 per barrel
("Bbl") in the third quarter of 2008 versus $75.17 per Bbl in the
third quarter of 2007. As a percentage of NYMEX, the Company's NYMEX
oil differential decreased slightly from 10 percent in the third
quarter of 2007 to nine percent in the third quarter of 2008. The
combined effect of rising commodity prices and a lower relative
differential was a 60 percent increase in the Company's average
wellhead oil price, which represents the net price the Company
receives for its oil production. It rose to $108.21 per Bbl for the
third quarter of 2008 from $67.80 per Bbl in the third quarter of
2007. The Company's average wellhead prices and related differentials
exclude the effects of hedging activities, as these are recorded
outside of revenue as derivative fair value gains or losses.
Production volumes averaged 39,617 BOE/D in the third quarter of
2008, comprising 26,975 barrels of oil per day and 75,847 Mcf of
natural gas per day. This represents an increase of seven percent over
third quarter of 2007 production of 36,917 BOE/D, and it exceeded the
high end of the Company's previously announced production guidance.
Lease operations expenses ("LOE") were $49.0 million for the third
quarter of 2008 ($13.43 per BOE) versus $37.1 million for the third
quarter of 2007 ($10.93 per BOE). Encore's reported LOE per BOE in the
third quarter of 2008 remained in line with previously released
guidance.
Exploration expenses for the third quarter of 2008 increased to
$13.4 million ($3.67 per BOE) from $8.9 million ($2.63 per BOE) in the
third quarter of 2007. The Company also recorded an impairment charge
of $26.3 million on the Richland Plantation A 1 and the Joe Jackson
4-13H, the first two wells the Company has drilled in the Tuscaloosa
Marine Shale ("TMS"). These appraisal wells, while experiencing some
mechanical problems, demonstrated the ability to drill a horizontal
lateral in a stable shale and establish sustained oil production from
the TMS. Therefore, the Company will invest more in the first wells
because drilling and completion techniques are expected to be
optimized for future development wells. The Company has drilled its
third appraisal well, which is currently waiting on completion, and is
currently drilling its fourth well.
General and administrative ("G&A") expenses for the third quarter
of 2008 were $15.3 million ($4.20 per BOE) versus $12.7 million ($3.73
per BOE) in the third quarter of 2007. Encore's reported G&A per BOE
in the third quarter of 2008 remained in line with previously released
guidance.
Operations Update
Bakken/Sanish
Encore is continuing its highly successful Sanish program in the
Charlson area and expanded the Sanish drilling to the Cherry prospect
area by adding a third rig in September of 2008. Encore drilled four
640 acre Bakken and Sanish wells in the third quarter. These four
wells averaged approximately 650 BOE/D over the first seven days and
approximately 515 BOE/D over the first 30 days.
Encore has re-fracture stimulated three more Murphy Creek Middle
Bakken wells with encouraging results. Production was increased by 95
BOE/D per well on average for the first two months after
re-stimulation. The re-fracture stimulation program is adding reserves
and improving the economics of the Company's Bakken drilling program.
Ben Nivens, the Company's Chief Operating Officer, stated, "We
plan on releasing the most inefficient of our three contracted rigs
drilling in the Bakken during the fourth quarter of 2008 and
subsequently picking up a more efficient replacement rig at the
beginning of the first quarter of 2009. Similar to the stock buyback,
Encore will use the lull in the activity to improve the Company."
West Texas
It was a record quarter in the West Texas Joint Venture with
ExxonMobil as the Company turned seven deep wells over to
production. The wells had an average IP of 4.1 MMcfe/D. Four of the
wells were in the Midland Basin, two in the Delaware Basin, and one
was in the Val Verde Basin. To date a total of 29 deep gas wells have
been brought online in the joint venture.
Ark-LA-Tex
The Stockman Field in East Texas continues to outperform the
Company's expectations. Four new Travis Peak wells were brought online
in the quarter with an average IP of 3.6 MMcfe/D. The most recent
well, the Wheeler 3, completed the second stage fracture stimulation
in the Travis Peak at a gross peak rate of 6.2 MMcf/D and 90 Bbls/D.
The Company plans to spud its first Haynesville shale well in
November 2008 at the Greenwood Waskom field. This well is expected to
be online in the first quarter of 2009.
