ENCORE ACQUISITION CO, S-1, 2000-10-06

ENCORE ACQUISITION CO
S-1, 2000-10-06

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
ENCORE ACQUISITION COMPANY
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 1311 75-2759650
(State or Other Jurisdiction of (Primary standard industrial I.R.S. Employer
Incorporation or Organization) classification code number) (Identification Number)
</TABLE>

----------------------
777 MAIN STREET, SUITE 1400
FORT WORTH, TEXAS 76102
TELEPHONE: (817) 877-9955
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)

I. JON BRUMLEY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ENCORE ACQUISITION COMPANY
777 MAIN STREET, SUITE 1400
FORT WORTH, TEXAS 76102
TELEPHONE: (817) 877-9955
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
----------------------
With a copy to:

<TABLE>
<S> <C>
F. RICHARD BERNASEK R. JOEL SWANSON
KELLY, HART & HALLMAN, P.C. BAKER BOTTS LLP
201 MAIN STREET, SUITE 2500 910 LOUISIANA
FORT WORTH, TEXAS 76102 HOUSTON, TX 77002
TELEPHONE: (817) 332-2500 TELEPHONE: (713) 229-1330
FACSIMILE: (817) 878-9280 FACSIMILE: (713) 229-7730
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
------------------------------------

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------------------

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
TITLE OF EACH PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED PRICE(1) FEE(2)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share...................... $125,000,000 $33,000
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o).

(2) Calculated pursuant to Rule 457(a) under the Securities Act based on an
estimate of the proposed maximum offering price.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2

The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities nor does
it seek an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.

SUBJECT TO COMPLETION. DATED OCTOBER 6, 2000.

[ENCORE LOGO]

ENCORE ACQUISITION COMPANY

Common Stock
----------------------

This is an initial public offering of shares of common stock of Encore
Acquisition Company. All of the shares of common stock are being sold by
Encore Acquisition Company.

Prior to this offering, there has been no public market for the common
stock. It currently is estimated that the initial public offering price per
share will be between $ and $ . Encore intends to apply for the listing of the
common stock on the New York Stock Exchange under the symbol " ".

See "Risk Factors" beginning on page 8 to read about certain factors you
should consider before buying shares of the common stock.

----------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

----------------------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Encore Acquisition Company.... $ $
</TABLE>

To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Encore at the initial public offering price less the underwriting
discount.

----------------------

The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.

GOLDMAN, SACHS & CO. CREDIT SUISSE FIRST BOSTON

DAIN RAUSCHER WESSELS

PETRIE PARKMAN & CO.
----------------------

Prospectus dated , 2000.
<PAGE> 3

THIS PAGE WILL INCLUDE A MAP INDICATING THE LOCATIONS OF ENCORE'S PROPERTIES

i
<PAGE> 4

SUMMARY

This summary highlights selected information from this prospectus, but does
not contain all information that may be important to you. We encourage you to
read this prospectus in its entirety before making an investment decision.
References to "Encore", "we", "our" or "us" refer to Encore Acquisition Company
and our subsidiaries. You will find definitions for oil and natural gas industry
terms used throughout our prospectus in "Glossary of Certain Oil and Natural Gas
Terms". Miller and Lents, Ltd., an independent engineering firm, provided the
estimates included in our prospectus of proved oil and natural gas reserves
except for reserves related to an August 2000 acquisition constituting less than
4% of pro forma proved reserves.

ABOUT ENCORE

Encore is a rapidly growing independent energy company engaged in the
acquisition, development and exploitation of North American oil and natural gas
reserves. Our oil and natural gas reserves are concentrated in fields located in
the Williston Basin of Montana and North Dakota, the Permian Basin of Texas and
New Mexico and the Anadarko Basin of Oklahoma.

Our Cedar Creek Anticline properties, which are located in Montana and
North Dakota, constitute our core asset, representing approximately 73% of our
total reserve value at June 30, 2000. These properties are high quality, mature
waterfloods and are 97% oil by equivalent volume. The reserves are long-lived
and exhibit well established shallow production decline rates. We estimate that
less than 13% (391 MMBbl) of the original oil in place has been produced from
our assets on the Cedar Creek Anticline; accordingly, we believe that there are
significant remaining recoverable reserves. During June 1999, the first month of
Encore's ownership of the Cedar Creek Anticline, the properties produced 9,099
net BOE/D. During June 2000, one year after the initial acquisition, the
properties produced 10,533 net BOE/D. Adjusted for the additional acquired
volumes, which represent 9% of the increase, Encore has offset the natural field
decline and increased production by an additional 7%. This increase resulted
from an aggressive surveillance and workover program coupled with drilling
additional wells. The Cedar Creek Anticline is significant, not only because of
its size, but also because of the quality of its remaining development
opportunities. Our technical studies have identified over 200 prospective
development locations in the Cedar Creek Anticline that we plan to drill over
the next four years.

Encore was organized in 1998 and made its first property acquisition in
June 1999. Although we have only been organized for a short time, our executive
officers average more than 23 years experience in the industry. Our chief
executive officer, Mr. I. Jon Brumley, was the chief executive of a large,
publicly held independent oil and natural gas company during a period of
substantial growth. Subsequently, he co-founded a separate start-up oil and
natural gas acquisition company that acquired more than $500 million of
properties and led its initial public offering. Our chief financial officer, Mr.
Morris B. "Sam" Smith, who joined Encore in August 2000, served as the chief
financial officer of a large independent oil and natural gas company and was
involved in its initial public offering and the subsequent spin-off from its
parent company. Each of our executive officers and key employees has made a
significant cash investment in our common stock.

Since our inception in April 1998, we have invested $298 million in
acquiring producing oil and natural gas properties. As of June 30, 2000, pro
forma for our August 2000 acquisition, we had estimated proved oil and natural
gas reserves of 85 million Bbls of oil and 72 Bcf of natural gas, or a total of
97 MMBOE. Factoring in 4.3 MMBOE of production and $13.6 million of capital
investment in our acquired properties, our full-cycle finding and development
cost is $3.08 per BOE since inception. This compares favorably to an industry
average three year historical finding and development cost of $6.45 per BOE. The
pro forma PV-10 value of our reserves was $628 million at June 30, 2000.
Prevailing prices as of that date were $32.50 per Bbl of oil and $4.33 per Mcf
of natural gas. Our existing properties have substantial development potential,
1
<PAGE> 5

including a significant carbon dioxide injection project associated with our
Williston Basin properties.

The following table shows, on a pro forma basis, information regarding our
principal producing properties at or for the six months ended June 30, 2000.

PROPERTIES -- PRINCIPAL AREAS OF OPERATIONS

<TABLE>
<CAPTION>
PRODUCTION PROVED RESERVE QUANTITIES PV-10
---------------- -------------------------- ------------------
NATURAL
OIL GAS TOTAL AMOUNT
BOE/D PERCENT (MBBLS) (MMCF) (MBOE) (IN 000) PERCENT
----- ------- ------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Cedar Creek Anticline.... 10,318 65% 82,242 12,695 84,358 $458,075 73%
Crockett................. 1,524 10 71 37,898 6,387 72,251 12
Lodgepole................ 2,430 15 2,402 1,031 2,574 58,655 9
Indian Basin/Verden...... 1,514 10 338 19,888 3,653 38,913 6
------ --- ------ ------ ------ -------- ---
Total.......... 15,786 100% 85,053 71,512 96,972 $627,894 100%
====== === ====== ====== ====== ======== ===
</TABLE>

STRATEGY

Our strategy is to grow our reserves and production using approximately
one-half of our internally generated cash flow. We intend to use our remaining
cash flow to repay debt, fund acquisitions or pursue additional development
opportunities. We intend to maximize internally generated cash flow and
shareholder value by continuing our development program on our existing
properties and by acquiring properties with similar potential. We intend to
pursue property acquisitions during periods of attractive acquisition values and
to emphasize development activities during periods of higher acquisition values.
We plan to dedicate one-half of our anticipated cash flow over the next four
years to drill over 200 development wells in the Cedar Creek Anticline and
additional development wells in our other areas of operation. We believe that
additional growth will come from acquisitions and other development projects not
yet identified. Based on our ability to grow our reserves with internally
generated cash flow, we expect our balance sheet to remain strong.

To execute our strategy, we plan to:

- pursue an active development and exploitation program on existing
properties;

- control costs through efficient operations of existing properties; and

- continue our successful acquisition program.

DEVELOPMENT OF EXISTING PROPERTIES. Our properties generally have long
reserve lives and reasonably stable and predictable well production
characteristics. The pro forma Reserve-To-Production, or R/P, Index for our
proved reserves at June 30, 2000 was 16.9 years. The R/P Index, which is often
used to compare productive lives of oil and natural gas properties, is
calculated by dividing total estimated proved reserves by production for the
past twelve months.

We expect to spend approximately 50% of our internally generated cash flow
to replace production through developing and exploiting our core properties. The
inventory of potential development drilling locations or major behind-pipe
recompletion opportunities on our existing properties is sufficient to sustain
this program for approximately four years. Longer term, we believe that there is
significant value to be created through a carbon dioxide tertiary oil recovery
project in the Cedar Creek Anticline. The prior owner of these properties
conducted a successful CO(2) pilot project in 1985. We suspect that it elected
not to proceed with a full-scale project due to a lack of commercially available
CO(2) and prevailing commodity prices. Currently there are several sources of
CO(2) available in quantities and at prices we consider commercially attractive.

2
<PAGE> 6

Commercial availability of CO(2), coupled with the industry's 15 years of
accumulated successful experience with CO(2) tertiary recovery projects,
indicates that a CO(2) project in the Cedar Creek Anticline could be
economically attractive. Fully implemented, CO(2) flooding in the Cedar Creek
Anticline could potentially triple the amount of our June 30, 2000 proved
reserves.

EFFICIENT OPERATIONS. We operate properties representing 83% of the PV-10
value of our proved reserves, which allows us to control capital allocation and
expenses. As an independent producer with low overhead, we believe that we are
able to operate and develop our properties at a low cost per BOE. For the six
months ended June 30, 2000, our pro forma lease operating expenses averaged
$3.38 per BOE produced, and our general and administrative costs averaged $0.74
per BOE produced.

