EX-99.1 2 d17064exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1

Encore Acquisition Company Reports Record Second Quarter 2004 Financial and Operating Results

FORT WORTH, Texas, Jul 27, 2004 (BUSINESS WIRE) — Encore Acquisition Company (NYSE:EAC) today reported record quarterly net income of $18.0 million ($0.58 per diluted share) for the second quarter of 2004. This represents an increase of 27% over second quarter 2003 net income of $14.2 million ($0.47 per diluted share). Encore’s earnings were driven by record production volumes averaging 24,434 BOE per day in the second quarter of 2004 as compared to 21,398 BOE per day in the second quarter of 2003, an increase of 14%. During the current quarter, oil production averaged 18,557 Bbls per day and natural gas production averaged 35,260 Mcf per day. Natural gas production volumes in the current quarter reflect an increase of 61% over the level reported in the second quarter of 2003 as a result of the Company’s Elm Grove and Cortez acquisitions that closed in the third quarter of 2003 and the second quarter of 2004, respectively. Encore’s recently completed Overton acquisition is not reflected in the operating results in the second quarter of 2004. Higher production volumes and commodity prices resulted in record oil and natural gas revenues of $70.1 million for the second quarter of 2004. This represents a 37% increase over the $51.2 million of oil and natural gas revenues reported for the second quarter of 2003. The Company’s average net combined commodity price rose to $31.54 per BOE for the second quarter of 2004 over the $26.32 per BOE reported in the second quarter of 2003.

“We had a great second quarter and our operations continue to perform as planned,” stated Jonny Brumley, President. “We continue to aggressively exploit our properties and have twelve operated drilling rigs pursuing our in-field development opportunities. Integration of our Cortez and Overton acquisitions is going well, and five of the rigs are working on those properties. The acquisitions and our drilling program, combined with our high-pressure air injection tertiary development projects, should provide continued production growth for many years.”

Lease operations expense increased from $4.69 per BOE reported in the second quarter of 2003 to $4.91 per BOE in the second quarter of 2004. General and administrative expense decreased 5% on a per BOE basis from $1.20 in the second quarter of 2003 to $1.14 per BOE in the second quarter of 2004 as costs were spread over higher production volumes. DD&A expense per BOE of $5.06 for the second quarter of 2004 increased, as expected, from the $3.96 per BOE recorded for the second quarter of 2003 resulting from higher than historical finding, development, and acquisition costs. Exploration expense in the second quarter of 2004 was $1.1 million net of tax ($0.03 per diluted share) as a result of one dry hole. Long-term debt at June 30, 2004 increased to $353.0 million from $179.0 million at March 31, 2004.

Development Activities:

Encore invested $40.2 million in development projects during the second quarter of 2004, $9.3 million of which was invested in the Company’s high-pressure air injection (“HPAI”) tertiary recovery projects in the Little Beaver Unit and the Pennel Unit of the Cedar Creek Anticline (“CCA”). The capital was invested in 23 (18.6 net) new operated vertical producing wells, 5 (5.0 net) horizontal wells, in addition to 15 (14.9 net) operated horizontal re-entry wells and 1 (1.0 net) operated service/injection well. The Company also participated in the drilling of 19 (2.4 net) non-operated vertical producing wells. The Company is currently investing capital on its operated properties with five rigs drilling in the Cedar Creek Anticline and seven in the Company’s other producing areas.

Recent Acquisition Activities:

On June 17, 2004, the Company completed its acquisition of natural gas properties in Overton Field located in Smith County, Texas, which was originally announced on April 26, 2004. The acquisition cost is expected to be approximately $80 million after all post-closing purchase price adjustments are completed. On April 14, 2004 the Company closed its $123.0 million acquisition of Cortez Oil & Gas, Inc.

Recent Market Activities:

On June 30, 2004, the Company filed a new registration statement on Form S-3 with the Securities and Exchange Commission. The registration statement, which was declared effective by the Securities and Exchange Commission on July 9, 2004, allows Encore to issue an aggregate of $500 million of common stock, preferred stock, senior debt and subordinated debt. Encore has no immediate plans to conduct any transactions under this registration statement, which is commonly referred to as a universal shelf registration statement.

On June 10, 2004, the Company sold 2,000,000 shares of its common stock to the public at a price of $26.95 per share. The shares were sold under Encore’s prior shelf registration statement, which was declared effective by the Securities and Exchange Commission in August 2003. The net proceeds of the offering, after underwriting discounts and commissions and other expenses of the offering, were approximately $53.0 million. Encore used the net proceeds of this offering to repay indebtedness under its revolving credit facility and for general corporate purposes, including funding the previously announced purchase of natural gas properties in Overton Field in Smith County, Texas.

On April 2, 2004, the Company sold $150 million of 6 1/4% Senior Subordinated Notes due 2014 in a private placement. The Company received net proceeds of $146.2 million after deducting commissions and paying other costs associated with the offering. Subsequent to the initial offering, the Company filed a registration statement with the SEC and is currently offering to exchange registered bonds for the unregistered bonds.

