Encore Acquisition Company Announces Second Quarter Results.Business Editors FORT WORTH, Texas--(BUSINESS WIRE)--July 23, 2002 Encore Acquisition Company ("Encore") (NYSE NYSE See: New York Stock Exchange :EAC EAC an abbreviation used in studies of complement, in which E represents erythrocyte, A antibody, and C complement. ) announced second quarter net income before extraordinary items of $9.3 million or 31 cents per share Cents per share The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned. on revenues of $37.8 million, above last year which reported $9.1 million and 30 cents per share, respectively, on revenues of $34.6 million. The extraordinary charge of $0.2 million represents the unamortized debt issuance costs associated with the recently retired revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility. Including the charge, net income for the current quarter was $9.1 million or 30 cents per share. Cash flow for the second quarter (cash earnings before interest, taxes, depreciation, depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able and amortization) was $24.9 million, up $1.3 million over last year. Net realized prices for the quarter were $21.91/bbl for oil and $3.01/mcf for natural gas compared with $21.40/bbl and $4.01/mcf, respectively, for the same period last year. Encore's production volumes averaged 19,614 barrels of oil equivalent ("boe") per day compared with 17,311 boe per day in the same period last year. The higher volume resulted from the Company's Permian Basin The Permian Basin is a sedimentary basin largely contained in the western part of the U.S. state of Texas. It reaches from just south of Lubbock, Texas, to just south of Midland & Odessa, extending westward into the southeastern part of the adjacent state of New Mexico. acquisitions, which closed this year, along with the Company's four-rig drilling program in the Cedar Creek Cedar Creek, small tributary of the North Fork of the Shenandoah River, N of Strasburg, N Va. It was the scene of a Civil War battle (Oct. 19, 1864) in which Union general P. H. Sheridan defeated J. A. Early. Anticline anticline: see fold. ("CCA (1) (Common Cryptographic Architecture) Cryptography software from IBM for MVS and DOS applications. (2) (Compatible Communications A "). Production during the second quarter exceeded guidance and maintained pace with the first quarter. The first quarter included the benefits of the Company's 2001 six-rig drilling program in the CCA. Operating costs operating costs npl → gastos mpl operacionales for the second quarter continued a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. trend, with per boe direct lifting costs of $3.68 and general and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. of $0.78. Last year's second quarter results were $3.85 and $0.80 respectively. Direct lifting costs were expected to increase this year with the inclusion of the Permian Basin acquisitions, but expenses have remained lower than anticipated through cost control, lower than projected maintenance costs at the CCA, and lower costs than projected in the Permian Basin acquisition analysis. The depreciation, depletion and amortization rate was $4.92/boe compared with $4.97/boe for the same period last year reflecting lower production volumes for the Lodgepole acquisition, which carries a relatively higher per unit rate. Encore ended the quarter with long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. of $150 million. In June June: see month. the Company issued $150 million of 8 3/8% Senior Subordinated Subordinated A claim ranked lower in priority than other claims. Common stock claims are always subordinated to debt. Notes due 2012, the proceeds of which were used to pay off the Company's prior bank credit facility. The Company also entered into a new four-year revolving credit facility with a $220 million secured borrowing base. There are no borrowings outstanding against the credit facility at the end of the second quarter. Capital expenditures for the quarter were $29.3 million as the Company maintained a four-rig drilling program and began fieldwork field·work n. 1. A temporary military fortification erected in the field. 2. Work done or firsthand observations made in the field as opposed to that done or observed in a controlled environment. 3. on the High-Pressure high-pres·sure adj. 1. Of or relating to pressures higher than normal, especially higher than atmospheric pressure. 2. Informal a. Air Injection ("HPAI HPAI Highly Pathogenic Avian Influenza HPAI Hospital Pharmacists Association, Ireland HPAI Hewlett Packard Associates International ") program in the CCA. The Company also acquired additional interest in the Permian Basin from non-operated interest partners. Outlook for Third Quarter As previously announced, Encore has entered into an agreement to purchase producing properties in the Aneth and Ratherford units in the Paradox paradox, statement that appears self-contradictory but actually has a basis in truth, e.g., Oscar Wilde's "Ignorance is like a delicate fruit; touch it and the bloom is gone. Basin in Southern Utah. The purchase price is $23.4 million, subject to closing adjustments. The transaction is expected to close in the third quarter immediately upon the expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of all preferential pref·er·en·tial adj. 1. Of, relating to, or giving advantage or preference: preferential treatment. 