CONTINUED SUCCESSFUL ACQUISITION PROGRAM. Encore, using the experience of
our senior management team, has developed and refined an acquisition program
designed to increase our reserves and to complement our core properties. We have
a total of 20 engineering and geoscience professionals who manage our core
properties and use their experience and expertise to target attractive
acquisition opportunities. Following acquisition, our technical professionals
seek to enhance the value of the new assets through a proven development and
exploitation program. Encore has completed four acquisitions, at a total initial
acquisition cost of $298 million, representing 97 million BOE of proved reserves
and a full-cycle finding and development cost of $3.08 per BOE.

OUR EXECUTIVE OFFICES

Our headquarters are located at 777 Main Street, Suite 1400, Fort Worth,
Texas, 76102, and our telephone number is (817) 877-9955.

3
<PAGE> 7

THE OFFERING

Common stock offered by Encore............ shares

Common stock to be outstanding after this
offering.................................. shares (1)

Use of proceeds........................... We intend to use the net proceeds
from the offering to repay a
portion of the debt under our
credit agreement. We will use the
increased borrowing capacity under
our credit agreement, along with
internally generated cash flow, to
pursue development, exploitation
and acquisition activities and for
general corporate purposes.

Proposed New York Stock Exchange Symbol...

---------------

(1) Assuming no exercise of the underwriters' overallotment option. Excludes
shares of common stock reserved for issuance under our incentive stock
plan. No restricted stock awards have been made and no options have been
granted under the plan.

RISK FACTORS

See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in common stock.

4
<PAGE> 8

SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table presents summary consolidated historical financial data
for the years ended December 31, 1998 and 1999 and for the six months ended June
30, 1999 and 2000, in each case derived from the consolidated financial
statements of Encore Acquisition Company, and pro forma information prepared as
if the acquisitions of oil and natural gas properties referred to as Cedar Creek
Anticline, Crockett, Lodgepole and Indian Basin/Verden had taken place on
January 1, 1999 with respect to the statement of operations data.

You should read the following data along with "Selected Consolidated
Financial Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes, each of which is included in this prospectus. You should also read the
pro forma information together with the unaudited pro forma combined financial
statements and related notes included in this prospectus.

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------------- -------------------------
PERIOD FROM
INCEPTION
(APRIL 22, 1998) SIX MONTHS ENDED SIX MONTHS
THROUGH YEAR ENDED JUNE 30, YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, ------------------------- DECEMBER 31, JUNE 30,
1998 1999 1999 2000 1999 2000
---------------- ------------ ----------- ----------- ------------ ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ -- $ 35,648 $ 4,022 $ 50,482 $ 92,267 $ 64,497
-------- --------- --------- -------- -------- --------
Operating expenses:
Lease operating expenses......... -- 8,408 980 7,930 19,325 9,713
Production, ad valorem and
severance taxes................ -- 5,427 554 6,609 11,161 7,518
Net proceeds..................... -- 4,384 546 6,662 5,888 6,662
General and administrative....... 1,066 4,047 1,407 2,113 5,281 2,113
Depletion, depreciation and
amortization................... 18 5,283 726 8,437 26,692 12,239
-------- --------- --------- -------- -------- --------
Total operating expenses... 1,084 27,549 4,213 31,751 68,347 38,245
-------- --------- --------- -------- -------- --------
Income (loss) from operations..... (1,084) 8,099 (191) 18,731 23,920 26,252
-------- --------- --------- -------- -------- --------
Other income (expenses):
Interest expense................. -- (4,037) (495) (4,484) (11,043) (5,549)
Other............................ 74 202 73 317 202 317
Non-recurring compensation....... -- -- -- -- -- (2,086)
-------- --------- --------- -------- -------- --------
Total other income
(expense)................. 74 (3,835) (422) (4,167) (10,841) (7,318)
-------- --------- --------- -------- -------- --------
Income (loss) before income
taxes............................ (1,010) 4,264 (613) 14,564 13,079 18,934
Provision for income taxes........ -- (1,259) (215) (5,825) (4,658) (7,510)
-------- --------- --------- -------- -------- --------
Net income (loss)................. $ (1,010) $ 3,005 $ (828) $ 8,739 $ 8,421 $ 11,424
======== ========= ========= ======== ======== ========
Net income (loss) per common
share:
Basic and diluted................ $ (5.18) $ 8.20 $ (2.26) $ 23.81 $ 22.97 $ 31.12
Weighted average number of common
shares outstanding............. 195,036 366,631 365,877 367,102 366,631 367,102
OTHER FINANCIAL DATA:
EBITDA(1)........................ $ (1,066) $ 13,382 $ 535 $ 27,168 $ 50,612 $ 38,491
Net cash provided by (used in)
operating activities........... (949) 9,759 (3,205) 17,114
Net cash used in investing
activities..................... (289) (201,701) (188,371) (51,752)
Net cash provided by financing
activities..................... 4,705 194,972 190,722 33,172
</TABLE>

---------------

(1) EBITDA is presented because of its wide acceptance as a financial indicator.
EBITDA is defined as income (loss) before interest income and expense,
non-cash, non-recurring compensation expense, income taxes and depletion,
depreciation and amortization. EBITDA should not be considered to be an
alternative to net income (loss) or operating income (loss), to be defined
by generally accepted accounting principles, to be an indicator of a
company's financial performance or to be a measure of liquidity.

5
<PAGE> 9

SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table presents unaudited selected balance sheet data as of
June 30, 2000 on three bases:

- on an actual basis;

- on a pro forma basis giving effect to the acquisition of the Indian
Basin/Verden properties; and

- on an adjusted basis giving effect to this offering and to reflect our
anticipated use of the estimated net proceeds of this offering.

<TABLE>
<CAPTION>
AT JUNE 30, 2000
------------------------------------
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(000)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................................... $ 23,310 $ 23,310 $
Oil and natural gas properties, net................ 273,968 295,153
Other property and equipment, net.................. 1,190 1,190
Other assets....................................... 4,291 4,291
-------- -------- --------
Total assets............................... $302,759 $323,944 $
======== ======== ========

Current liabilities................................ $ 20,600 $ 20,600 $
Current portion of long-term debt.................. 20,171 20,171
Long-term debt..................................... 126,040 147,225
Deferred income taxes.............................. 3,377 3,377
Stockholders' equity............................... 132,571 132,571
-------- -------- --------
Total liabilities and stockholders'
equity................................... $302,759 $323,944 $
======== ======== ========
</TABLE>

6
<PAGE> 10

SUMMARY OPERATING AND RESERVE DATA

The following estimates of net proved oil and natural gas reserves are
based on reports prepared by Miller and Lents, Ltd., independent petroleum
engineers. A summary of the Miller and Lents report on our proved reserves as of
June 30, 2000 is attached to this prospectus as Annex A. You should refer to
"Risk Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Business and Properties -- Proved Reserves", "Business
and Properties -- Production and Price History" and the Miller and Lents, Ltd.
report included in this prospectus in evaluating the material presented below.
The historical data are those of Encore and the pro forma data were prepared as
if the acquisition of oil and natural gas properties referred to as Cedar Creek
Anticline, Lodgepole, Crockett and Indian Basin/Verden had taken place on
January 1, 1999 for production, price and cost data and on December 31, 1999 for
reserve data.

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- -------------------------
YEAR SIX MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1999 2000 1999 2000
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
PRODUCTION DATA (1):
Oil (MBbls)..................... 1,996 2,033 5,056 2,282
Natural gas (MMcf).............. 455 1,314 8,549 3,549
Combined Volumes (MBOE)......... 2,072 2,252 6,481 2,874
AVERAGE PRICES (2):
Oil (per Bbl)................... $ 19.61 $ 26.53 $ 15.48 $ 27.09
Natural gas (per Mcf)........... 2.07 3.57 2.16 3.05
Combined Volumes (per BOE)...... 19.34 26.03 14.92 25.28
AVERAGE COSTS (PER BOE):
Lease operating expense......... $ 4.06 $ 3.52 $ 2.98 $ 3.38
Depletion, depreciation and
amortization................. 2.55 3.75 4.12 4.26
General and administrative...... 1.95 .94 .81 .74
ESTIMATED PROVED RESERVES:
Oil (MBbls)..................... 79,217 84,716 82,035 85,053
Natural gas (MMcf).............. 12,502 51,626 70,479 71,512
Total MBOE...................... 81,301 93,320 93,782 96,972
Percent proved developed........ 84% 85% 85% 86%
PV-10 (in millions)............. $ 323.3 $ 589.0 $ 426.7 $ 627.9
R/P Index (in years)(3)......... 21.1 18.0 14.5 16.9
</TABLE>

---------------

(1) Production of natural gas liquids is included in natural gas revenues and
production.

(2) Does not include the effects of hedging transactions.

(3) As of December 31, 1999, calculated by dividing year-end proved reserves by
annual production for the period. As of June 30, 2000, calculated by
dividing June 30, 2000 proved reserves by annualized first half 2000
production.

7
<PAGE> 11

RISK FACTORS

Our material risks are described below. You should carefully consider these
risks before purchasing our common stock. If any of the following risks actually
occur, our business, financial condition or results of operations could be
materially adversely affected, the trading price of our common stock could
decline and you may lose all or part of your investment. Additional risks and
uncertainties, including those that are not yet identified or that we currently
believe are not material, may adversely affect our business, financial condition
or results of operations.

RISKS RELATING TO OUR BUSINESS

OIL AND NATURAL GAS PRICES ARE VOLATILE AND SUSTAINED PERIODS OF LOW PRICES
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Average NYMEX oil and natural gas prices for August 2000 were $31.14 per
Bbl and $4.46 per Mcf, as compared to $25.60 per Bbl and $2.31 per Mcf for
December 1999. Our revenues, profitability and future growth and the book
carrying value of our properties depend substantially on prevailing oil and
natural gas prices. Prices also affect the amount of internally generated cash
flow available for capital expenditures and our ability to borrow and raise
additional capital. The amount we will be able to borrow under our current
credit facility will be subject to periodic redetermination based in part on
changing expectations of future prices. Lower prices may also reduce the amount
of oil and natural gas that we can economically produce.

Historically, the markets for oil and natural gas have been volatile and
are likely to continue to be volatile in the future. Among the factors that can
cause volatility are:

- the domestic and foreign supply of oil and natural gas;

- the ability of members of the Organization of Petroleum Exporting
Countries to agree upon and maintain oil prices and production levels;

- political instability or armed conflict in oil or natural gas producing
regions;

- the level of consumer product demand;

- weather conditions;

- the price and availability of alternative fuels;

- domestic political developments; and

- worldwide economic conditions.

These external factors and the volatile nature of the energy markets make
it difficult to estimate reliably future prices of oil and natural gas.

