EX-99.1 3 d05389exv99w1.txt PRESS RELEASE EXHIBIT 99.1 FORT WORTH, Texas, Apr 30, 2003 (BUSINESS WIRE) -- Encore Acquisition Company ("Encore") (NYSE:EAC) today announced that first quarter 2003 net income available to shareholders increased to $18.0 million, or $0.59 per diluted common share, more than doubling first quarter 2002 net income of $7.1 million or $0.24 per diluted common share. First quarter 2003 net income included a gain of $0.9 million, net of tax, for the cumulative effect of an accounting change for the adoption of Statement of Financial Accounting Standards No. 143 ("SFAS" 143) "Accounting for Asset Retirement Obligations". Oil and natural gas revenues increased $23.5 million or 73% to $55.8 million from $32.3 million in 2002 fueled primarily from rising commodity prices and higher production volumes. Reported production volumes for the first quarter increased to 22,088 barrels of oil equivalent ("boe") per day exceeding earlier estimates as the Company strategically took advantage of higher commodity prices by delaying conversions of selected producers to injectors in the Cedar Creek Anticline ("CCA"). In addition, several newly completed wells in the CCA and the Company's non-operated properties outperformed expectations. Compared with 2002 first quarter volumes of 19,494 boe per day, the first quarter increased 13% due primarily to the Company's continued successful developmental program in the CCA and the Permian Basin along with the Paradox Basin acquisition which was completed in the third quarter of 2002. During the first quarter, the Company's average oil price realized was $27.87 per barrel, up $8.74 per barrel or 46%. Natural gas price realizations increased as well to $4.84 per thousand cubic feet ("mcf") or 86% in the first quarter 2003 from $2.60 per mcf for the same period last year. Lease operating expenses continue to remain low and consistent with fourth quarter 2002 as Encore reports $4.50/boe for the first quarter. On a per boe basis, expenses were lower than expected due to higher production volumes and a reduced level of maintenance in the CCA. General and administrative costs for the first quarter increased to $1.23/boe from $0.85/boe for the same quarter last year due to an overall increase in staffing levels and non-recurring consulting services. The depletion, depreciation and amortization ("DD&A") rate was $3.92/boe for the first quarter compared with $4.88/boe for the same period last year. The decrease is primarily attributable to increased year-end reserves at December 31, 2002, and the adoption of SFAS 143 in the first quarter of 2003, which is discussed in more detail below. The Company invested $23.4 million in the first quarter funding the successful drilling of 14 (8.3 net) vertical wells, seven (6.2 net) horizontal wells, 13 (12.0 net) re-entry wells and four (3.9 net) service/injection wells. The Company is currently maintaining a six-rig program, five in CCA and one in the Permian Basin. With higher production and commodity prices generating higher levels of cash, Encore reduced its credit facility debt to $8.0 million at the end of the first quarter from $16.0 million at year-end 2002. At the end of the first quarter, the Company had $158.0 million in long-term debt and improved its debt-to-capitalization ratio from 36% at year-end 2002 to 33% at March 31, 2003. As mentioned earlier, Encore's first quarter results reflect the adoption of SFAS 143. This statement requires companies to record a discounted liability in the period in which an asset retirement obligation ("ARO") is incurred and capitalize additional asset cost equal to the amount of the liability. This liability is then accreted up to the undiscounted liability each quarter through earnings. Upon adoption in the first quarter of 2003, we recognized a $4.0 million increase in the carrying values of proved properties, a $2.1 million decrease in accumulated DD&A, a $5.2 million increase in other non-current liabilities, and a gain of $0.9 million, net of tax, as a cumulative effect of accounting change. Encore recorded $64,000 of accretion expense in the first quarter of 2003 in "other operating expense." We expect to incur approximately the same amount