Encore Acquisition Company Announces Third Quarter 2005 Financial and Operating Results

(in millions except per share, daily production, and price per BOEamounts; earnings per share and weighted average diluted sharesoutstanding have been restated for a three-for-two stock split in July2005)
Quarter Ended Sep. 30,
---------------------- Increase or
2005 2004 (decrease)
------------ --------- -----------
Net income $20.9 $21.0 (0%)
Diluted earnings per share $0.42 $0.43 (2%)
Revenues $127.6 $79.3 61%
Cash flow from operations $86.7 $52.6 65%
Average combined price ($/BOE) $49.17 $33.42 47%
Daily production volumes (BOE) 28,202 25,779 9%
Diluted shares outstanding 49.6 49.1 1%

In the third quarter of 2005 Encore generated net income of $20.9million ($0.42 per diluted share), including a one-time loss on earlyextinguishment of debt of $19.5 million ($0.25 per diluted share)relating to the Company's debt refinancing and issuance of $300million of 6.0% Senior Subordinated Notes due 2015. In the thirdquarter of 2004, Encore generated net income of $21.0 million ($0.43per diluted share). Net income also includes expenses for derivativefair value loss and non-cash stock based compensation totaling $3.2million ($0.04 per diluted share) for the third quarter of 2005 and$3.1 million ($0.04 per diluted share) for the third quarter of 2004.

Jonny Brumley, President, said, "Management is pleased with thethird quarter results. The high-pressure air injection project isworking, drilling results are good, and the new acquisitions haveincreased our drilling inventory. We are looking forward to next yearand expect our 2006 production growth rate to be in the mid-teens."

In the third quarter of 2005 Encore drilled 84 gross (56.1 net)wells, investing $92.6 million in development capital (excludingdevelopment-related asset retirement obligations). The Company alsoinvested $32.4 million in property acquisitions and undevelopedleases. Encore operated 13 rigs during the third quarter of 2005across all of its core areas.

The Company's drilling activity and capital investments drove anincrease in third quarter 2005 production volumes of 9% to a record28,202 barrels of oil equivalent ("BOE") per day (2.6 MMBOE), comparedwith third quarter 2004 production of 25,779 BOE per day (2.4 MMBOE).The net profits interests on the Cedar Creek Anticline ("CCA") reducedproduction by approximately 1,608 BOE per day in the third quarter of2005 versus 1,114 BOE per day in the third quarter of 2004. Oilrepresented 65% and 71% of the Company's total production volumes inthe third quarter of 2005 and 2004, respectively.

Encore's realized commodity prices, including the effects ofhedging, averaged $50.94 per barrel and $7.65 per Mcf during the thirdquarter of 2005, each resulting in increases of 48% over the thirdquarter of 2004. On a combined basis, including the effects ofhedging, prices increased during the third quarter of 2005 to $49.17per BOE as compared to $33.42 per BOE in the third quarter of 2004.Hedging expense reduced realized oil prices by $7.15 per barrel andrealized natural gas prices by $0.82 per Mcf during the third quarterof 2005.

During the third quarter of 2005, lease operations expenseincreased to $17.9 million ($6.90 per BOE) from $12.6 million ($5.31per BOE) in the third quarter of 2004 as a result of higher volumesand a higher cost operating environment. The Company incurredexploration expense of $4.8 million ($0.06 per diluted share) in thethird quarter of 2005 as compared to $0.5 million ($0.01 per dilutedshare) in the third quarter of 2004.

Acquisitions Update

Encore announced on October 19, 2005 that it has entered into anagreement with Kerr-McGee Corporation to purchase oil and gasproperties in the Permian Basin in West Texas and the Anadarko Basinin Oklahoma for $104 million. The properties have estimated totalproved reserves of 6.2 million BOE, which are 94% oil and 69% proveddeveloped producing. The properties are long-lived with currentproduction of approximately 1,300 BOE per day and areserves-to-production ratio of 12 years for proved reserves. Thesefields are mature legacy waterfloods with large volumes of originaloil in place. Encore has identified 1.9 million barrels of provedundeveloped opportunities on these properties with total capitalrequirements of approximately $12 million. This capital targetsreserves through infill drilling and down-spacing in existing fields.The transaction is expected to close in November.

In September and October, Encore closed two separate acquisitionsof oil and gas properties in the Anadarko Basin of Oklahoma and theWilliston Basin in Montana and North Dakota for aggregateconsideration of approximately $123 million. The properties haveestimated total proved reserves of 8.0 million BOE, which are 65%natural gas and 68% proved developed producing. The properties arelong-lived with production of approximately 1,750 BOE per day and areserves-to-production ratio of 12.5 years. Encore has identified 90proved locations on these properties with total capital requirementsof approximately $20 million. The properties also have 90 probable andpossible locations identified.