A SIGNIFICANT COMPONENT OF OUR GROWTH STRATEGY IS ACQUISITIONS, AND WE MAY NOT
BE ABLE TO COMPLETE FUTURE ACQUISITIONS SUCCESSFULLY.

Our business strategy has emphasized growth through strategic acquisitions,
but we cannot assure you that we will be able to continue to identify properties
for acquisition or that we will be able to make acquisitions on terms that we
consider economically acceptable. There is intense competition for acquisition
opportunities in our industry. Competition for acquisitions may increase the
cost of, or cause us to refrain from, completing acquisitions. Our strategy of
completing acquisitions is dependent upon, among other things, our ability to
obtain debt and equity financing and, in some cases, regulatory approvals. Our
ability to pursue our growth strategy may be hindered if we are not able to
obtain financing or regulatory approvals. Our

8
<PAGE> 12

ability to grow through acquisitions and manage such growth will require us to
continue to invest in operational, financial and management information systems
and to attract, retain, motivate and effectively manage our employees. The
inability to manage the integration of acquisitions effectively could have a
material adverse effect on our financial condition, results of operations and
business. Pursuit of our acquisition strategy may cause our financial position
and results of operations to fluctuate significantly from period to period.

We constantly evaluate acquisition opportunities and frequently engage in
bidding and negotiation for acquisitions, many of which are of substantial size
and value. If successful in this process, we may be required to alter or
increase substantially our capitalization to finance these acquisitions through
the use of cash on hand, issuance of additional debt or equity securities, the
sale of production payments, borrowing of additional funds or otherwise. The
acquisition of properties that are substantially different in operating or
geologic characteristics or geographic locations from our existing properties
could change the nature of our operations and business. While we intend to
concentrate on acquiring producing properties with development and exploitation
potential located in our current areas of operation, we may decide to acquire
properties located in other geographic regions. We can give you no assurance
that we will be successful in identifying or acquiring any material property
interests.

BECAUSE A SUBSTANTIAL PORTION OF OUR PRODUCING PROPERTIES ARE LOCATED IN THE
WILLISTON BASIN, WE ARE VULNERABLE TO RISKS ASSOCIATED WITH OPERATING IN ONE
MAJOR GEOGRAPHIC AREA.

We have extensive operations in the Williston Basin, particularly our Cedar
Creek Anticline properties, which represented approximately 73% of our PV-10
reserve value at June 30, 2000. Any circumstance or event that negatively
impacts production or marketing of oil and natural gas in that geographic area
would have a material adverse effect on our financial condition and results of
operations.

OUR USE OF HEDGING ARRANGEMENTS COULD RESULT IN FINANCIAL LOSSES OR REDUCE OUR
INCOME.

To reduce our exposure to fluctuations in the prices of oil and natural
gas, we currently and may in the future enter into hedging arrangements for a
portion of our oil and natural gas production. Hedging arrangements for a
portion of our oil and natural gas production expose us to risk of financial
loss in some circumstances, including the following:

- production is less than expected;

- the counter-party to the hedging contract defaults on its contract
obligations; or

- there is a change in the expected differential between the underlying
price in the hedging agreement and actual prices received.

In addition, these hedging arrangements may limit the benefit we would
receive from increases in the prices for oil and natural gas.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT OUR FUTURE
PERFORMANCE.

While our senior management has significant experience in the oil and
natural gas industry, we were recently organized and our lack of operating
history makes it difficult to predict our future performance.

DRILLING OIL AND NATURAL GAS WELLS IS A HIGH-RISK ACTIVITY AND SUBJECTS US TO A
VARIETY OF FACTORS THAT WE CANNOT CONTROL.

Drilling oil and natural gas wells, including development wells, involves
numerous risks, including the risk that no commercially productive oil or
natural gas reservoirs will be encountered. In addition, we often are uncertain
as to the future cost or timing of drilling,
9
<PAGE> 13

completing and producing wells. Further, our drilling operations may be
curtailed, delayed or canceled as a result of a variety of factors, including:

- unexpected drilling conditions;

- title problems;

- pressure or irregularities in formations;

- equipment failures or accidents;

- adverse weather conditions;

- compliance with environmental and other governmental requirements; and

- cost of, or shortages or delays in the availability of, drilling rigs and
equipment.

THE FAILURE TO REPLACE OUR RESERVES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION.

In general, the volume of production from oil and natural gas properties
declines as reserves are depleted. If we fail to replace our reserves, our
operations and financial condition could be adversely affected. Except to the
extent that we acquire properties containing proved reserves or conduct
successful development and exploitation activities, our proved reserves will
decline as reserves are produced. Our future oil and natural gas production is,
therefore, highly dependent upon our success in developing our producing
properties and finding or acquiring additional reserves at attractive rates of
return. In order to increase reserves and production, we must continue
development drilling and recompletion programs, or undertake other replacement
activities. Our current strategy includes increasing our reserve base by
continuing to develop and exploit our existing properties and by acquiring
producing properties. We cannot assure you that our planned development and
exploitation projects and acquisition activities will result in significant
additional reserves or that we will have success in drilling productive wells at
favorable finding costs.

RESERVE ESTIMATES DEPEND ON MANY ASSUMPTIONS THAT MAY TURN OUT TO BE INACCURATE.
ANY MATERIAL INACCURACIES IN OUR RESERVE ESTIMATES OR UNDERLYING ASSUMPTIONS
COULD CAUSE THE QUANTITIES AND NET PRESENT VALUE OF OUR RESERVES TO BE
OVERSTATED.

There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors that are beyond our control. The reserve
information set forth in this prospectus represents estimates based on reports
prepared by independent petroleum engineers. Petroleum engineering is not an
exact science. Estimates of economically recoverable oil and natural gas
reserves and of future net cash flows necessarily depend upon a number of
variable factors and assumptions, any of which may cause these estimates to vary
considerably from actual results, such as:

- historical production from the area compared with production rates from
other producing areas;

- the assumed effect of governmental regulation; and

- assumptions about future commodity prices, production costs, severance
and excise taxes, capital expenditures and workover and remedial costs.

Estimates of reserves and expected future cash flows prepared by different
engineers (or by the same engineers at different times) may differ substantially
because of changes in relevant factors or the use of different assumptions.
Actual production, revenues and expenditures with respect to our reserves will
likely vary from estimates, and the variance may be material.

10
<PAGE> 14

WE HAVE LIMITED CONTROL OVER THE ACTIVITIES ON PROPERTIES WE DO NOT OPERATE.

While we operate our most important producing properties, other companies
operate some of the properties in which we have an interest. We have limited
ability to influence or control the operation or future development of these
non-operated properties. Our dependence on the operator and other working
interest owners for these projects and our limited ability to influence or
control the operation and future development of these properties could
materially adversely affect the realization of our targeted returns on capital
in drilling or acquisition activities.

OUR BUSINESS INVOLVES MANY OPERATING RISKS, WHICH MAY RESULT IN SUBSTANTIAL
LOSSES, AND INSURANCE MAY BE UNAVAILABLE OR INADEQUATE TO PROTECT US AGAINST
THESE RISKS.

Our operations are subject to hazards and risks inherent in drilling for,
producing and transporting oil and natural gas, such as:

- fires;

- natural disasters;

- explosions;

- formations with abnormal pressures;

- casing collapses;

- failure of oilfield drilling and service tools;

- uncontrollable flows of underground natural gas, oil and formation water;

- blowouts;

- surface cratering;

- pipeline ruptures or cement failures; and

- environmental hazards such as natural gas leaks, oil spills and
discharges of toxic gases.

Any of these risks can cause substantial losses resulting from:

- injury or loss of life;

- damage to and destruction of property, natural resources and equipment;

- pollution and other environmental damage;

- regulatory investigations and penalties;

- suspension of our operations; and

- repair and remediation costs.

As protection against operating hazards, we maintain insurance coverage
against some, but not all, potential losses. We believe that our insurance is
adequate and customary for companies of a similar size engaged in operations
similar to ours, but losses could occur for uninsurable or uninsured risks, or
in amounts in excess of existing insurance coverage. The occurrence of an event
that is not fully covered by insurance could harm our financial condition and
results of operations.

OUR DEVELOPMENT AND EXPLOITATION OPERATIONS REQUIRE SUBSTANTIAL CAPITAL, AND WE
MAY BE UNABLE TO OBTAIN NEEDED FINANCING ON SATISFACTORY TERMS.

We make and will continue to make substantial capital expenditures in
development and exploitation projects. We intend to finance these capital
expenditures with cash flow from
11
<PAGE> 15

operations and our existing financing arrangements. Additional financing sources
may be required in the future to fund our developmental drilling. We cannot
assure you that financing will continue to be available under existing or new
financing arrangements, or that we will be able to obtain necessary financing on
acceptable terms, if at all. If additional capital resources are not available,
we may be forced to curtail our drilling and other activities or be forced to
sell some of our assets on an untimely or unfavorable basis.

OUR OPERATIONS REQUIRE US TO ATTRACT AND RETAIN EXPERIENCED TECHNICAL PERSONNEL.

Our exploitation success depends, in part, on our ability to attract and
retain experienced geologists and engineers. We currently employ twelve
geologists and engineers, five technicians, two geology/geophysical consultants
and one engineering consultant, all of whom have experience in the geographic
areas to which we have assigned them. Competition for experienced geologists and
engineers is vigorous. If we cannot retain these personnel or attract additional
experienced personnel, our ability to compete in the geographic regions in which
we conduct our operations could be harmed.

THE LOSS OF OUR CHIEF EXECUTIVE OFFICER OR OTHER KEY PERSONNEL COULD ADVERSELY
AFFECT OUR BUSINESS.

We depend to a large extent on the efforts and continued employment of I.
Jon Brumley, our chief executive officer and chairman, and other key personnel.
The loss of the services of Mr. Brumley or other key personnel could adversely
affect our business. In addition, it is a default under our credit agreement if
Mr. Brumley ceases to be actively employed on a full time basis as the chief
executive officer of Encore.

THE MARKETABILITY OF OUR PRODUCTION IS DEPENDENT UPON FACTORS OVER WHICH WE HAVE
NO CONTROL.

The marketability of our production depends in part upon the availability,
proximity and capacity of pipelines, natural gas gathering systems and
processing facilities. Any significant change in market factors affecting these
infrastructure facilities could harm our business, financial condition and
results of operations. We deliver oil and natural gas through gathering systems
and pipelines that we do not own. We can give you no assurance that these
facilities will be available to us in the future. Our ability to produce and
market oil and natural gas are affected and may be also harmed by:

- Federal and state regulation of oil and natural gas production;

- transportation, tax and energy policies;

- changes in supply and demand; and

- general economic conditions.