Tuscaloosa Marine Shale
Encore plans to complete the 4,100 feet of lateral in the
Weyerhaeuser #1H in St. Helena Parish, Louisiana in November 2008.
This completion has been delayed approximately five weeks due to the
short supply of high-strength proppant.
Hedging Update
The Company has executed a hedge plan that protects over 95
percent of its estimated oil production for 2009. The hedges include
floors at $110.00 per barrel ("Bbl") for 11,630 barrels of oil per day
("BOPD"), swaps at $86.21 per Bbl for 6,000 BOPD, and floors at $80.00
per Bbl for 8,000 BOPD. The counterparties to these hedges are a
diverse group comprising eleven institutions, all of which are rated
A- or better by Standard & Poor's and/or Fitch, with the majority
rated AA- or better.
Under the various NYMEX pricing assumptions, the Company's hedging
portfolio is expected to generate the following cash flows in 2009
(net of deferred premiums, in thousands):
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Natural Gas Crude Oil ($/Bbl)
--------------------------------------------------------
($/Mcf) $50.00 $60.00 $70.00 $80.00
------------- -------------- ------------- ------------- -------------
$5.00 $362,668 $269,118 $176,299 $82,749
$6.00 $359,894 $266,344 $173,525 $79,975
$7.00 $357,120 $263,570 $170,751 $77,201
$8.00 $354,970 $261,420 $168,601 $75,051
*T
Liquidity Update
At September 30, 2008, the Company's long-term debt was $1.2
billion, including $150 million of 6.25% senior subordinated notes due
April 15, 2014, $300 million of 6.0% senior subordinated notes due
July 15, 2015, $150 million of 7.25% senior subordinated notes due
December 1, 2017, and $622.9 million of outstanding borrowings under
revolving credit facilities due March 7, 2012.
The amount outstanding on revolving credit facilities increased
$75.9 million during the third quarter of 2008, primarily as a result
of exercising a preferential right for proved production and
Haynesville acreage, tax payments to the Internal Revenue Service, and
hedge premiums for 2009. The borrowing base is $1.1 billion for Encore
Acquisition Company and $240 million for ENP. At September 30, 2008,
Encore Acquisition Company had availability under its revolving credit
facility of $617.1 million and ENP had $99.9 million of availability
under its revolving credit facility.
The syndicate of lenders underwriting Encore Acquisition Company's
facility comprises 30 banking and other financial institutions, and
the syndicate of lenders underwriting ENP's facility comprises 13
banking and other financial institutions, both after taking into
consideration recently announced mergers and acquisitions within the
financial services industry. None of the lenders are underwriting more
than eight percent of the respective total commitments. The Company
feels the large number of lenders, the relatively small percentage
participation of each, and the relatively high level of availability
under each facility provides adequate diversity and flexibility should
further consolidation occur within the financial services industry.
Fourth Quarter 2008 Outlook
The Company expects the following in the fourth quarter of 2008:
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Average daily wellhead production 41,000 to 42,000 BOE/D
volumes
---------------------------------- -----------------------------------
Average daily net profits 1,300 to 1,700 BOE/D
production volumes
---------------------------------- -----------------------------------
Average daily reported production 39,300 to 40,700 BOE/D
volumes
---------------------------------- -----------------------------------
Development and exploration $170 to $190 million
capital
---------------------------------- -----------------------------------
Unproved capital $10 to $15 million
---------------------------------- -----------------------------------
LOE $12.35 to $12.80 per BOE
---------------------------------- -----------------------------------
G&A expenses $3.60 to $4.10 per BOE
---------------------------------- -----------------------------------
Depletion, depreciation, and $15.75 to $16.75 per BOE
amortization
---------------------------------- -----------------------------------
Production, ad valorem, and 10.0% of wellhead revenues
severance taxes
---------------------------------- -----------------------------------
Oil differential -11% of NYMEX oil price
---------------------------------- -----------------------------------
Natural gas differential 1% of NYMEX natural gas price
---------------------------------- -----------------------------------
Income tax expense 37% effective rate
---------------------------------- -----------------------------------
Income tax expense deferred 90% deferred
---------------------------------- -----------------------------------
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Conference Call Details
Title: Encore Acquisition Company and Encore Energy Partners LP
Conference Call
Date and Time: Wednesday, October 29, 2008 at 9:00 A.M. Central
Time
Webcast: Listen to the live broadcast via http://www.encoreacq.com
Telephone: Dial 877-356-9552 ten minutes prior to the scheduled
time and request the conference call by supplying the title specified
above or ID 69593655.