for the second quarter of 2003. Outlook for Second Quarter As anticipated, reported production volumes in the second quarter are expected to average approximately 21,000 boe per day, a reduction of 1,000 boe per day. The reduction in volume is attributable to the Company drilling more injection wells in the second quarter, the natural decline of the Company's non-operated properties, and the increase in the net profits interest payment due to high oil prices. We remain on track to meet or exceed our previously announced 2003 volume goal of 7.7 million boe. The Company placed additional hedges, primarily for 2004, during the quarter and a detailed schedule is attached. Lease operating expenses are expected to increase to approximately $4.87/boe primarily due to a more active workover program and increased electricity costs. General and administrative costs are expected to be around $1.10/boe and are projected to remain at this level through the remainder of the year due to higher legal, accounting and other professional services. DD&A should be approximately $3.95/boe. Encore expects to reduce its long-term debt to $150.0 million during the quarter and anticipates an effective tax rate of approximately 37%, with 90% deferred. Capital expenditures for the second quarter are expected to be approximately $30 million for the ongoing five-rig development program. The Board of Directors approved an increase to Encore's 2003 capital budget in the amount of $20 million to begin the second phase of the High-Pressure Air Injection Program. This increase, when added to the previously mentioned $105 million capital budget, will give the Company a capital budget of $125 million for the year. Conference Call Encore will host a conference call and web cast at 10:00 a.m. CDT on May 1, 2003. The conference call can be accessed by dialing 800.289.0468 and supplying the title "Encore Acquisition Company First Quarter Conference Call" and the web cast can be accessed via http://www.encoreacq.com. The replay by telephone will be available on the Web site or by dialing 719.457.0820 and using pass code 479514. The telephone replay will be available through May 8, 2003. Organized in 1998, Encore is a growing independent energy company engaged in the acquisition, development and exploitation of North American oil and natural gas reserves. Encore's oil and natural gas reserves are located in the Williston Basin of Montana and North Dakota, the Permian Basin of Texas and New Mexico, the Anadarko Basin of Oklahoma, the Powder River Basin of Montana and the Paradox Basin of Utah. This press release includes forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events based on assumptions and estimations that management believes are reasonable given currently available information. However, the assumptions of management and the future performance of Encore are both 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: amount, nature and timing of capital expenditures; drilling of wells; timing and amount of future production of oil and natural gas; operating hazards; operating costs and other expenses and marketing of oil and natural gas. Actual results could differ materially from those presented in the forward-looking statements. Encore undertakes no obligation to publicly update or revise any forward-looking statements. Further information on risks and uncertainties is available in Encore's filings with the Securities and Exchange Commission, which are incorporated by this reference as though fully set forth herein.
(All data in thousands, except per share data) Three Three Months Ended Months Ended March 31, 2003 March 31, 2002 -------------- -------------- (unaudited) Statement of Operations Data: Revenues: Oil $ 46,432 $ 26,686 Natural Gas 9,355 5,611 ------------- ------------- Total Revenues 55,787 32,297 Operating expenses: Lease operations 8,953 6,817 Production, ad valorem and severance taxes 6,169 3,013 General and administrative (excluding non-cash stock based compensation) 2,450 1,493 Non-cash stock based compensation 145 -- Depletion, depreciation, and amortization 7,783 8,559 Derivative fair value gain (1,260) (653) Other operating 170 139 ------------- ------------- Total operating expenses 24,410 19,368 ------------- ------------- Income from operations 31,377 12,929 Interest and other (4,124) (1,462) ------------- ------------- Income before income taxes 27,253 11,467 Provision for income taxes - current (767) (430) Provision for income taxes - deferred (9,371) (3,927) ------------- ------------- Net income before cumulative effect of accounting change 17,115 7,110 Cumulative effect of accounting change, net of taxes 863 -- ------------- ------------- Net income $ 17,978 $ 7,110 ============= =============