COMPETITION IN THE OIL AND NATURAL GAS INDUSTRY IS INTENSE, AND MANY OF OUR
COMPETITORS HAVE GREATER FINANCIAL, TECHNOLOGICAL AND OTHER RESOURCES THAN WE
DO.

We operate in the highly competitive areas of oil and natural gas
acquisition, development, exploitation and production. The oil and natural gas
industry is characterized by rapid and significant technological advancements
and introductions of new products and services using new technologies. We face
intense competition from independent, technology-driven companies as well as
from both major and other independent oil and natural gas companies in each of
the following areas:

- seeking to acquire desirable producing properties or new leases for
future exploration;

- marketing our oil and natural gas production;

12
<PAGE> 16

- integrating new technologies; and

- seeking to acquire the equipment and expertise necessary to develop and
operate our properties.

Many of our competitors have financial, technological and other resources
substantially greater than ours. These companies may be able to pay more for
development prospects and productive oil and natural gas properties and may be
able to define, evaluate, bid for and purchase a greater number of properties
and prospects than our financial or human resources permit. Further, these
companies may enjoy technological advantages and may be able to implement new
technologies more rapidly than we can. Our ability to develop and exploit our
oil and natural gas properties and to acquire additional properties in the
future will depend upon our ability to successfully conduct operations,
implement advanced technologies, evaluate and select suitable properties and
consummate transactions in this highly competitive environment.

WE ARE SUBJECT TO COMPLEX FEDERAL, STATE, PROVINCIAL AND LOCAL LAWS AND
REGULATIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS.

Exploration for and development, exploitation, production and sale of oil
and natural gas in North America are subject to extensive Federal, state,
provincial and local laws and regulations, including complex tax laws and
environmental laws and regulations. These laws and their interpretation are
subject to change, the effects of which cannot be predicted. We cannot assure
you that existing laws or regulations, as currently interpreted or reinterpreted
in the future, or future laws or regulations will not harm our business, results
of operations and financial condition. We may be required to make large
expenditures to comply with environmental and other governmental regulations.
Matters subject to regulation include:

- discharge permits for drilling operations;

- drilling bonds;

- spacing of wells;

- unitization and pooling of properties;

- environmental protection;

- reports concerning operations; and

- taxation.

Under these laws and regulations, we could be liable for:

- personal injuries;

- property damage;

- oil spills;

- discharge of hazardous materials;

- reclamation costs;

- remediation and clean-up costs; and

- other environmental damages.

While we maintain insurance coverage for our operations, we do not believe
that full insurance coverage for all potential environmental damages is
available at a reasonable cost. Failure to comply with these laws and
regulations also may result in the suspension or termination of our operations
and subject us to administrative, civil and criminal penalties.

13
<PAGE> 17

Further, these laws and regulations could change in ways that substantially
increase our costs. Any of these liabilities, penalties, suspensions,
terminations or regulatory changes could have a material adverse affect on our
financial condition and results of operations.

RISKS RELATING TO THIS OFFERING

OUR PRINCIPAL STOCKHOLDERS OWN A SIGNIFICANT AMOUNT OF COMMON STOCK, GIVING THEM
A CONTROLLING INFLUENCE OVER CORPORATE TRANSACTIONS AND OTHER MATTERS.

Upon completion of this offering, Chase Venture Capital Associates, L.P.,
Warburg, Pincus Equity Partners, L.P., Natural Gas Partners V, L.P., First Union
Capital Partners, Inc., and Mr. I. Jon Brumley, our principal stockholders, will
beneficially own approximately % of our outstanding common stock
(approximately % if the underwriters exercise their over-allotment option
in full). Accordingly, these stockholders, acting together, will be able to
control the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in our
certificate of incorporation or bylaws and the approval of mergers and other
significant corporate transactions. This concentrated ownership makes it
unlikely that any other holder or group of holders of common stock will be able
to affect the way we are managed or the direction of our business. These factors
may also delay or prevent a change in our management or voting control.

THERE HAS NEVER BEEN A PUBLIC MARKET FOR OUR COMMON STOCK, AND OUR STOCK PRICE
MAY FLUCTUATE SIGNIFICANTLY.

Prior to this offering, there has been no public market for our common
stock, and an active trading market may not develop or be sustained. The initial
public offering price of our common stock will be determined by negotiation
between us and the representatives of the underwriters and may bear no
relationship to the market price of our common stock after this offering. The
trading price of our common stock, and the price at which we may sell securities
in the future, could be subject to significant fluctuations in response to
government regulations, variations in quarterly operating results, the prices of
oil and natural gas and other factors.

WE HAVE NOT PAID DIVIDENDS AND DO NOT ANTICIPATE PAYING ANY DIVIDENDS ON OUR
COMMON STOCK IN THE FORESEEABLE FUTURE.

We anticipate that we will retain all future earnings and other cash
resources for the future operation and development of our business. Accordingly,
we do not intend to declare or pay any cash dividends in the foreseeable future.
Payment of any future dividends will be at the discretion of our board of
directors after taking into account many factors, including our operating
results, financial condition, current and anticipated cash needs and plans for
expansion. The declaration and payment of any future dividends also may be
restricted by agreements with our lenders.

OUR BOARD OF DIRECTORS CAN AUTHORIZE THE ISSUANCE OF PREFERRED STOCK THAT COULD
DIMINISH THE RIGHTS OF OUR COMMON STOCKHOLDERS, AND MAKE A CHANGE OF CONTROL
MORE DIFFICULT.

Our board of directors is authorized to issue shares of preferred stock in
one or more series, and to fix the voting powers, preferences and other rights
and limitations thereof. Accordingly, we may issue shares of preferred stock
with a preference over the common stock with respect to dividends or
distributions on liquidation or dissolution, or that may otherwise adversely
affect the voting or other rights of the holders of common stock. Issuance of
such preferred stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of Encore.

14
<PAGE> 18

PURCHASERS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.

If you purchase common stock in this offering, you will experience
immediate and substantial dilution of $ per share, based upon an assumed
initial public offering price of $ per share, because the price you pay will
be substantially greater than the net tangible book value per share of $ for
the shares you acquire. This dilution is due in large part to the fact that
prior investors paid an average price of $ per share when they purchased
their shares of common stock, which is substantially less than the anticipated
initial public offering price.

FUTURE SALES OF OUR COMMON STOCK BY OUR EXISTING STOCKHOLDERS MAY DEPRESS OUR
STOCK PRICE.

Sales of a substantial number of shares of our common stock in the public
market after this offering, or the perception that these sales may occur, could
cause the market price of our common stock to decline. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional common or preferred stock.

After this offering, we will have shares of common stock outstanding.
Of these shares, all shares sold in the offering, other than shares, if any,
purchased by our affiliates, will be freely tradable. All of the original
holders of our common stock are subject to agreements that limit their ability
to sell their common stock. These holders cannot sell or otherwise dispose of
any shares of common stock for a period of at least 180 days after the date of
this prospectus without the prior written approval of Goldman, Sachs & Co.,
which could, in its sole discretion, elect to permit resale of shares by
existing stockholders prior to the lapse of the 180-day period.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this prospectus contain some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. These statements may
include words such as "anticipate", "estimate", "expect", "project", "intend",
"plan", "believe" and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. In particular,
these include, among other things, statements relating to:

- amount, nature and timing of capital expenditures;

- drilling of wells;

- timing and amount of future production of oil and natural gas;

- increases in proved reserves;

- operating costs and other expenses;

- cash flow and anticipated liquidity;

- prospect exploitation and property acquisitions; and

- marketing of oil and natural gas.

Any or all of our forward-looking statements in this prospectus may turn
out to be wrong. They can be affected by inaccurate assumptions we might make or
by known or unknown risks and uncertainties. Many factors mentioned in our
discussion in this prospectus, including the risks outlined under "Risk
Factors", will be important in determining future results. Actual future results
may vary materially. Factors that could cause our results to differ materially
from the

15
<PAGE> 19

results discussed in the forward-looking statements include the risks described
under "Risk Factors", including:

- the risks associated with operating in one major geographic area;

- the risks associated with exploitation and exploration;

- our ability to find, acquire, market, develop and produce new properties;

- oil and natural gas price volatility;

- uncertainties in the estimation of proved reserves and in the projection
of future rates of production and timing of exploitation expenditures;

- operating hazards attendant to the oil and natural gas business;

- drilling and completion risks that are generally not recoverable from
third parties or insurance;

- potential mechanical failure or underperformance of significant wells;

- climatic conditions;

- availability and cost of material and equipment;

- actions or inactions of third-party operators of our properties;

- our ability to find and retain skilled personnel;

- availability of capital;

- the strength and financial resources of our competitors;

- regulatory developments;

- environmental risks; and

- general economic conditions.

When you consider these forward-looking statements, you should keep in mind
these risk factors and the other cautionary statements in this prospectus. Our
forward-looking statements speak only as of the date made.

16
<PAGE> 20

USE OF PROCEEDS

We estimate that the net proceeds from our sale of shares of common
stock will be approximately $ million and will increase to approximately
$ million if the underwriters exercise their over-allotment option in full,
assuming an initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses. We
intend to use the net proceeds from the offering to repay a portion of the debt
under our existing credit facility. We will use the increased borrowing capacity
under our credit facility, along with internally generated cash flow, to pursue
development, exploitation and acquisition activities and for general corporate
purposes.

The credit facility bears interest at a floating rate based on LIBOR,
currently 7.8%, and matures in May 2004. At June 30, 2000, the average interest
rate on borrowings under the credit agreement was approximately 7.6% per annum.
Indebtedness under our credit facility was incurred to finance the acquisition
of producing oil and natural gas properties.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We
anticipate that we will retain all future earnings and other cash resources for
investment in our business. Accordingly, we do not intend to declare or pay cash
dividends in the foreseeable future. Payment of any future dividends will be at
the discretion of our board of directors after taking into account many factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion. In addition, our ability to declare and pay
any dividends is now and may in the future be restricted by agreements with our
lenders.