A replay of the conference call will be archived and available via
Encore's website at the above web address or by dialing 800-642-1687
and entering conference ID 69593655. The replay will be available
through November 12, 2008. International callers can dial 706-679-0419
for the live broadcast or 706-645-9291 for the replay.
About the Company
Encore Acquisition Company is engaged in the acquisition and
development of oil and natural gas reserves from onshore fields in the
United States. Since 1998, Encore has acquired producing properties
with proven reserves and leasehold acreage and grown the production
and proven reserves by drilling, exploring, reengineering or expanding
existing waterflood projects, and applying tertiary recovery
techniques.
Cautionary Statement
This press release includes forward-looking statements, which give
Encore's current expectations or forecasts of future events based on
currently available information. Forward-looking statements in this
press release relate to, among other things, the likelihood and
benefits of acquisitions and dispositions, drilling plans and
expectations, expected production volumes, the expected benefits of
existing hedging programs, expected revenues, expected expenses,
expected taxes (including the amount of any gain or deferral),
expected capital expenditures (including, without limitation, as to
amount and property), expected differentials, potential hedging
programs, opportunities for acreage expansion, future purchases under
the stock repurchase program, and any other statements that are not
historical facts. The assumptions of management and the future
performance of Encore are subject to a wide range of business risks
and uncertainties and there is no assurance that these statements and
projections will be met. Factors that could affect Encore's business
include, but are not limited to: the risks associated with drilling of
oil and natural gas wells; Encore's ability to find, acquire, market,
develop, and produce new properties; the risk of drilling dry holes;
oil and natural gas price volatility; derivative transactions
(including the costs associated therewith); uncertainties in the
estimation of proved, probable, and potential reserves and in the
projection of future rates of production and reserve growth;
inaccuracies in Encore's assumptions regarding items of income and
expense and the level of capital expenditures; uncertainties in the
timing of exploitation expenditures; operating hazards attendant to
the oil and natural gas business; risks related to Encore's
high-pressure air injection program; drilling and completion losses
that are generally not recoverable from third parties or insurance;
potential mechanical failure or underperformance of significant wells;
climatic conditions; availability and cost of material and equipment;
the risks associated with operating in a limited number of geographic
areas; actions or inactions of third-party operators of Encore's
properties; Encore's ability to find and retain skilled personnel;
diversion of management's attention from existing operations while
pursuing acquisitions or joint ventures; availability of capital; the
strength and financial resources of Encore's competitors; regulatory
developments; environmental risks; uncertainties in the capital
markets; uncertainties with respect to asset sales; general economic
and business conditions; the ability of derivative counterparties and
lenders to fulfill their obligations to the Company; industry trends;
and other factors detailed in Encore's 2007 Annual Report on Form 10-K
and other filings with the Securities and Exchange Commission. If one
or more of these risks or uncertainties materialize (or the
consequences of such a development changes), or should underlying
assumptions prove incorrect, actual outcomes may vary materially from
those forecasted or expected. Encore undertakes no obligation to
publicly update or revise any forward-looking statements.