 

 

Outlook for Third Quarter:

Production in the third quarter reflects the impact of the Company’s exploitation drilling and is expected to increase to approximately 25,700 BOE per day with the addition of the Overton acquisition. The Company expects lease operations expense to be approximately $5.20 per BOE, general and administrative expense to be approximately $1.15 per BOE and DD&A expense to be approximately $5.10 per BOE. The Company anticipates an effective tax rate of approximately 36%, with 90% deferred. The Company has budgeted $47.0 million for development projects in the third quarter, including $5.3 million relating to the existing HPAI tertiary recovery projects currently underway in the CCA.

Conference Call:

Encore will host a conference call and simultaneous webcast at 9:00 AM CDT on July 28, 2004. The conference call can be accessed by dialing 877-356-9552 and supplying the title “Encore Acquisition Company Conference Call” and the webcast can be accessed via www.encoreacq.com. A replay of the conference call will be archived and available via Encore’s website at the address above or by dialing 800-642-1687 and entering conference ID 8772097. The replay will be available through August 4, 2004. International or local callers can dial 706-679-0419 for the live broadcast or 706-645-9291 for the replay.

About the Company:

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 in four core areas: the Cedar Creek Anticline of Montana and North Dakota; the Permian Basin of West Texas and Southeastern New Mexico; the Mid Continent area, which includes the Arkoma and Anadarko Basins of Oklahoma, the North Louisiana Salt Basin, the East Texas Basin and the Barnett Shale near Fort Worth, Texas; and the Rocky Mountains.

Cautionary Statements:

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 following: expected production levels and growth; the effect of the Cortez and Overton acquisitions on future earnings, cash flows and production; changes in the Company’s capital budget; future growth; projected lease operations, general and administrative, and DD&A expense; expected capital expenditures and the focus of the Company’s capital program; projected borrowings under the Company’s revolving credit facility; the Company’s expected effective tax rate; and the percentage of tax deferred. However, 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: diversion of management’s attention from existing operations while pursuing acquisitions; difficulties completing and integrating acquisitions; complications resulting from increasing the scope and geographic diversity of Encore’s operations; inaccuracies in the assessment of reserves or daily or annual production with respect to acquisitions; inaccuracies in Encore’s assumptions regarding the expected revenues, lease operations expense, production taxes and other items of income and expense related to acquisitions; the amount, nature, and timing of capital expenditures and the drilling of wells; the timing and amount of future production of oil and natural gas; operating hazards; operating costs and other expenses; marketing of oil and natural gas; and other factors detailed in Encore’s most recent 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.

Encore Acquisition Company, Fort Worth
Roy W. Jageman, 817-339-0861
or
William J. Van Wyk, 817-339-0812

 

 

                                 
(All data in thousands, except per share data)        
    Three Months Ended   Six Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
  (unaudited)   (unaudited)   (unaudited)   (unaudited)
Consolidated Statements of Operations Data:
                                
Revenues:
                                
Oil
   $ 52,885     $ 40,704     $ 99,649     $ 87,136  
Natural gas
     17,237       10,539       29,764       19,894  
 
    
 		      
 		      
 		      
 		  
Total revenues
     70,122       51,243       129,413       107,030  
Expenses:
                                
Production —
                                
Lease operations expense
     10,921       9,140       21,163       18,093  
Production, ad valorem, and severance taxes
     7,161       5,095       13,000       11,264  
G&A (excluding non-cash stock based compensation)
     2,530       2,340       4,758       4,790  
Non-cash stock based compensation
     307       150       617       295  
Depletion, depreciation, and amortization
     11,249       7,703       20,512       15,486  
Exploration
     1,697       —       1,697       —  
Derivative fair value (gain) loss
     965       (576 )     1,123       (1,836 )
Other operating
     1,091       712       2,093       882  
 
    
 		      
 		      
 		      
 		  
Total operating expenses
     35,921       24,564       64,963       48,974  
 
    
 		      
 		      
 		      
 		  
Operating income
     34,201       26,679       64,450       58,056  
Interest and other
     (6,202 )     (4,000 )     (10,057 )     (8,124 )
 
    
 		      
 		      
 		      
 		  
Income before income taxes and cumulative effect
     27,999       22,679       54,393       49,932  
of accounting change
                                
Current income tax provision
     (919 )     (591 )     (2,004 )     (1,358 )
Deferred income tax provision
     (9,089 )     (7,855 )     (17,496 )     (17,226 )
 
    
 		      
 		      
 		      
 		  
Income before cumulative effect of accounting change
     17,991       14,233       34,893       31,348  
Cumulative effect of accounting change, net of taxes
     —       —       —       863  
 
    
 		      
 		      
 		      
 		  
Net income
   $ 17,991     $ 14,233     $ 34,893     $ 32,211  
 
    
 		      
 		      
 		      
 		  
Income before cumulative effect of accounting change per common share:
                                
Basic
   $ 0.59     $ 0.47     $ 1.15     $ 1.04  
Diluted
     0.58       0.47       1.13       1.04  
Net income per common share:
                                