RECAPITALIZATION

When Encore was organized in July 1998, we issued two classes of common
stock, Class A common stock and Class B common stock. The Class A stock, which
was issued to our management stockholders, represents approximately 20% of our
outstanding capital stock. The Class B stock, which was primarily issued to
institutional investors, represents 80% of our outstanding shares. Each of the
management stockholders also purchased Class B stock, and they collectively own
approximately 21.3% of our outstanding capital stock. The two classes are
identical in all respects, except that the purchase price per share for the
Class A shares was substantially less than for the Class B shares, and the Class
B shares are entitled to a preference in dividends and upon liquidation. Before
holders of Class A shares receive any dividends or liquidating distributions,
the holders of the Class B shares must receive as distributions an amount equal
to their total investment in Encore, plus a cumulative return of 7% per annum.
After the holders of the Class B Stock receive this preferential return, the
Class A and Class B Stock will share ratably in all subsequent distributions,
whether as dividends or upon liquidation. This capital structure was designed to
provide our management stockholders with a 20% interest in the value of Encore
above the amount necessary to permit our investor stockholders to recover their
investment together with a 7% return, an arrangement common for private
companies in the industry.

Immediately prior to this offering, our Class A and B shares will be
converted into one class of common stock. The conversion will allocate shares
between our management stockholders and investor stockholders on a basis that
gives effect to the Class B preferential return and the Class A subordinated
interest determined on the basis of Encore's valuation in the public offering.
The allocation will not affect the dilution to investors and we do not believe
it will otherwise adversely affect investors in this offering.

17
<PAGE> 21

The Class A shares will be converted into shares of common stock,
or % of the outstanding shares prior to this offering, and the Class B
shares will be converted into shares, or % of the outstanding
shares.

DILUTION

The pro forma net tangible book value of our common stock on June 30, 2000
was approximately $ per share of common stock, assuming the issuance of
shares of common stock in connection with the recapitalization of our Class
A and Class B common stock into one class designated as common stock. Pro forma
net tangible book value per share is determined by dividing our tangible net
worth, or tangible assets less total liabilities, by the total number of
outstanding shares of common stock. After giving effect to the sale of common
stock offered by this prospectus (at an assumed price of $ per share) and
the receipt of the estimated net proceeds, after deducting underwriting
discounts and commissions and estimated offering expenses, our net tangible book
value at June 30, 2000 would have been approximately $ per share. This
represents an immediate and substantial increase in the net tangible book value
of $ per share to existing stockholders and an immediate dilution, resulting
from the difference between the initial public offering price and the pro forma
net tangible book value after this offering, to new investors purchasing common
stock in this offering. The following table illustrates the per share dilution
to new investors purchasing common stock in this offering:

<TABLE>
<S> <C>
Public offering price per share......................... $
--------
Pro forma net tangible book value per share at June 30,
2000.................................................. $
--------
Increase per shares attributable to new investors....... $
--------
Pro forma net tangible book value per share after this
offering.............................................. $
--------
Dilution per share to new investors..................... $
========
</TABLE>

The following table sets forth, at June 30, 2000, the number of shares of
common stock purchased from us, assuming the recapitalization of all shares of
our Class A and Class B common stock into one class of common stock, the total
consideration and average price per share paid by existing stockholders and by
the new investors before deducting expenses payable by us:

<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ----------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..........
New investors..................
------- --- ------- --- -------
Total.......................... 100% 100%
======= === ======= === =======
</TABLE>

If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will be increased to , or
approximately % of the total number of shares of common stock, assuming the
recapitalization of all shares of our Class A and Class B common stock into one
class of common stock.

18
<PAGE> 22

CAPITALIZATION

The following table presents our capitalization as of June 30, 2000 on
three bases:

- on an actual basis;

- on a pro forma basis giving effect to the acquisition of the Indian
Basin/Verden properties; and

- on an adjusted basis giving effect to the recapitalization of all
outstanding shares of our Class A and Class B common stock into one class
of common stock on completion of this offering and to reflect our
anticipated use of the estimated net proceeds of this offering.

<TABLE>
<CAPTION>
JUNE 30, 2000
--------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
------ --------- --------
(000)
<S> <C> <C> <C>
Cash and equivalents.................................... $ 5,031 $ 5,031 $5,031
========= ========= ======
Long-term debt(1)....................................... 146,211 167,396
Stockholders' equity:
Preferred stock, $.01 par value, 1,000 shares
authorized, None issued and outstanding............... -- -- --
Class A common stock, $.01 par value, 75,000 shares
authorized, 73,265 issued, of which 2,519 are being
held as treasury stock................................ 1 1
Class B common stock, $.01 par value, 300,000 shares
authorized, 294,882 issued, of which 102 are being
held as treasury stock................................ 3 3
Capital in excess of par value.......................... 297,142 298,424
Common stock subscription receivable(2)................. (175,201) (175,201)
Notes receivable-officers and employees................. (23) (23)
Retained earnings....................................... 10,733 9,451
Class A common stock held in treasury, at cost, 2,519
shares................................................ (42) (42)
Class B common stock held in treasury, at cost, 102
shares................................................ (42) (42)
--------- --------- ------
Total stockholders' equity.................... 132,571 132,571
--------- --------- ------
Total capitalization.......................... $ 278,782 $299,967 $
========= ========= ======
</TABLE>

---------------

(1) Includes current portion of long-term debt. As of September 30, 2000,
long-term debt was $161.3 million. For a description of the senior credit
facility and seller financed note, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources".

(2) Our existing stockholders have agreed to contribute additional capital for
their shares of capital stock upon call by Encore. Those agreements are
cancelable by the holders of 75% of our Class B Stock and will be cancelled
in connection with our recapitalization in connection with this offering.

19
<PAGE> 23

PRO FORMA FINANCIAL STATEMENTS

UNAUDITED PRO FORMA FINANCIAL STATEMENTS
OF ENCORE ACQUISITION COMPANY

The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 2000, and pro forma condensed consolidated statement of operations
for the year ended December 31, 1999 and the six months ended June 30, 2000,
adjust the historical financial information of Encore Acquisition Company to
reflect the acquisitions of the Cedar Creek Anticline properties on May 31,
1999, the Crockett properties on March 31, 2000, the Lodgepole properties on
March 31, 2000, the Indian Basin/Verden properties on September 1, 2000 and
Other Cedar Creek properties in each of July and October 1999. The pro forma
balance sheet was prepared as if the acquisitions were consummated on June 30,
2000. The pro forma statement of operations were prepared as if the acquisitions
were consummated on January 1, 1999. The pro forma adjustments are explained in
further detail in the accompanying notes.

The unaudited pro forma financial statements should be read in conjunction
with the accompanying notes and the historical financial statements and related
notes of Encore Acquisition Company and the historical statements of revenues
and direct operating expenses and related notes for the acquired properties,
each of which is included in this prospectus. The pro forma information
presented does not purport to be indicative of the financial position or results
of operations that would have actually occurred had the acquisitions been
consummated on the dates indicated or which may occur in the future.

20
<PAGE> 24

ENCORE ACQUISITION COMPANY

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
OTHER INDIAN PRO
ENCORE CEDAR CEDAR BASIN/ FORMA
HISTORICAL CREEK CREEK CROCKETT LODGEPOLE VERDEN ENCORE
---------- ----- ----- -------- --------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil sales........................ $34,706 $15,329 $2,160 $ 867 $18,394 $ 2,377 $ 73,833
Natural gas sales................ 942 639 78 8,310 1,409 7,056 18,434
------- ------- ------ ------- ------- ------- --------
Total revenues............. 35,648 15,968(a) 2,238(b) 9,177(b) 19,803(b) 9,433(b) 92,267
------- ------- ------ ------- ------- ------- --------
Operating expenses:
Lease operating
expense........................ 8,408 5,987(a) 781(b) 1,640(b) 252(b) 2,257(b) 19,325
Production, severance and ad
valorem tax.................... 5,427 2,927(a) 277(b) 594(b) 994(b) 942(b) 11,161
Net proceeds..................... 4,384 1,504(a) -- -- -- -- 5,888
General and administrative....... 4,047 1,111(c) -- 123(c) -- -- 5,281
Depletion, depreciation and
amortization................... 5,283 3,743(d) 456(e) 3,952(e) 9,629(e) 3,629(e) 26,692
------- ------- ------ ------- ------- ------- --------
Total operating expenses... 27,549 15,272 1,514 6,309 10,875 6,828 68,347
------- ------- ------ ------- ------- ------- --------
Income from operations............. 8,099 696 724 2,868 8,928 2,605 23,920
------- ------- ------ ------- ------- ------- --------
Other income (expenses):
Interest expense................. (4,037) (2,403)(f) (400) (1,548)(g) (986)(g) (1,669)(g) (11,043)
Other............................ 202 -- -- -- -- -- 202
------- ------- ------ ------- ------- ------- --------
Total other income
(expense)................ (3,835) (2,403) (400) (1,548) (986) (1,669) (10,841)
------- ------- ------ ------- ------- ------- --------
Income (loss) before income taxes.. 4,264 (1,707) 324 1,320 7,942 936 13,079
------- ------- ------ ------- ------- ------- --------
Provision for income taxes......... (1,259) 658(h) (125)(h) (509)(h) (3,062)(h) (361)(h) (4,658)
------- ------- ------ ------- ------- ------- --------
Net income (loss).................. $ 3,005 $(1,049) $ 199 $ 811 $ 4,880 $ 575 $ 8,421
======= ======= ====== ======= ======= ======= ========
Net income per common share:....... $ 8.20 $ 22.97
======= ========
Weighted average number of common
shares outstanding............... 366,631 366,631
======= ========
</TABLE>

The accompanying notes to the unaudited pro forma condensed consolidated
financial statements are an integral part of these statements.
21
<PAGE> 25