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Encore Acquisition Company
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2008 2007 2008 2007
---------- --------- ---------- ---------
Revenues:
Oil $ 268,543 $159,295 $ 776,001 $377,514
Natural gas 66,772 32,439 182,973 110,548
Marketing 2,163 3,282 8,740 27,139
---------- --------- ---------- ---------
Total revenues 337,478 195,016 967,714 515,201
---------- --------- ---------- ---------
Expenses:
Production:
Lease operations 48,966 37,114 130,013 105,186
Production, ad
valorem, and
severance taxes 33,350 20,003 95,845 51,750
Depletion, depreciation,
and amortization 58,545 49,026 159,114 136,372
Impairment of long-lived
assets 26,292 - 26,292 -
Exploration 13,381 8,920 30,462 23,856
General and
administrative 15,303 12,668 36,549 26,216
Marketing 1,855 4,089 9,362 27,607
Derivative fair value
loss (gain) (239,435) 15,786 82,093 68,166
Other operating 4,073 6,351 9,805 13,667
---------- --------- ---------- ---------
Total operating expenses (37,670) 153,957 579,535 452,820
---------- --------- ---------- ---------
Operating income 375,148 41,059 388,179 62,381
---------- --------- ---------- ---------
Other income (expense):
Interest (18,124) (23,933) (54,669) (68,040)
Other 1,553 857 3,090 1,889
---------- --------- ---------- ---------
Total other expense (16,571) (23,076) (51,579) (66,151)
---------- --------- ---------- ---------
Income (loss) before income
taxes and minority interest 358,577 17,983 336,600 (3,770)
Income tax provision (121,184) (8,986) (118,595) (1,490)
Minority interest in loss
(income) of consolidated
partnership (31,086) 2,988 (16,198) 2,988
---------- --------- ---------- ---------
Net income (loss) $ 206,307 $ 11,985 $ 201,807 $ (2,272)
========== ========= ========== =========
Net income (loss) per common
share:
Basic $ 3.95 $ 0.23 $ 3.85 $ (0.04)
Diluted $ 3.80 $ 0.22 $ 3.70 $ (0.04)
Weighted average common
shares outstanding:
Basic 52,258 53,198 52,466 53,140
Diluted 53,521 54,179 53,670 53,140
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Encore Acquisition Company
Condensed Statements of Operations
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, 2008 September 30, 2008
--------------------- ---------------------
EAC EAC
Standalone ENP Standalone ENP
----------- --------- ------------ --------
Revenues:
Oil $ 224,101 $ 44,442 $ 647,223 $128,778
Natural gas 56,956 9,816 154,347 28,626
Marketing 718 1,445 3,533 5,207
----------- --------- ------------ --------
Total revenues 281,775 55,703 805,103 162,611
----------- --------- ------------ --------
Expenses:
Production:
Lease operations 40,124 8,842 108,191 21,822
Production, ad
valorem, and
severance taxes 27,609 5,741 79,524 16,321
Depletion,
depreciation, and
amortization 49,481 9,064 131,715 27,399
Impairment of long-
lived assets 26,292 - 26,292 -
Exploration 13,335 46 30,349 113
General and
administrative 12,706 2,597 28,097 8,452
Marketing 539 1,316 4,044 5,318
Derivative fair value
loss (gain) (168,992) (70,443) 60,521 21,572
Other operating 3,729 344 8,779 1,026
----------- --------- ------------ --------
Total operating expenses 4,823 (42,493) 477,512 102,023
----------- --------- ------------ --------
Operating income $ 276,952 $ 98,196 $ 327,591 $ 60,588
=========== ========= ============ ========
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Encore Acquisition Company
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
---------------------
2008 2007
---------- ----------
Net income (loss) $ 201,807 $ (2,272)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Non-cash and other items 393,780 269,140
Changes in operating assets and liabilities (66,600) (53,224)
---------- ----------
Net cash provided by operating activities 528,987 213,644
---------- ----------
---------- ----------
Net cash used in investing activities (536,094) (833,150)
---------- ----------
Financing activities:
Net proceeds from long-term debt, net of
issuance costs 95,738 463,863
Net proceeds from issuance of equity
securities - 171,220
Repurchase of common stock (50,000) -
Other (36,508) (7,873)
---------- ----------
Net cash provided by financing activities 9,230 627,210
---------- ----------
Increase in cash and cash equivalents 2,123 7,704
Cash and cash equivalents, beginning of period 1,704 763
---------- ----------
Cash and cash equivalents, end of period $ 3,827 $ 8,467
========== ==========
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Encore Acquisition Company
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
2008 2007
------------- ------------
(unaudited)
Total assets $ 3,286,141 $ 2,784,561
============= ============
Liabilities (excluding long-term debt) $ 829,145 $ 593,636
Long-term debt 1,217,604 1,120,236
Minority interest in consolidated
partnership 125,181 122,534
Stockholders' equity 1,114,211 948,155
------------- ------------
Total liabilities and stockholders' equity $ 3,286,141 $ 2,784,561
============= ============
Working capital (a) $ (15,144) $ (16,220)
(a) Working capital is defined as current assets minus
current liabilities.