2. rights. Production in the third quarter, which assumes one month of volume from the Paradox Basin, is expected to increase to approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 19,800 boe per day, an increase of 12% over the same quarter last year; slightly above the second quarter this year. Encore has continued to increase its commodity hedges and has included the Company's latest positions in the attached schedule. Direct lifting costs are expected to increase to a range of $4.00/boe - $4.25/boe as a result of integrating the Paradox Basin acquisition and a more aggressive maintenance program in CCA. General and administrative expenses are projected to be from $0.80/boe to $0.85/boe and depreciation, depletion and amortization should be in a range of $4.80/boe -$4.85/boe. Interest expense is forecasted to be about $3.7 million on an average outstanding debt balance of $160 million. The higher interest expense includes the effect of interest rate swaps Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. , the cash payment for the Paradox Basin, as well as the higher interest rate associated with the 8 3/8% Senior Subordinated Notes. Encore's effective tax rate for the quarter will remain at 38% with 90% deferred. Encore intends to invest approximately $21 million in the third quarter maintaining the four-rig drilling program in the CCA, one additional rig drilling in the Permian Basin East Cowden Grayburg Unit, and continued work on the HPAI project. High-Pressure Air Injection Project Update On July July: see month. 16, Encore began injecting air in the Pennel Unit of the CCA. The start up was smooth and the initial indication of success should occur by the end of the first quarter of 2003. Conference Call Encore's first quarter 2002 conference call to discuss financial and operating results will be held on Wednesday Wednesday: see week. , July 24, 2002 at 9:30 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy and can be accessed via http://www.encoreacq.com or by dialing 800-817-4887. Organized in 1998, Encore is a growing independent energy company engaged in the acquisition, development and exploitation Exploitation See also Opportunism. Barnum, P. T. (1810–1891) circus impressario famous for his saying, “Never give a sucker an even break.” [Am. Hist. of North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. oil and natural gas reserves. Encore's oil and natural gas reserves are located in the Williston Williston, city (1990 pop. 13,131), seat of Williams co., NW N.Dak., on the Missouri River; inc. 1904. An early riverboating town, its importance increased with the arrival of the Great Northern Railway (1887) and later by the discovery (1951) of rich oil reserves in Basin of Montana Montana (mŏntăn`ə), Rocky Mt. state in the NW United States. It is bounded by North Dakota and South Dakota (E), Wyoming (S), Idaho (W), and the Canadian provinces of British Columbia, Alberta, and Saskatchewan (N). and North Dakota North Dakota, state in the N central United States. It is bordered by Minnesota, across the Red River of the North (E), South Dakota (S), Montana (W), and the Canadian provinces of Saskatchewan and Manitoba (N). , the Permian Basin of Texas and New Mexico New Mexico, state in the SW United States. At its northwestern corner are the so-called Four Corners, where Colorado, New Mexico, Arizona, and Utah meet at right angles; New Mexico is also bordered by Oklahoma (NE), Texas (E, S), and Mexico (S). , the Anadarko Basin The Anadarko Basin is one of the most prolific natural gas reserves in North America, with ultimate gas production in excess of 100 trillion cubic feet of gas.[1] External links
References 1. of Oklahoma Oklahoma (ōkləhō`mə), state in SW United States. It is bordered by Missouri and Arkansas (E); Texas, partially across the Red R. (S, W); New Mexico, across the narrow edge of the Oklahoma Panhandle (W); and Colorado and Kansas (N). and the Powder River Basin The Powder River Basin is a region in southeast Montana and northeast Wyoming about 120 miles east to west and 200 miles north to south known for its coal deposits. It is both a topographic drainage and geologic structural basin. of Montana. This press release includes forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . 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 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 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 Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
Statement of Operations
Data: (unaudited) (unaudited)
Revenues $ 37,807 34,608 70,104 70,829
Operating expenses:
Direct lifting costs 6,567 6,066 13,384 12,421
Production, ad valorem