High-Pressure Air Injection Program Update

In the Little Beaver area, Encore's high-pressure air injection("HPAI") project is on target with our production forecast. Productionin the Little Beaver area has increased from 1,600 barrels per day atthe beginning of the year to 1,825 barrels per day currently. This isthe first quarter that we have seen appreciable increase in the totalarea. Implementation of high-pressure air injection in Little BeaverPhases 1 and 2 was completed in the fourth quarter of 2004.

In the Pennel and Coral Creek area of the CCA, where the Companyhas been operating a successful HPAI appraisal project (Phase 1) fornearly three years, Encore has continued to expand the Phase 2 portionof the HPAI project. Encore has been injecting air in the Phase 2project area since April 2005, and expects full implementation to becompleted by year-end 2005. For 2006, Encore plans to continueexpanding the HPAI project in Pennel and begin implementing Phase 3,which is similar in size to Phase 2.

Liquidity and Hedging Update

At September 30, 2005, long-term debt, net of discount, was $493.6million, including $150.0 million of 6.25% Senior Subordinated Notesdue April 15, 2014, $300.0 million of 6.0% Senior Subordinated Notesdue July 15, 2015, and $49.0 million of bank debt under the existingcredit facility.

In the third quarter, Encore issued $300.0 million of 6.0% SeniorSubordinated Notes due July 15, 2015 and redeemed all $150.0 millionof its outstanding 8.375% Senior Subordinated Notes due 2012.Accordingly, the third quarter 2005 financial statements include aone-time loss on early extinguishment of debt of $19.5 million ($0.25per diluted share). At the time of closing, the borrowing base underthe Company's existing credit facility was reduced according to theterms of the credit facility from $500.0 million to $450.0 million.

The Company has increased its portfolio of 2006 put options toapproximately 75% of its current pro forma combined volumes. This willmitigate the negative effects of any downward movement in the price ofoil and gas, while retaining the benefits of increasing commodityprices. An attached schedule summarizes the hedging program.

Fourth Quarter 2005 Outlook

Encore currently is operating 11 drilling rigs in the onshorecontinental United States (4 rigs in Montana, 2 rigs in East Texas, 2rigs in West Texas, and 3 rigs in the Mid Continent area). The Companyexpects wellhead production to grow by approximately 2,500 BOE per dayin the fourth quarter of 2005 over the third quarter of 2005. Theimpact of the net profits interests in the CCA, which lowers reportedproduction, is expected to be approximately 1,900 BOE per day.Therefore, the Company expects reported production to averageapproximately 30,400 BOE per day in the fourth quarter of 2005, anincrease of 16% over the fourth quarter of 2004.

Production, ad valorem, and severance taxes are anticipated toremain at approximately 9.0% of oil and natural gas revenues beforehedging. The Company expects lease operations expense to increase from$17.9 million ($6.90 per BOE) in the third quarter to approximately$19.5 million ($6.98 per BOE) in the fourth quarter. General andadministrative expenses are expected to increase from $4.0 million inthe third quarter to approximately $4.4 million in the fourth quarter($1.56 per BOE). Depletion, depreciation, and amortization shouldincrease from $24.2 million ($9.34 per BOE) in the third quarter toapproximately $28.8 million ($10.30 per BOE) in the fourth quarter.Income tax expense is expected to be at an effective rate of 34% withapproximately 100% deferred. The Company expects to investapproximately $88 million in development and exploration capitalduring the fourth quarter of 2005.

Discussion of 2006 Guidance and Timing

Because of the Company's recently closed acquisitions and therecently announced Kerr-McGee property package, the Company's 2006capital budget is still under review. The Company is expecting its2006 production growth rate to be in the mid-teens. After the Board ofDirectors discusses and approves the 2006 capital budget, the Companywill issue a press release detailing the 2006 capital budget andproduction guidance.
Conference Call

Title: Encore Acquisition Company Conference Call
Date and Time: Wednesday, October 26, 2005 at 9:30 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.

A replay of the conference call will be archived and available viaEncore's website at the address above or by dialing 800-642-1687 andentering conference ID 1448638. The replay will be available throughNovember 2, 2005. International or local callers can dial 706-679-0419for the live broadcast or 706-645-9291 for the replay.