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Encore Acquisition Company
Selected Operating Results
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2008 2007 2008 2007
----------- --------- ------------ -------
Production volumes:
Oil (MBbls) 2,482 2,509 7,446 7,027
Natural gas (MMcf) 6,978 5,323 18,915 18,359
Combined (MBOE) 3,645 3,396 10,598 10,086
Daily production:
Oil (Bbls/D) 26,975 27,275 27,174 25,738
Natural gas (Mcf/D) 75,847 57,857 69,031 67,249
Combined (BOE/D) 39,617 36,917 38,679 36,946
Average realized prices:
Oil (per Bbl) $ 108.21 $ 63.48 $ 104.22 $ 53.73
Natural gas (per Mcf) 9.57 6.09 9.67 6.02
Combined (per BOE) 92.00 56.45 90.49 48.39
Average costs per BOE:
Lease operations expense $ 13.43 $ 10.93 $ 12.27 $ 10.43
Production, ad valorem,
and severance taxes 9.15 5.89 9.04 5.13
Depletion, depreciation,
and amortization 16.06 14.43 15.01 13.52
Impairment of long-lived
assets 7.21 - 2.48 -
Exploration 3.67 2.63 2.87 2.37
General and
administrative 4.20 3.73 3.45 2.60
Derivative fair value
loss (gain) (65.69) 4.65 7.75 6.76
Other operating 1.12 1.87 0.93 1.35
Marketing loss (gain) (0.08) 0.24 0.06 0.05
Three Months Ended Nine Months Ended
September 30, 2008 September 30, 2008
--------------------- --------------------
EAC EAC
Standalone ENP Standalone ENP
----------- --------- ------------ -------
Production volumes:
Oil (MBbls) 2,078 404 6,193 1,253
Natural gas (MMcf) 5,984 994 15,966 2,949
Combined (MBOE) 3,076 569 8,854 1,744
Daily production:
Oil (Bbls/D) 22,586 4,389 22,603 4,571
Natural gas (Mcf/D) 65,048 10,799 58,268 10,763
Combined (BOE/D) 33,428 6,189 32,314 6,365
Average realized prices:
Oil (per Bbl) $ 107.85 $ 110.06 $ 104.51 $102.81
Natural gas (per Mcf) 9.52 9.88 9.67 9.71
Combined (per BOE) 91.36 95.29 90.53 90.25
Average costs per BOE:
Lease operations expense $ 13.04 $ 15.53 $ 12.22 $ 12.51
Production, ad valorem,
and severance taxes 8.97 10.08 8.98 9.36
Depletion, depreciation,
and amortization 16.09 15.92 14.88 15.71
Impairment of long-lived
assets 8.55 - 2.97 -
Exploration 4.33 0.08 3.43 0.06
General and
administrative 4.13 4.56 3.17 4.85
Derivative fair value
loss (gain) (54.94) (123.72) 6.84 12.37
Other operating 1.21 0.61 0.99 0.59
Marketing loss (gain) (0.06) (0.23) 0.06 0.06
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Encore Acquisition Company
Derivative Summary as of October 28, 2008
(unaudited)
Oil Derivative Contracts (b) (c)
----------------------------------------------------------------------
Average Wtd. Average Wtd. Average Wtd. Average Wtd.
Daily Average Daily Average Daily Average Daily Average
Floor Floor Short Short Cap Cap Swap Swap
Floor Floor
Period Volume Price Volume Price Volume Price Volume Price
------ ------- ------- ------- ------- ------- ------- ------- -------
(Bbls) (per (Bbls) (per (Bbls) (per (Bbls) (per
Bbl) Bbl) Bbl) Bbl)
Nov. -
Dec.