ENCORE ACQUISITION COMPANY

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000

<TABLE>
<CAPTION>
INDIAN PRO
ENCORE BASIN/ OTHER FORMA
HISTORICAL CROCKETT LODGEPOLE VERDEN ADJUSTMENTS ENCORE
---------- -------- --------- ------ ----------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil sales........................ $46,153 $ 286 $ 6,367 $1,221 -- $54,027
Natural gas sales................ 4,329 2,175 306 3,660 -- 10,470
------- ------ ------- ------ ------- -------
Total revenues............ 50,482 2,461(b) 6,673(b) 4,881(b) -- 64,497
------- ------ ------- ------ ------- -------
Operating expenses:
Lease operating expense.......... 7,930 406(b) 117(b) 1,260(b) -- 9,713
Production, severance and ad
valorem tax.................... 6,609 108(b) 320(b) 481(b) -- 7,518
Net proceeds..................... 6,662 -- -- -- -- 6,662
General and administrative....... 2,113 -- -- -- -- 2,113
Depletion, depreciation and
amortization................... 8,437 850(e) 1,561(e) 1,391(e) -- 12,239
------- ------ ------- ------ ------- -------
Total operating
expenses................ 31,751 1,364 1,998 3,132 -- 38,245
------- ------ ------- ------ ------- -------
Income from operations............. 18,731 1,097 4,675 1,749 -- 26,252
------- ------ ------- ------ ------- -------
Other income (expenses):
Interest expense................. (4,484) (409)(g) 225(g) (881)(g) -- (5,549)
Other............................ 317 -- -- -- -- 317
Non-recurring compensation....... -- -- -- -- (2,086)(j) (2,086)
------- ------ ------- ------ ------- -------
Total other income
(expense)............... (4,167) (409) 225 (881) (2,086) (7,318)
------- ------ ------- ------ ------- -------
Income before income taxes......... 14,564 688 4,900 868 (2,086) 18,934
------- ------ ------- ------ ------- -------
Provision for income taxes......... (5,825) (265)(h) (1,889)(h) (335)(h) 804(h) (7,510)
------- ------ ------- ------ ------- -------
Net income......................... $ 8,739 $ 423 $ 3,011 $ 533 $(1,282) $11,424
======= ====== ======= ====== ======= =======
Net income per common share:....... $ 23.81 $ 31.12
======= =======
Weighted average number of common
shares
outstanding...................... 367,102 367,102
======= =======
</TABLE>

The accompanying notes to the unaudited pro forma condensed consolidated
financial statements are an integral part of these statements.
22
<PAGE> 26

ENCORE ACQUISITION COMPANY

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000

<TABLE>
<CAPTION>
ENCORE PRO FORMA OFFERING AS
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- ----------- --------- ----------- --------
(000)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................... $ 23,310 $ 23,310
Oil and natural gas properties, net...... 273,968 21,185(i) 295,153
Other property and equipment, net........ 1,190 1,190
Other assets............................. 4,291 4,291
-------- ------- -------- -------- --------
Total assets............................. $302,759 $21,185 $323,944
======== ======= ======== ======== ========

Current liabilities...................... $ 20,600 $ 20,600
Current portion of long-term debt........ 20,171 20,171
Long-term debt........................... 126,040 21,185(i) 147,225
Deferred income taxes.................... 3,377 3,377
Stockholders' equity..................... 132,571 132,571
-------- ------- -------- -------- --------
Total liabilities and stockholders'
equity................................. $302,759 $21,185 $323,944
======== ======= ======== ======== ========
</TABLE>

The accompanying notes to the unaudited pro forma condensed consolidated
financial
statements are an integral part of these statements.
23
<PAGE> 27

ENCORE ACQUISITION COMPANY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

The accompanying Pro Forma Condensed Consolidated Statements of Operations
and Balance Sheet have been prepared to reflect certain adjustments to the
historical consolidated statement of operations of the Company.

(a) To record the revenues and expenses relating to the Cedar Creek Anticline
acquisition for the five months ended May 31, 1999 at historically reported
amounts. The initial Cedar Creek Anticline acquisition occurred on June 1,
1999. Subsequently, additional interests were acquired in July and October
1999 and are listed under "Other Cedar Creek" on the pro formas.

(b) To record the revenues and expenses relating to the Other Cedar Creek,
Crockett, Lodgepole and Indian Basin/Verden acquisitions for the year ended
December 31, 1999 and the six months ended June 30, 2000 at historically
reported amounts.

(c) To record an estimated increase in general and administrative expenses
relating to the Cedar Creek Anticline acquisition for the five months ended
May 31, 1999 and for the Crockett acquisition for the year ended December
31, 1999.

(d) To record the estimated increase in depreciation, depletion and
amortization relating to the Cedar Creek Anticline acquisition for the five
months ended May 31, 1999.

(e) To record the estimated increase in depreciation, depletion and
amortization relating to the Other Cedar Creek, Crockett, Lodgepole and
Indian Basin/Verden acquisitions for the year ended December 31, 1999 and
the six months ended June 30, 2000.

(f) To record the estimated increase in interest expense resulting from the
increased borrowings relating to the Cedar Creek Anticline acquisition for
the five months ended May 31, 1999.

(g) To record the estimated increase in interest expense resulting from the
increased borrowings relating to the Crockett, Lodgepole and Indian
Basin/Verden acquisitions for the year ended December 31, 1999 and the six
months ended June 30, 2000.

(h) To record an estimated provision for income taxes for the change in income
before taxes resulting from inclusion of the historical results of
operations of the acquisitions and the related adjustments.

(i) To record the acquisition of the Indian Basin/Verden acquisitions paid
subsequent to June 30, 2000 funded entirely through our senior credit
facility.

(j) To record compensation expense based on the excess of estimated fair value
over the purchase price for Class A stock recently funded or purchased by
management. Fair value was estimated by analyzing discounted cash flows of
Encore's underlying properties using assumptions and methodologies
consistent with those used by Encore in acquiring properties.

24
<PAGE> 28

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS
(APRIL 22, 1998) ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------
1998 1999 1999 2000
---------------- ------------ ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ -- $ 35,648 $ 4,022 $ 50,482
-------- --------- --------- --------
Operating expenses:
Lease operating expenses.................. -- 8,408 980 7,930
Production, ad valorem and severance
taxes................................... -- 5,427 554 6,609
Net proceeds.............................. -- 4,384 546 6,662
General and administrative................ 1,066 4,047 1,407 2,113
Depletion, depreciation and
amortization............................ 18 5,283 726 8,437
-------- --------- --------- --------
Total operating expenses........... 1,084 27,549 4,213 31,751
-------- --------- --------- --------
Income (loss) from operations............... (1,084) 8,099 (191) 18,731
-------- --------- --------- --------
Other income (expenses):
Interest expense.......................... -- (4,037) (495) (4,484)
Other..................................... 74 202 73 317
-------- --------- --------- --------
Total other income (expense)....... 74 (3,835) (422) (4,167)
-------- --------- --------- --------
Income (loss) before income taxes........... (1,010) 4,264 (613) 14,564
Provision for income taxes.................. -- (1,259) (215) (5,825)
-------- --------- --------- --------
Net income (loss)........................... $ (1,010) $ 3,005 $ (828) $ 8,739
======== ========= ========= ========
Net income (loss) per common share:
Basic and diluted......................... $ (5.18) $ 8.20 $ (2.26) $ 23.81
Weighted average number of common shares
outstanding............................. 195,036 366,631 365,877 367,102
OTHER FINANCIAL DATA:
EBITDA(1)................................. $ (1,066) $ 13,382 $ 535 $ 27,168
Net cash provided by (used in) operating
activities.............................. (949) 9,759 (3,205) 17,114
Net cash used in investing activities..... (289) (201,701) (188,371) (51,752)
Net cash provided by financing
activities.............................. 4,705 194,972 190,722 33,172
Capital expenditures(2)................... -- 6,883 -- 6,672
</TABLE>

---------------

(2) Development and exploitation activities.

25
<PAGE> 29

SELECTED CONSOLIDATED FINANCIAL DATA, CONTINUED

<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT JUNE 30, AT JUNE 30,
1998 1999 1999 2000
--------------- --------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(000)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....................... $3,475 $ 17,766 $ 8,528 $ 23,310
Oil and natural gas properties,
net............................... -- 195,585 186,951 273,968
Other property and equipment, net.... 271 1,080 967 1,190
Other assets......................... 5 1,140 1,516 4,291
------ -------- -------- --------
Total assets................. $3,751 $215,571 $197,962 $302,759
====== ======== ======== ========
Current liabilities.................. $ 56 $ 12,640 $ 4,157 $ 20,600
Current portion of long-term debt.... -- -- -- 20,171
Long-term debt....................... -- 99,250 95,000 126,040
Deferred income taxes................ -- 1,259 215 3,377
Stockholders' equity................. 3,695 102,422 98,590 132,571
------ -------- -------- --------
Total liabilities and
stockholders' equity....... $3,751 $215,571 $197,962 $302,759
====== ======== ======== ========
</TABLE>

26
<PAGE> 30

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This prospectus contains forward-looking statements that involve risks and
uncertainties. See "Information Regarding Forward Looking Statements". Actual
results may differ materially from those anticipated in our forward looking
statements due to many factors, including, but not limited to, those set forth
under "Risk Factors". The following discussion should be read in conjunction
with "Selected Financial Data" and the financial statements and notes to those
statements included in this prospectus.

OVERVIEW

Because of our rapid growth through acquisitions since formation, our
historical results of operations and period-to-period comparisons of such
results and certain financial data may not be meaningful or indicative of future
results. Our acquisition history is as follows:

<TABLE>
<CAPTION>
ASSET DATE ACQUIRED
----- -------------
<S> <C>
Cedar Creek Anticline(CCA)........................ June 1, 1999
Crockett.......................................... March 30, 2000
Lodgepole......................................... March 31, 2000
Indian Basin/Verden............................... August 24, 2000
</TABLE>

We paid approximately $172.0 million to acquire the CCA properties. This
acquisition gave us operating control of the CCA with an average working
interest of approximately 78%. Subsequently, we acquired additional working
interests from various owners in July and October 1999 for a combined price of
approximately $22.2 million, which increased our average working interest to its
current level of approximately 86%. Our cumulative acquisition investment in the
CCA totals approximately $194.2 million.

During June 1999, the first month of Encore's ownership of the CCA, the
properties produced 9,099 net BOE/D. During June 2000, one year after the
initial acquisition, the properties produced 10,533 net BOE/D. Adjusted for the
additional acquired volumes, which represent 9% of the increase, Encore has
offset the natural field decline and increased production by an additional 7%.
This increase resulted from an aggressive surveillance and workover program
coupled with drilling additional wells.

We paid approximately $43.0 million to purchase the Crockett properties. We
acquired additional working interests for $0.5 million subsequent to the
acquisition. Our combined investment in Crockett equals approximately $43.5
million. The Crockett property production has averaged 8.5 MMcf/D and 36 Bbl/D
since the acquisition date.

We paid approximately $35.2 million for the Lodgepole property. Production
from Lodgepole has averaged 2,656 BOE/D from the acquisition date through June
30, 2000.

The Indian Basin/Verden properties were acquired for $25.4 million. The
Indian Basin assets are located in the Permian Basin of New Mexico and are 100%
non-operated and 88% gas. Encore's net production is 4.8 MMcf/D and 76 Bbl/D.
The Verden assets, located in the Anadarko Basin of Oklahoma, are 85%
non-operated and 87% natural gas. Encore's net production is 3.5 MMcf/D and 80
Bbl/D.