About the Company:

Organized in 1998, Encore is a growing independent energy companyengaged in the acquisition, development and exploitation of NorthAmerican oil and natural gas reserves. Encore's oil and natural gasreserves are in four core areas: the Cedar Creek Anticline of Montanaand North Dakota; the Permian Basin of West Texas and Southeastern NewMexico; the Mid Continent area, which includes the Arkoma and AnadarkoBasins of Oklahoma, the North Louisiana Salt Basin, the East TexasBasin and the Barnett Shale; and the Rocky Mountains. Encore's latestinvestor presentation is available on the Company's website atwww.encoreacq.com.

Cautionary Statements:

This press release includes forward-looking statements, which giveEncore's current expectations or forecasts of future events based oncurrently available information. Forward-looking statements in thispress release relate to, among other things, the following: thebenefits of recent and pending acquisitions; the closing of pendingacquisitions; the expected amount and focus of the Encore's capitalexpenditures; expected drilling results; expected production(including the impact of the Company's net profits interests); theexpected effects of Encore's hedging program; anticipated productiongrowth; the level of production, ad valorem and severance taxes, leaseoperations expense, general and administrative expenses, depletion,depreciation and amortization expenses, and income tax expense;expected effective tax rates; expectations regarding the HPAI program;and any other statements that are not historical facts. Theassumptions of management and the future performance of Encore aresubject to a wide range of business risks and uncertainties and thereis no assurance that these statements and projections will be met.Factors that could affect Encore's business include, but are notlimited to: the risks associated with operating in a limited number ofgeographic areas; the risks associated with drilling of oil andnatural gas wells; risks related to Encore's high-pressure airprogram; Encore's ability to find, acquire, market, develop, andproduce new properties; the risk of drilling dry holes; oil andnatural gas price volatility; hedging arrangements (including thecosts associated therewith); uncertainties in the estimation ofproved, probable and potential reserves and in the projection offuture rates of production and reserve growth; inaccuracies inEncore's assumptions regarding items of income and expense;uncertainties in the timing of exploitation expenditures; operatinghazards attendant to the oil and natural gas business; drilling andcompletion losses that are generally not recoverable from thirdparties or insurance; potential mechanical failure or underperformanceof significant wells; climatic conditions; availability and cost ofmaterial and equipment; actions or inactions of third-party operatorsof Encore's properties; Encore's ability to find and retain skilledpersonnel; diversion of management's attention from existingoperations while pursuing acquisitions or joint ventures; availabilityof capital; the strength and financial resources of Encore'scompetitors; regulatory developments; environmental risks; generaleconomic and business conditions; industry trends; and other factorsdetailed in Encore's most recent Form 10-K and other filings with theSecurities and Exchange Commission. If one or more of these risks oruncertainties materialize (or the consequences of such a developmentchanges), or should underlying assumptions prove incorrect, actualoutcomes may vary materially from those forecasted or expected. Encoreundertakes no obligation to publicly update or revise anyforward-looking statements.

Estimates of reserves attributable to 2005 acquisitions, as wellas estimates of reserve potential or upside, were made by Encore'sinternal engineers without review by an independent petroleumengineering firm.
(All data in thousands, except per share data)

Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ---------------------
2005 2004 2005 2004
------------ ----------- --------- -----------
Consolidated Statements (unaudited) (unaudited)
of Operations:
Revenues:
Oil $85,559 $58,243 $222,254 $157,892
Natural gas 42,013 21,009 96,616 50,773
------------ ----------- --------- -----------
Total revenues 127,572 79,252 318,870 208,665
------------ ----------- --------- -----------
Operating expenses:
Production -
Lease operations 17,912 12,589 48,501 33,752
Production, ad
valorem, and
severance taxes 12,526 8,117 31,425 21,117
Depletion,
depreciation, and
amortization 24,222 12,750 59,943 33,262
Exploration 4,818 462 11,201 2,159
G&A (excluding
non-cash stock
based
compensation) 4,030 2,858 11,236 7,616
Non-cash stock
based
compensation 1,544 796 3,323 1,413
Derivative fair
value loss 1,612 2,301 5,713 3,424
Loss on early
redemption of
debt 19,477 - 19,477 -
Other operating 2,520 1,369 5,822 3,462
------------ ----------- --------- -----------
Total operating expenses 88,661 41,242 196,641 106,205
------------ ----------- --------- -----------
Operating income 38,911 38,010 122,229 102,460
Interest and other (8,684) (6,469) (22,942) (16,526)
------------ ----------- --------- -----------
Income before income
taxes 30,227 31,541 99,287 85,934
Current income tax
benefit (provision) 2,868 (1,042) 1,478 (3,046)
Deferred income tax
provision (12,241) (9,485) (34,459) (26,981)
------------ ----------- --------- -----------
Net income $20,854 $21,014 $66,306 $55,907
============ =========== ========= ===========