and severance taxes 3,546 3,640 6,559 7,910
General and
administrative 1,384 1,259 2,877 2,522
Non-cash stock based
compensation - - - 9,587
Depreciation, depletion
and amortization 8,773 7,825 17,332 15,388
Derivative fair value
(gain)/loss (26) 37 (679) 139
Other operating expense 331 - 470 -
-------- -------- -------- --------
Total operating expenses 20,575 18,827 39,943 47,967
-------- -------- -------- --------
Income from operations 17,232 15,781 30,161 22,862
Interest and other (2,232) (1,167) (3,694) (3,652)
-------- -------- -------- --------
Income before income
taxes 15,000 14,614 26,467 19,210
Provision for income
taxes - current (30) (600) (460) (1,204)
Provision for income
taxes - deferred (5,670) (4,953) (9,597) (9,738)
-------- -------- -------- --------
Net income before
extraordinary item and
cumulative effect of
accounting change 9,300 9,061 16,410 8,268
Extraordinary loss on
debt extinguishment,
net of taxes (174) - (174) -
Cumulative effect of
accounting change, net
of taxes - - - (884)
--------- -------- -------- --------
Net income $ 9,126 $ 9,061 $ 16,236 $ 7,384
========= ======== ======== ========
Net income before
extraordinary item and
cumulative effect of
accounting change per
common share:
Basic $ 0.31 $ 0.30 $ 0.55 $ 0.30
Diluted 0.31 0.30 0.54 0.30
Net income per common
share:
Basic $ 0.30 $ 0.30 $ 0.54 $ 0.27
Diluted 0.30 0.30 0.54 0.27
Weighted average number
of common shares
outstanding:
Basic 30,030 30,030 30,030 27,383
Diluted 30,184 30,034 30,118 27,385
Other Financial Data:
Adjusted EBITDA (1) $ 24,901 $ 23,606 $ 45,285 $ 47,837
Condensed Statement of
Cash Flows:
Operating activities
Net income $ 16,236 $ 7,384
Non-cash and other items 25,838 35,342
Changes in operating
assets and liabilities (4,558) (1,664)
-------- --------
Net cash provided by
operating activities 37,516 41,062
Net cash used in investing
activities (100,421) (35,594)
Financing activities
Proceeds from capital stock - 91,546
Net proceeds (payments)
on debt 70,893 (97,505)
Debt issuance costs (5,686) -
-------- --------
Net cash provided by
(used in) financing
activities 65,207 (5,959)
Increase (decrease) in cash
and cash equivalents 2,302 (491)
Cash and cash equivalents,
beginning of period 115 876
-------- --------
Cash and cash equivalents,
end of period $ 2,417 $ 385
======== ========
June 30, December 31,
2002 2001
---- ----
Condensed Balance
Sheet: (unaudited)
Total assets $ 493,483 $ 402,000
========= =========
Liabilities $ 67,332 $ 54,698
Long-term debt 150,000 78,000
Equity 276,151 269,302
--------- ---------
Total liabilities and
equity $ 493,483 $ 402,000
========= =========
Working capital $ 5,091 $ 1,107
1) Adjusted EBITDA is defined as net income before interest income
and expense, income taxes, depletion, depreciation and
amortization, non-cash stock based compensation expense,
cumulative effect of accounting change, and Enron related gains
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Selected Financial
Data:
Production:
Oil Volumes (Bbls) 1,446,226 1,238,599 2,856,899 2,429,846
Gas Volumes (Mcf) 2,031,648 2,020,047 4,192,477 3,926,201
Combined Volumes(BOE) 1,784,834 1,575,274 3,555,645 3,084,213
Daily production:
Oil Volumes (Bbls) 15,893 13,611 15,784 13,425
Gas Volumes (Mcf) 22,326 22,198 23,163 21,692
Combined Volumes(BOE) 19,614 17,311 19,644 17,040
Average prices:
Oil ($/Bbl) $ 21.91 $ 21.40 $ 20.43 $ 22.18
Gas ($/Mcf) 3.01 4.01 2.80 4.32
Combined Volumes
($/BOE) 21.18 21.97 19.72 22.96
Average costs ($/BOE):
Direct lifting costs $ 3.68 $ 3.85 $ 3.76 $ 4.03
Production, ad valorem
and severance tax 1.99 2.31 1.84 2.56
G&A (excluding
non-cash stock based
compensation) 0.78 0.80 0.81 0.82
DD&A 4.92 4.97 4.87 4.99
Commodity Derivative Summary as of July 22, 2002
Oil Hedges
Daily Floor Daily
Floor Volume Price Cap Volume
Period (Bbls) (per Bbl) (Bbls)
-------------- ------------ ------------ -----------
July - Dec 2002(a) 7,000 $ 22.96 4,500
% Hedged 41% 26%
Jan - June 2003(b) 7,500 $ 20.80 6,000
% Hedged 37% 29%
July - Dec 2003(b) 4,500 $ 20.00 4,500
% Hedged 22% 22%
Cap Daily Swap
Price Swap Volume Price
Period (per Bbl) (Bbls) (per Bbl)
-------------- ------------ ---------- -----------
July - Dec 2002(a) $ 27.88 3,000 $ 20.15
% Hedged 18%
Jan - June 2003(b) $ 26.52 1,000 $ 24.50
% Hedged 5%
July - Dec 2003(b) $ 26.23 -- $ --
% Hedged 0%
(a) For calendar 2002, Encore has short puts in place for 1,500 bpd at
$20/bbl, which are not reflected in the above amounts.
(b) For calendar 2003, Encore has short puts in place for 500 bpd at
$17/bbl, which are not reflected in the above amounts.
Natural Gas Hedges
Daily Floor Daily
Floor Volume Price Cap Volume
Period (Mcf) (per Mcf) (Mcf)
-------------- ------------ ----------- ------------
2002 5,000 $ 3.13 2,500
% Hedged 24% 12%
2003 5,000 $ 3.13 --
% Hedged 24% 0%
Cap Daily Swap
Price Swap Volume Price
Period (per Mcf) (Mcf) (per Mcf)
-------------- ------------ -------------- --------------
2002 $ 8.05 5,000 $ 2.83
% Hedged 24%
2003 $ -- 2,500 $ 3.69
% Hedged 12%
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