2008
14,880 $ 83.36 - $ - 2,440 $101.99 5,000 $ 91.56
6,000 71.67 - - 2,000 96.65 - -
5,500 62.27 - - - - - -
3,000 56.67 (4,000) 50.00 - - - -
2009
11,630 110.00 - - 440 97.75 2,000 90.46
8,000 80.00 (5,000) 50.00 - - 3,000 89.22
- - - - - - 1,000 68.70
2010
880 80.00 - - 440 93.80 - -
2,000 75.00 - - 1,000 77.23 - -
2011
1,880 80.00 - - 1,440 95.41 - -
1,000 70.00 - - - - - -
Natural Gas Derivative
Contracts (b)
----------------------
Average Wtd. Average Wtd. Average Wtd. Average Wtd.
Daily Average Daily Average Daily Average Daily Average
Short Short
Floor Floor Floor Floor Cap Cap Swap Swap
Period Volume Price Volume Price Volume Price Volume Price
------ ------- ------- ------- ------- ------- ------- ------- -------
(Mcf) (per (Mcf) (per (Mcf) (per (Mcf) (per
Mcf) Mcf) Mcf) Mcf)
Nov. -
Dec.
2008
6,300 $ 8.18 - $ - 6,300 $ 9.52 5,000 $ 8.14
11,300 7.38 - - 7,500 8.35 5,000 7.47
20,000 6.35 - - - - - -
2009
3,800 8.20 - - 3,800 9.83 - -
3,800 7.20 - - - - - -
2010
3,800 8.20 - - 3,800 9.58 - -
3,800 7.20 - - - - - -
*T
(b) Oil prices represent NYMEX WTI monthly average prices, while
natural gas prices represent various price points in 2008, and IF
Houston Ship Channel prices for 2009 and 2010. The differential
between IF HSC and NYMEX Henry Hub is approximately $0.30 per Mcf.
(c) From time to time, Encore sells floors with a strike price
below the strike price of the purchased floors in order to partially
finance the premiums paid on the purchased floors, thereby entering
into a floor spread. In the above table, the purchased floor component
of these floor spreads are shown net and included with Encore's other
floor contracts. In addition to the floor contracts shown above for
2009, Encore has a floor contract for 1,000 Bbls/D at $63.00 per Bbl
and a short floor contract for 1,000 Bbls/D at $65.00 per Bbl.
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Encore Acquisition Company
Non-GAAP Financial Measures
(in thousands, except per share amounts)
(unaudited)
This press release includes a discussion of "Adjusted EBITDAX," which
is a non-GAAP financial measure. The following table provides
reconciliations of "Adjusted EBITDAX" to net income (loss) and net
cash provided by operating activities, Encore's most directly
comparable financial performance and liquidity measures calculated
and presented in accordance with GAAP.
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2008 2007 2008 2007
---------- --------- --------- ---------
Net income (loss) $ 206,307 $ 11,985 $201,807 $ (2,272)
Depletion, depreciation,
and amortization 58,545 49,026 159,114 136,372
Impairment of long-lived
assets 26,292 - 26,292 -
Non-cash equity-based
compensation 3,758 7,310 9,963 12,790
Exploration 13,381 8,920 30,462 23,856
Interest expense and other 16,571 23,076 51,579 66,151
Income taxes 121,184 8,986 118,595 1,490
Minority interest in
income (loss) of
consolidated partnership 31,086 (2,988) 16,198 (2,988)
Payments of deferred
commodity premiums (10,239) (7,034) (30,822) (19,219)
Non-cash derivative fair
value loss (gain) (262,167) 22,070 38,203 87,108
---------- --------- --------- ---------
Adjusted EBITDAX 204,718 121,351 621,391 303,288
Change in other operating
assets and liabilities (18,472) 22,527 (47,376) (15,620)
Other non-cash expenses 118 7,102 6,658 11,973
Interest expense and other (16,571) (23,076) (51,579) (66,151)
Current income taxes 15,225 133 (8,942) (116)
Cash exploration expense (1,227) (279) (2,763) (1,345)
Payments of deferred
commodity premiums 10,239 7,034 30,822 19,219
Purchased options (17,358) (2,473) (19,224) (37,604)
---------- --------- --------- ---------
Net cash provided by
operating activities $ 176,672 $132,319 $528,987 $213,644
========== ========= ========= =========
*T
"Adjusted EBITDAX" is used as a supplemental financial measure by
Encore's management and by external users of Encore's financial
statements, such as investors, commercial banks, research analysts,
and others, to assess: (1) the financial performance of Encore's
assets without regard to financing methods, capital structure, or
historical cost basis, (2) the ability of Encore's assets to generate
cash sufficient to pay interest costs and support its indebtedness,
(3) Encore's operating performance and return on capital as compared
to those of other entities in our industry, without regard to
financing or capital structure, and (4) the viability of acquisitions
and capital expenditure projects and the overall rates of return on
alternative investment opportunities.