(All data in thousands, except per share data) Three Three Months Ended Months Ended March 31, 2003 March 31, 2002 -------------- -------------- (unaudited) Net income before cumulative effect of accounting change per common share: Basic $ 0.57 $ 0.24 Diluted 0.57 0.24 Net income per common share: Basic $ 0.60 $ 0.24 Diluted 0.59 0.24 Weighted average number of common shares outstanding: Basic 30,037 30,030 Diluted 30,221 30,052 Condensed Statement of Cash Flows: Operating activities Net income $ 17,978 $ 7,110 Non-cash and other items 17,839 11,510 Changes in operating assets and liabilities (10,108) (1,376) ------------ ------------ Net cash provided by operating activities 25,709 17,244 Net cash used in investing activities (23,132) (71,083) Financing activities Exercise of stock options 732 -- Net proceeds (payments) on debt (8,000) 53,893 ------------ ------------ Net cash provided by (used in) financing activities (7,268) 53,893 ------------ ------------ Increase (decrease) in cash and cash equivalents (4,691) 54 Cash and cash equivalents, beginning of period 13,057 115 ------------ ------------ Cash and cash equivalents, end of period $ 8,366 $ 169 ============ ============
March 31, December 31, 2003 2002 ------------- ------------- (unaudited) Condensed Balance Sheet: Total assets $ 572,898 $ 549,896 ============= ============= Liabilities $ 98,639 $ 87,630 Long-term debt 158,000 166,000 Equity 316,259 296,266 ------------- ------------- Total liabilities and equity $ 572,898 $ 549,896 ============= ============= Working capital $ 17,683 $ 12,489
Three Three Months Ended Months Ended March 31, 2003 March 31, 2002 -------------- -------------- Selected Financial Data: Production: Oil Volumes (MBbls) 1,666 1,395 Gas Volumes (MMcf) 1,933 2,157 Combined Volumes(MBOE) 1,988 1,755 Daily production: Oil Volumes (Bbls) 18,509 15,500 Gas Volumes (Mcf) 21,475 23,967 Combined Volumes(BOE) 22,088 19,494 Average prices: Oil ($/Bbl) $ 27.87 $ 19.13 Gas ($/Mcf) 4.84 2.60 Combined Volumes ($/BOE) 28.06 18.41 Average costs ($/BOE): Lease operations expense $ 4.50 $ 3.89 Production, ad valorem and severance tax 3.10 1.72 G&A (excluding non-cash stock based compensation) 1.23 0.85 DD&A 3.92 4.88
Commodity Derivative Summary as of March 31, 2003 Oil Hedges
Daily Daily Floor Floor Daily Cap Swap Volume Price Cap Volume Price Volume Period (Bbls) (per Bbl) (Bbls) (per Bbl) (Bbls) ------------ ------------ ------------ ------------ ------------ Apr - June 2003(a) 12,000 $ 21.25 7,500 $ 26.93 1,000 July - Dec 2003(a) 9,500 $ 21.05 7,000 $ 27.14 -- Jan - June 2004 4,500 $ 21.00 4,500 $ 27.94 -- July - Dec 2004 500 $ 21.00 500 $ 26.00 --
(a) For calendar 2003, Encore has short puts in place for 500 bpd at $17/bbl, which are not reflected in the above amounts. Additionally, the following table summarizes our open basis swap positions, which are not reflected in the above amounts:
Daily Volume Period (Bbls) Encore Pays Encore Receives ---------------- ------------ ---------------- ------------------- Apr - Dec 2003 1,500 Platts WTS+$1.87 NYMEX WTI Apr - June 2003 3,000 P-Plus $ 4.76 May 2003 1,000 P-Plus $ 4.91 Apr - Dec 2003 2,000 Platts Mars Platts WTI - $3.95 May - Dec 2003 1,000 Platts Mars Platts WTI - $4.03
Natural Gas Hedges
Daily Floor Daily Floor Price Daily Cap Swap Volume (per Cap Volume Price Volume Period (Mcf) Mcf) (Mcf) (per Mcf) (Mcf) ----------------- ------------ ------------ ------------ ------------ ------------ Apr - Dec 2003 7,500 $ 3.17 2,500 $ 6.83 2,500 Jan - Dec 2004 5,000 $ 3.25 5,000 $ 6.10 --
SOURCE: Encore Acquisition Company Encore Acquisition Company, Fort Worth Morris B. Smith, 817/339-0908 Rani M. Wainwright, 817/339-0919