The average prices received by producers in all our core areas have risen
sharply from the second quarter 2000 compared to the second quarter 1999. The
average posted price for West Texas Intermediate Crude ("WTI"), a benchmark
crude, was $25.95 per barrel for the second quarter 2000, compared to $15.10 for
the second quarter 1999. The average NYMEX price for oil was $28.68 per barrel
for the second quarter 2000, compared to $17.65 for second quarter 1999.

27
<PAGE> 31

We use the successful efforts method of accounting for our oil and gas
properties. Under this method, all development costs and acquisition costs of
proved properties are capitalized and amortized on a unit-of-production basis
over the remaining life of proved developed reserves or proved reserves, as
applicable. Exploration expenses, including geological and geophysical expenses
and delay rentals, are charged to expense as incurred. Costs of drilling
exploratory wells are initially capitalized, but charged to expense if and when
the well is determined to be unsuccessful. Natural gas volumes are converted to
equivalent barrels at the rate of six Mcf to one barrel. Because the economic
life of each producing well depends upon the assumed price for production,
fluctuations in oil and natural gas prices impact the level of proved reserves.
Higher prices generally have the effect of increasing reserves, which reduces
depletion, while lower prices generally have the effect of decreasing reserves,
which increases depletion.

Revenues are derived from the sale of oil and natural gas and natural gas
liquids less the cost of gas transportation. We utilize the sales method of
accounting for natural gas sales, whereby revenues are recognized based on cash
received and not on our proportionate share of production. We periodically enter
into fixed price sales agreements or other hedging transactions to take
advantage of prices that we believe to be attractive and to reduce risks related
to potential price declines. While our hedging contracts protect us from price
declines related to future production volumes that are hedged, such contracts
can also reduce the benefits we could realize from increases in oil and natural
gas prices. Gains and losses from hedging transactions are recognized as oil and
natural gas revenue when the associated production occurs.

Oil and natural gas production costs are composed of lease operating
expense and production taxes. Lease operating expense consists of pumpers'
salaries, utilities, maintenance and other costs necessary to operate our
producing properties. Production taxes are assessed by applicable taxing
authorities as a percentage of revenues. Production taxes include ad valorem and
severance taxes.

We calculate net proceeds as an operating expense based on revenues without
the effect of hedging activities less lease operating expenses, production
taxes, interest expense, overhead and development costs multiplied by the
associated burden percentage attributable to certain Cedar Creek Anticline
properties.

Encore has adopted Statement of Financial Accounting Standards, No. 121
("SFAS 121"), "Accounting for the Impairment of Long Lived Assets and for Long
Lived Assets to be Disposed Of". Under SFAS 121 we are required to assess the
need for an impairment of capitalized costs of oil and natural gas properties
and other assets. If impairment is indicated based on undiscounted expected
future net cash flows, then it is recognized to the extent that net capitalized
costs exceed discounted expected future net cash flows. Since inception we have
not incurred any such impairments.

The costs of retired, sold or abandoned properties that constitute a part
of an amortization base are charged or credited, net of proceeds, to the
accumulated depreciation, depletion and amortization reserve. Gains or losses
from the disposal of other properties are recognized in the current period.
Expenditures for maintenance, repairs and minor renewals necessary to maintain
properties in operating condition are expensed as incurred. Major replacements
and renewals are capitalized.

General and administrative expenses consist primarily of salaries and
related benefits, stock compensation expense, office rent, legal fees,
consultants, systems costs and other administrative costs incurred in our Fort
Worth office. While we expect such costs to increase with our growth, we expect
such increases to be proportionately smaller than our production growth.

28
<PAGE> 32

RESULTS OF OPERATIONS

The following table sets forth operating information of Encore for the
periods presented.

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
FOR THE YEAR ENDED
ENDED JUNE 30,
DECEMBER 31, ---------------- INCREASE
1999 1999 2000 (DECREASE)
------------ ---- ---- ----------
<S> <C> <C> <C> <C>
Oil and natural gas revenues(000)......... $35,648 $4,022 $50,482 $46,460
Lease operating expenses(000)............. $ 8,408 $ 980 $ 7,930 $ 6,950
Production, ad valorem and severance
taxes(000).............................. $ 5,427 $ 554 $ 6,609 $ 6,055
Daily production:
Oil volumes (Bbls)...................... 9,327 8,767 11,172 2,405
Natural gas volumes (Mcf)............... 2,127 1,994 7,220 5,226
Combined volumes (BOE).................. 9,681 9,099 12,375 3,276
Average prices:
Oil (per Bbl)........................... $ 17.39 $14.95 $ 22.70 $ 7.75
Natural gas (per Mcf)................... 2.07 1.51 3.29 1.78
Combined volumes (per BOE).............. 17.21 14.74 22.41 7.67
Average costs (per BOE):
LOE..................................... $ 4.06 $ 3.59 $ 3.52 $ (0.07)
Production taxes........................ 2.62 2.03 2.93 0.90
Net proceeds............................ 2.12 0.26 3.22 2.96
G&A..................................... 1.95 5.15 0.94 (4.21)
DD&A.................................... 2.55 2.66 3.75 1.09
</TABLE>

We have not provided a detailed analysis of our operating history,
including any discussion comparing operating performance to past years, because
we were not organized until 1998 and we did not operate any assets until the CCA
acquisition in June 1999. As a result, a comparison of 1999 to 1998 and the
first half of 2000 to the first half of 1999 is not meaningful because it
compares periods of operations to periods of start-up activity with no
meaningful operations. In addition to the table provided above, financial
information may be found under "Summary Consolidated Historical and Pro Forma
Financial Data" and "Consolidated Financial Statements".

LIQUIDITY AND CAPITAL RESOURCES

Principal uses of capital have been for the acquisition and development of
oil and natural gas properties.

During the six months ended June 30, 2000, net cash provided by operations
was $17.1 million, an increase of $20.3 million compared to the six months ended
June 30, 1999. We anticipate that our capital expenditures will total
approximately $20 million for the second half of 2000. The level of these and
other future expenditures is largely discretionary, and the amount of funds
devoted to any particular activity may increase or decrease significantly,
depending on available opportunities and market conditions. We plan to finance
our ongoing development and acquisition expenditures using internally generated
cash flow, available cash and our existing senior credit facility.

At June 30, 2000, Encore had total assets of $302.8 million. Total
capitalization was $278.8 million, of which 47.6% was represented by
stockholders' equity and 52.4% by senior debt.

Encore's operating subsidiary currently maintains a senior credit facility
with a group of banks that matures in May 2004. Encore has guaranteed the
subsidiary's obligations under the credit agreement and has pledged the stock
and other equity interests of its subsidiaries to

29
<PAGE> 33

secure the guaranty. Borrowings under the senior credit facility totaled $117.5
million as of June 30, 2000. The borrowing base, as established in the credit
agreement, was $165.0 million as of June 30, 2000. During the six months ended
June 30, 2000, the average interest rate under the facility was 7.6 percent. The
remaining borrowing base available under the facility at June 30, 2000, was
$47.5 million. Encore's current borrowing base totals $180.0 million as of
August 31, 2000. Encore pays certain fees based on the unused portion of the
borrowing base. Covenants, in addition to other requirements, include
maintenance of a current working capital ratio of one to one, limitations on
hedging activities, incurrence of debt and incurrence of liens.

Encore issued a $35.2 million note payable to the seller in connection with
the Lodgepole acquisition in North Dakota. The note requires monthly principal
payments over the 22 month period ending January 31, 2002. The note bears
monthly compounded interest at the rate of 4% per annum on the outstanding
principal plus accrued interest and is payable at maturity in January 2002.
Principal payments through June 30, 2000 totaled $6.5 million. Principal
payments through the second half of 2000 equal $11.2 million. Principal payments
for the year ended December 31, 2001 will total $16.4 million. The remaining
amount will total $1.1 million and will be paid in January of 2002.

Encore believes that its capital resources are adequate to meet the
requirements of its business. However, future cash flows are subject to a number
of variables including the level of oil and natural gas production and prices;
there can be no assurance that operations and other capital resources will
provide cash in sufficient amounts to maintain planned levels of capital
expenditures.

INFLATION AND CHANGES IN PRICES

While the general level of inflation affects certain of our costs, factors
unique to the petroleum industry result in independent price fluctuations.
Historically, significant fluctuations have occurred in oil and natural gas
prices. In addition, changing prices often cause costs of equipment and supplies
to vary as industry activity levels increase and decrease to reflect perceptions
of future price levels. Although it is difficult to estimate future prices of
oil and natural gas, price fluctuations have had, and will continue to have, a
material effect on us.

The following table indicates the average oil and natural gas prices
received for the year ended December 31, 1999 and six months ended June 30,
2000. Average equivalent prices for 1999 and 2000 were decreased by $2.22 and
$3.83 per BOE, respectively, as a result of our hedging activities. Average
price computations exclude contract settlements and other nonrecurring items to
provide comparability. Average prices per equivalent barrel indicate the
composite impact of changes in oil and natural gas prices. Natural gas
production is converted to oil equivalents at the conversion rate of six Mcf per
Bbl.

<TABLE>
<CAPTION>
OIL NATURAL GAS EQUIV. OIL
(PER BBL) (PER MCF) (PER BOE)
--------- ----------- ----------
<S> <C> <C> <C>
Six months ended June 30, 2000....................... $22.70 $3.29 $22.41
Year ended December 31, 1999......................... 17.39 2.07 17.21
</TABLE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY PRICE SENSITIVITY. The following tables provide the information
about derivative financial instruments to which we were a party as of June 30,
2000 that are sensitive to changes in oil and natural gas commodity prices.

Encore hedges commodity price risk with swap contracts, put contracts, and
collar contracts. Swap contracts provide a fixed price for a notional amount of
sales volumes. Put contracts provide a fixed floor price on a notional amount of
sales volumes while allowing full price participation if the relevant index
price closes above the floor price. Collar contracts provide a

30
<PAGE> 34

floor price for Encore on a notional amount of sales volumes while allowing some
additional price participation if the relevant index price closes above the
floor price. A swaption is an option to enter into a swap in the future. The
unrealized mark-to-market loss on outstanding commodity derivatives at June 30,
2000 was approximately $28 million.

