EXHIBIT 99.1
ENCORE ACQUISITION COMPANY ANNOUNCES AMENDMENTS TO ITS 2001 ANNUAL REPORT ON
FORM 10-K AND FORM 10-Q FOR THE FIRST THREE QUARTERS OF 2002
Fort Worth, Texas -December 5, 2002- Encore Acquisition Company ("Encore")
(NYSE: EAC) today announced in connection with the review by the Securities and
Exchange Commission ("SEC") staff of the Company's S-4 Registration Statement
that it has filed amendments to its 2001 Annual Report on Form 10-K and its
Quarterly Reports on Form 10-Q for the first three quarters of 2002. The
amendments reflect changes in Encore's historical reported oil and natural gas
reserve volumes and production quantities that result from assigning reserves to
the net profits interests that burden its properties in the Cedar Creek
Anticline ("CCA") in Montana and North Dakota. The changes do not affect
Encore's financial statements, the Standardized Measure or the PV-10 value, all
of which remain as previously reported.
Encore will no longer treat the net profits interest burden on the CCA as a
financial transaction but will instead treat it as a mineral interest. As a
financial transaction, Encore reduced revenue by reducing the unit sales price
to account for the net profits interest burden. This was the method reviewed by
the SEC during Encore's Initial Public Offering in March of 2001. Treating the
net profits burden as a mineral interest, the Company will reduce revenues by
reducing the production volumes to account for the net profits interest burden,
instead of the unit sales price. In either event, Encore's revenues will be the
same.
Because the Company is now treating the net profits interest burden as a mineral
interest the production and reserves will be reduced by the barrels allocated to
the net profits interest. This change in treatment does not reduce revenues or
the PV-10 value of the Company's reserves. In the third quarter of 2002, the
Company reported production of 20,676 barrels of oil equivalent ("boe") per day
and an average price of $22.87 per boe. The mineral interest method would have
resulted in production of 20,435 boe per day at a higher price of $23.14. Even
with the change, the Company expects to exceed its fourth quarter guidance of
21,000 boe per day. If the mineral interest method had been in effect at
December 31, 2001, the total proved reserves would have been 104.0 million boe,
instead of the previously reported 115.0 million boe for total proved reserves.
The net present value of the Company's reserves remains the same, because the
unit sales price will no longer be reduced to reflect the net profits burden.
Also based on the SEC's review, the Company will reclassify 4.7 million boe of
reserves reported as proved developed at December 31, 2001, to the proved
undeveloped category. Total proved reserves will remain the same, since it is
only a category shift. These reserves are associated with future expected
production response from waterflood investments made by Encore during the 2000
and 2001 periods. This categorization as proved undeveloped is somewhat unusual,
since these reserves will require no further capital investment. Uplift from
these programs is already being seen, and the volumes recategorized represent
the incremental response expected over the next few years.
While it is the Company's and the reserve consultant's position that the
reserves were properly classified, the SEC staff position is that these reserves
should be recategorized, and we have amended our filings to reflect the change
retroactively for all affected time periods. Miller and Lents, Ltd., Encore's
independent reservoir engineers, have communicated to the Company that they will
make the changes as outlined.
The changes in methodology will not affect Encore's:
o Financial Statements
o Net Income
o Adjusted EBITDA
o Standardized Measure or PV-10 Value
o Depletion, Depreciation, and Amortization
The changes in methodology will affect: (in millions, except per unit amounts)
<Table>
<Caption>
Year Ended Nine Months
December 31, 2001 September 30, 2002
--------------------------------- ------------------------------
Financial Mineral Difference Financial Mineral Difference
--------- ------- ---------- --------- ------- ----------
Volumes (boe)
Total Proved 115.0 104.0 (11.0) NA NA NA
Net Production 6.4 6.3 (0.1) 5.5 5.4 (0.1)
PV-10 Value $ 360.4 $ 360.4 $ -- NA NA NA
Revenue $ 135.9 $ 135.9 $ -- $ 113.6 $ 113.6 $ --
Net Income $ 16.2 $ 16.2 $ -- $ 26.3 $ 26.3 $ --
Average Costs (per boe):
Three Year Finding and Development Costs
With Revisions $ 3.80 $ 4.00 $ 0.20 NA NA NA
Direct Lifting Costs $ 3.93 $ 4.00 $ 0.07 $ 3.98 $ 4.02 $ 0.04
Cash Flow Margin* $ 12.88 $ 13.11 $ 0.23 $ 12.15 $ 12.27 $ 0.12
</Table>
* Cash Flow Margin per boe defined as adjusted EBITDA less current taxes and
interest.
More information and comparisons will be available via http://www.encoreacq.com.
CONFERENCE CALL
Encore's will host a conference call on Friday, December 6, 2002, at 8:30 a.m.
EST to discuss the above. The conference call can be accessed by dialing
1.800.289.0468 or via http://www.encoreacq.com. Replay number 719.457.0820 with
pass code 561646 will be available through December 11, 2002.
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 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.
CONTACTS:
MORRIS B. SMITH
EXECUTIVE VICE PRESIDENT AND CFO
817-339-0908
RANI M. WAINWRIGHT
ASSISTANT TREASURER
817-339-0919