Net income per common
share:
Basic 0.43 0.43 1.36 1.20
Diluted 0.42 0.43 1.34 1.18

Weighted average
common shares
outstanding:
Basic 48,703 48,446 48,659 46,611
Diluted 49,584 49,103 49,481 47,222


Nine Months Ended
September 30,
---------------------
2005 2004
--------- -----------
Condensed Consolidated (unaudited)
Statements of Cash Flows:
Net income $66,306 $55,907
Adjustments to
reconcile net income
to net cash provided
by operating activities:
Non-cash and other
items 138,458 74,669
Changes in
operating assets
and liabilities (572) (3,476)
--------- -----------
Net cash provided by
operating activities 204,192 127,100
--------- -----------

Cash used by investing
activities (297,018) (365,814)

Financing activities:
Net proceeds from
long-term debt 97,889 181,208
Net proceeds from
issuance of
common stock - 53,223
Cash overdraft and
other (3,612) 4,944
--------- -----------
Net cash provided by
financing activities 94,277 239,375
--------- -----------

Increase in cash and
cash equivalents 1,451 661
Cash and cash
equivalents,
beginning of period 1,103 431
--------- -----------
Cash and cash
equivalents, end of
period $2,554 $1,092
========= ===========


September 30, December 31,
2005 2004
------------ ------------
Condensed Balance (unaudited)
Sheets:
Total assets $1,422,376 $1,123,400
============ ===========
Liabilities $437,583 $270,825
Long-term debt 493,581 379,000
Stockholders'
equity 491,212 473,575
------------ -----------
Total liabilities
and stockholders'
equity $1,422,376 $1,123,400
============ ===========

Working capital (a) $(54,532) $(15,566)


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


Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
2005 2004 2005 2004
---------- -------- --------- -------
(unaudited) (unaudited)
Production volumes:
Oil (MBbls) 1,680 1,695 5,082 4,994
Natural gas (MMcf) 5,489 4,063 14,874 9,796
Combined (MBOE) 2,595 2,372 7,561 6,626

Daily production:
Oil (Bbls/d) 18,257 18,419 18,616 18,226
Natural gas (Mcf/d) 59,666 44,160 54,482 35,751
Combined (BOE/d) 28,202 25,779 27,697 24,184

Average prices:
Oil ( per Bbl) $50.94 $34.37 $43.73 $31.62
Natural gas (per Mcf) 7.65 5.17 6.50 5.18
Combined (per BOE) 49.17 33.42 42.17 31.49

Average costs per BOE:
Lease operations expense $6.90 $5.31 $6.41 $5.09
Production, ad valorem, and
severance taxes 4.83 3.42 4.16 3.19
DD&A 9.34 5.38 7.93 5.02
Exploration 1.86 0.19 1.48 0.33
G&A (excluding non-cash
stock based compensation) 1.55 1.21 1.49 1.15


Derivative Summary as of September 30, 2005

Oil Derivative Contracts
------------------------

Average Average Average
Daily Floor Daily Cap Daily Swap
Floor Price Cap Price Swap Price
Volume (per Volume (per Volume (per
Period (Bbls) Bbl) (Bbls) Bbl) (Bbls) Bbl)
------------------ ------- ------- ------- ------- ------- -------
Oct - Dec 2005 12,500 27.84 2,500 31.07 1,000 25.12
Jan - Jun 2006 7,000 33.93 1,000 29.88 2,000 25.03
July - Dec 2006 6,500 35.00 1,000 29.88 2,000 25.03
Jan - Dec 2006 6,500 55.00 - - - -
Jan - Dec 2007 4,000 55.00 - - 2,000 25.11


Natural Gas Derivative Contracts
--------------------------------

Average Average Average
Daily Floor Daily Cap Daily Swap
Floor Price Cap Price Swap Price
Volume (per Volume (per Volume (per
Period (Mcf) Mcf) (Mcf) Mcf) (Mcf) Mcf)
------------------ ------- ------- ------- ------- ------- -------
Oct - Dec 2005 17,500 5.12 5,000 5.97 12,500 4.96
Jan - Dec 2006 12,500 5.34 5,000 5.68 12,500 5.02
Jan - Dec 2006 20,000 6.69 - - - -
Jan - Dec 2007 12,500 6.53 - - 10,000 4.99