"Adjusted EBITDAX" should not be considered an alternative to net
income (loss), operating income, net cash provided by operating
activities, or any other measure of financial performance presented in
accordance with GAAP. Encore's definition of "Adjusted EBITDAX" may
not be comparable to similarly titled measures of another entity
because all entities may not calculate "Adjusted EBITDAX" in the same
manner.
This press release also includes a discussion of "net income
excluding certain items," which is a non-GAAP financial measure. The
following tables provide a reconciliation of net income excluding
certain items to net income (loss), Encore's most directly comparable
financial measure calculated and presented in accordance with GAAP.
-0-
*T
Three Months Ended September 30,
--------------------------------------
2008 2007
------------------- ------------------
Per Per
Diluted Diluted
Total Share Total Share
---------- -------- --------- --------
Net income $ 206,307 $ 3.80 $ 11,985 $ 0.22
Add: OCI amortization and
change in fair value in excess
of premiums (252,863) (4.73) 11,755 0.21
Less: tax benefit on OCI
amortization and change in
fair value in excess of
premiums 94,242 1.76 (4,380) (0.08)
Add: non-cash unit-based
compensation related to ENP's
management incentive units 1,058 0.02 5,746 0.11
Less: change in minority
interest related to ENP's
management incentive units (346) (0.01) (2,196) (0.04)
Add: impairment of long-lived
assets 26,292 0.49 - -
Less: tax benefit on impairment
of long-lived assets (9,799) (0.18) - -
Add: loss on divestiture of oil
and natural gas properties - - 3,247 0.06
Less: tax benefit on
divestiture of oil and natural
gas properties - - (1,211) (0.02)
---------- -------- --------- --------
Net income excluding certain
items $ 64,891 $ 1.15 $ 24,946 $ 0.46
========== ======== ========= ========
Nine Months Ended September 30,
--------------------------------------
2008 2007
------------------- ------------------
Per Per
Diluted Diluted
Total Share Total Share
---------- -------- --------- --------
Net income (loss) $ 201,807 $ 3.70 $ (2,272) $ (0.04)
Add: OCI amortization and
change in fair value in excess
of premiums (13,762) (0.27) 56,877 1.05
Less: tax benefit on OCI
amortization and change in
fair value in excess of
premiums 5,131 0.10 (21,198) (0.39)
Add: non-cash unit-based
compensation related to ENP's
management incentive units 3,174 0.06 5,746 0.11
Less: change in minority
interest related to ENP's
management incentive units (1,062) (0.02) (2,196) (0.04)
Add: impairment of long-lived
assets 26,292 0.49 - -
Less: tax benefit on impairment
of long-lived assets (9,799) (0.18) - -
Add: loss on divestiture of oil
and natural gas properties - - 5,457 0.10
Less: tax benefit on
divestiture of oil and natural
gas properties - - (2,034) (0.04)
---------- -------- --------- --------
Net income excluding certain
items $ 211,781 $ 3.88 $ 40,380 $ 0.75
========== ======== ========= ========
*T
Encore believes that the exclusion of these items enables it to
evaluate operations more effectively period-over-period and to
identify operating trends that could otherwise be masked by the
excluded items.
"Net income excluding certain items" should not be considered an
alternative to net income (loss), operating income, net cash provided
by operating activities, or any other measure of financial performance
presented in accordance with GAAP. Encore's definition of "net income
excluding certain items" may not be comparable to similarly titled
measures of another entity because all entities may not calculate "net
income excluding certain items" in the same manner.
Encore Acquisition Company, Fort Worth, TX
Bob Reeves, 817-339-0918
Chief Financial Officer
rcreeves@encoreacq.com
or
Kim Weimer, 817-339-0886
Investor Relations
kweimer@encoreacq.com
Copyright Business Wire 2008