Basic
   $ 0.59     $ 0.47     $ 1.15     $ 1.07  
Diluted
     0.58       0.47       1.13       1.06  
Weighted average common shares outstanding:
                                
Basic
     30,726       30,089       30,456       30,063  
Diluted
     31,120       30,284       30,847       30,253  
Condensed Consolidated Statements of Cash Flows:
                                
Operating activities
                                
Net income
                   $ 34,893     $ 32,211  
Adjustments to reconcile net income to net cash provided by operating activities:
                                
Non-cash and other items
                     47,316       34,853  
Changes in operating assets and liabilities
                     (7,719 )     (15,914 )
 
                    
 		      
 		  
Net cash provided by operating activities
                     74,490       51,150  
Net cash used by investing activities
                     (298,376 )     (46,159 )
Financing activities
                                
Exercise of stock options
                     1,441       777  
Net proceeds from issuance of common stock
                     53,000       —  
Net proceeds from (payments on) long-term debt
                     170,872       (16,000 )
Other
                     933       —  
 
                    
 		      
 		  
Net cash provided by (used by) financing activities
                     226,246       (15,223 )
Increase (decrease) in cash and cash equivalents
                     2,360       (10,232 )
Cash and cash equivalents, beginning of period
                     431       13,057  
 
                    
 		      
 		  
Cash and cash equivalents, end of period
                   $ 2,791     $ 2,825  
 
                    
 		      
 		  
                 
    June 30,   December 31,
    2004
   2003
  (unaudited)        
Condensed Consolidated Balance Sheets:
                                
Total assets
   $ 1,009,672     $ 672,138  
 
    
 		      
 		  
Liabilities
   $ 224,521     $ 134,163  
Long-term debt
     353,000       179,000  
Stockholders’ equity
     432,151       358,975  
 
    
 		      
 		  
Total liabilities and stockholders’ equity
   $ 1,009,672     $ 672,138  
 
    
 		      
 		  
Working capital (a)
   $ (7,150 )   $ (52 )

(a)   Working capital is defined as current assets minus current liabilities.

 

 

                                 
    Three Months Ended   Six Months Ended
    June 30,
   June 30,
    2004
   2003
   2004
   2003
Selected Financial Data:
                                
Production volumes:
                                
Oil (MBbls)
     1,689       1,616       3,299       3,281  
Natural gas (MMcf)
     3,209       1,989       5,733       3,922  
Combined (MBOE)
     2,223       1,947       4,255       3,935  
Daily production:
                                
Oil (Bbls/d)
     18,557       17,755       18,128       18,130  
Gas (Mcf/d)
     35,260       21,858       31,501       21,667  
Combined (BOE/d)
     24,434       21,398       23,378       21,741  
Average prices:
                                
Oil (per Bbl)
   $ 31.32     $ 25.19     $ 30.20     $ 26.55  
Gas (per Mcf)
     5.37       5.30       5.19       5.07  
Combined (per BOE)
     31.54       26.32       30.42       27.20  
Average costs per BOE:
                                
Lease operations expense
   $ 4.91     $ 4.69     $ 4.97     $ 4.60  
Production, ad valorem and severance taxes
     3.22       2.62       3.06       2.86  
G&A (excluding non-cash stock based comp)
     1.14       1.20       1.12       1.22  
DD&A
     5.06       3.96       4.82       3.94  

 

 

Derivative Summary as of June 30, 2004

Oil Derivative Contracts

                                                 
            Average       Average       Average
    Daily   Floor   Daily   Cap   Daily   Swap
    Floor Volume   Price   Cap Volume   Price   Swap Volume   Price
Period
   (Bbls)
   (per Bbl)
   (Bbls)
   (per Bbl)
   (Bbls)
   (per Bbl)
July — Dec 2004
     18,000     $ 24.33       6,000     $ 29.37       500     $ 26.48  
Jan — June 2005
     14,500       27.38       3,500       31.89       1,000       25.12  
July — Dec 2005
     11,500       27.65       2,500       31.07       1,000       25.12  
Jan — Dec 2006
     1,000       27.50       1,000       29.88       2,000       25.03  
Jan — Dec 2007
     —       —       —       —       2,000       25.11  

Natural Gas Derivative Contracts

                                                 
            Average           Average           Average
    Daily   Floor   Daily   Cap   Daily   Swap
    Floor Volume   Price   Cap Volume   Price   Swap Volume   Price
Period
   (Mcf)
   (per Mcf)
   (Mcf)
   (per Mcf)
   (Mcf)
   (per Mcf)
July — Dec 2004
     20,000     $ 4.07       7,500     $ 6.02       15,000     $ 5.47  
Jan — Dec 2005
     10,000       4.84       5,000       5.97       12,500       4.96  
Jan — Dec 2006
     5,000       4.85       5,000       5.68       12,500       5.02  
Jan — Dec 2007
     —       —       —       —       10,000       4.99  

Interest Rate Swap Contract

                         
Expiration
   Notional
   Encore Pays
   Encore Receives
June 15, 2005
   $ 80,000,000     LIBOR + 3.89%     8.375 %