<TABLE>
<CAPTION>
SECOND HALF
2000 2001 2002 2003
----------- ---- ---- ----
<S> <C> <C> <C> <C>
OIL HEDGE DERIVATIVES:
Swap contracts:
Average daily notional Bbl volumes............. 4,000 3,000 2,000 --
Weighted average fixed price per Bbl........... $22.38 $19.88 $17.97
Collar contracts:
Average daily notional Bbl volumes............. 2,500 1,000 -- --
Weighted average short calls per Bbl........... $21.76 $22.03
Weighted average long puts per Bbl............. $18.80 $19.25
Sold put contracts:
Average daily notional Bbl volumes............. 1,500 1,000 -- --
Weighted average short puts per Bbl............ $17.67 $16.00
Purchased put contracts
Average daily notional Bbl volumes............. 1,000 1,750 -- --
Weighted average long put per Bbl.............. $22.30 $20.00
Purchased put swaption contracts:
Average daily notional Bbl volumes expired
unexercised.................................. -- -- 2,000 --
Weighted average long put swaptions per Bbl.... $19.20
NATURAL GAS HEDGE DERIVATIVES:
Swap contracts:
Average daily notional MMBtu volumes........... 6,000 7,500 -- --
Weighted average fixed price per MMBtu......... $ 2.98 $ 2.88
Purchased put contracts:
Average daily notional MMBtu volumes........... -- 2,000 2,500 --
Weighted average long puts per MMBtu........... $ 3.47 $ 3.00
Purchased put swaption contracts(1):
Average daily notional MMBtu volumes expired
unexercised.................................. 5,000 2,000 3,500 2,500
Weighted average long put swaptions per MMBtu.. $ 4.05 $ 3.47 $ 3.15 $3.02
</TABLE>

---------------

(1) Subsequent to June 30, 2000, these put swaptions expired unexercised. We
entered into swap contracts that effectively fixed the price of our natural
gas volumes and price levels as shown below:

<TABLE>
<CAPTION>
SECOND HALF
2000 2001 2002 2003
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Average daily notional MMBtu volumes...... 5,000 2,000 3,500 2,500
Weighted average fixed price per MMBtu.... $ 4.42 $ 3.86 $ 3.30 $3.11
</TABLE>

31
<PAGE> 35

INTEREST RATE SENSITIVITY. At June 30, 2000, Encore had long-term debt of
$146.2 million. Of this amount, $28.7 million bears interest at a fixed rate of
4%. The remaining outstanding long-term debt of $117.5 million is under Encore's
senior credit facility, which is subject to floating market rates of interest.
Borrowings under the senior credit facility bear interest at a fluctuating rate
that is linked to LIBOR or the prime rate, at Encore's option. Any increase in
these rates can have an adverse impact on Encore's results of operations and
cash flow. Encore has entered into interest rate swap agreements to hedge the
impact of interest rate changes on a portion of its floating rate debt. As of
June 30, 2000, Encore had interest swaps as follows:

<TABLE>
<CAPTION>
HEDGE SUMMARY
-----------------------------------------------------------------
NOTIONAL LIBOR
SWAP AMOUNT START DATE END DATE SWAP RATE
----------- ---------- -------- ---------
<C> <S> <C> <C>
$6,500,000.. October 1, 1999 September 30, 2002 6.16%
10,250,000... October 29, 1999 October 30, 2000 6.10%
41,000,000... September 1, 1999 August 31, 2002 6.23%
13,083,333... November 30, 1999 November 30, 2001 6.26%
10,750,000... March 31, 2000 March 31, 2005 7.20%
----------- ----
$81,583,333... 6.35%(1)
=========== ====
</TABLE>

---------------

(1) Weighted average interest rate.

ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. It also requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement for fair value hedges or to be recorded in other comprehensive income
for cash flow hedges. SFAS No. 133 requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. We have not yet quantified the impacts of
adopting SFAS No. 133 on our financial statements and have not determined the
timing of, or method of, adoption of SFAS No. 133. However, SFAS No. 133 could
increase volatility in earnings.

32
<PAGE> 36

BUSINESS AND PROPERTIES

OUR COMPANY

Encore is a rapidly growing independent energy company engaged in the
acquisition, development, exploitation and marketing of North American oil and
natural gas reserves. Our oil and natural gas reserves are concentrated in
fields located in the Williston Basin of Montana and North Dakota, the Permian
Basin of Texas and New Mexico and the Anadarko Basin of Oklahoma. The following
table provides information on a pro forma basis regarding our oil and natural
gas properties at or for the six months ended June 30, 2000.

PROPERTIES -- PRINCIPAL AREAS OF OPERATIONS

<TABLE>
<CAPTION>
PRODUCTION PROVED RESERVE QUANTITIES PV-10
---------------- -------------------------- ------------------
NATURAL
OIL GAS TOTAL AMOUNT
BOE/D PERCENT (MBBLS) (MMCF) (MBOE) (IN 000) PERCENT
----- ------- ------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Cedar Creek Anticline... 10,318 65% 82,242 12,695 84,358 $458,075 73%
Crockett................ 1,524 10 71 37,898 6,387 72,251 12
Lodgepole............... 2,430 15 2,402 1,031 2,574 58,655 9
Indian Basin/Verden..... 1,514 10 338 19,888 3,653 38,913 6
------ --- ------ ------ ------ -------- ---
Total......... 15,786 100% 85,053 71,512 96,972 $627,894 100%
====== === ====== ====== ====== ======== ===
</TABLE>

DESCRIPTION OF CEDAR CREEK ANTICLINE

Our core asset is the Cedar Creek Anticline, which we acquired from a major
oil and gas company in June 1999. The Cedar Creek Anticline, which has produced
391 million barrels, or less than 13% of the estimated original oil in place, is
located in the Williston Basin of eastern Montana and western North Dakota. The
properties are characterized by:

- a large quantity of remaining recoverable reserves;

- significant proved developed producing reserves and significant upside
potential;

- well established shallow production decline rates;

- suitability to the application of recently introduced technologies,
including horizontal drilling and tertiary recovery operations; and

- geographic concentration.

HISTORY AND DEVELOPMENT OF CEDAR CREEK ANTICLINE PROPERTIES. Natural gas
was discovered on the Cedar Creek Anticline in 1912 at a depth of 750 feet in
the Cretaceous Judith River and Eagle Formations. Oil was first encountered in a
few noncommercial wells drilled to deeper formations between the years 1936 and
1950. Commercial quantities of oil in the deeper formations were discovered in
the South Pine Field in 1952. Development drilling on the Cedar Creek Anticline
peaked during the late 1950's and early 1960's, with over 1,100 deep wells
drilled to date. Peak production from the fields occurred in 1963 at a rate of
approximately 37,000 gross barrels of oil per day. Secondary recovery waterflood
projects were initiated between 1964 and 1972. Currently, we have 471 operated
and five non-operated active production wells, including 56 horizontal wells
drilled since 1993, which are presently producing at a rate of approximately
13,738 Bbls (gross) of oil and 2,715 Mcf (gross) of natural gas per day.

GEOLOGY. The Cedar Creek Anticline is a major geological feature in eastern
Montana and western North Dakota. Carbonate rocks were deposited in the ancient
seas of the Williston Basin 350 million years ago. Powerful regional forces then
caused folding and faulting of these rocks to

33
<PAGE> 37

create an anticlinal structure. Oil, generated in the deeper portions of the
Williston Basin, then migrated upwards until it was trapped in the crest of this
structure. Encore's acreage is concentrated on the crest of the CCA, which gives
it access to the greatest accumulation of oil in the structure. Our holdings
extend for approximately 70 miles in a northwest-southeast direction and range
from two to six miles in width. Production is primarily from four carbonate
formations. From shallowest to deepest, the four formations are the Mission
Canyon, Lodgepole, Interlake and Stony Mountain/Red River. This gross producing
interval is approximately 2,000 feet thick, and ranges in depth from
approximately 7,000 feet to 9,000 feet.

EXPLOITATION OPPORTUNITIES. We have identified more than 350 exploitation
opportunities on the Cedar Creek Anticline, of which 52 are reflected in our
proved reserves at June 30, 2000. These infill drilling, horizontal
redevelopment and extensional drilling projects should increase reserve
recoveries and production rates and extend the productive limits of our fields.
We plan to pursue more than 200 of these projects over the next four years.
These projects, along with the associated investment in field facilities, will
require an estimated investment of $160 million. Based on past results, we
expect these projects to yield about 50 MMBOE of reserves, of which 13 MMBOE are
included in our June 30, 2000 proved reserves.

Infill Drilling. We have identified over 100 infill projects. One
prospective area for infill drilling is the Cabin Creek unit where we expect to
spend $14 million. We analyzed production data to determine the likely drainage
radius of the producing wells in the field and have identified more than 31
infill locations designed to recover oil that will not be recovered by existing
wellbores. We also have infill projects planned at the South Pine, Coral Creek,
Little Beaver, Monarch and Pennel units.

Horizontal Redevelopment. We have identified more than 70 projects
involving new horizontal wells and horizontal recompletions. Horizontal wells
are drilled laterally for several thousand feet within the targeted formation,
allowing the wellbore to contact more oil than a typical vertical well which
only penetrates the formation at a single point. Developments in horizontal
technology now allow us to re-enter existing vertical wells, including inactive
wells, and drill out horizontally for several thousand feet. For example, at the
Pennel unit we analyzed each of 27 sections to determine potential incremental
reserve recoveries through horizontal drilling based upon analogues to recent
horizontal drilling on a nearby lease. Based on this analysis, we expect to
spend $26 million on 38 horizontal projects in the Pennel unit. We also plan
horizontal redevelopment in the North and South Pine units.

Extensional Development. We have identified more than 200 projects to
extend the producing limits of our existing fields. We have identified numerous
prospective locations for developing the Interlake formation, which is located
above the currently producing Red River and Stony Mountain formations. At the
Monarch unit, we plan to drill and waterflood the Red River formation, which is
productive throughout the anticline but has yet to be developed in this area. We
also plan to extend the productive limits of the Cabin Creek and South Pine
units with stepout wells targeting the Red River formation.

CO(2) Tertiary Recovery. Encore believes that the current waterflood
projects in the Cedar Creek Anticline will ultimately recover about 27% of the
corresponding estimated original oil in place. The industry, most notably in the
Permian Basin of West Texas and New Mexico, has successfully demonstrated the
viability of injecting CO(2) into these reservoirs and recovering an incremental
10% to 20% of the original oil in place. In 1985, the previous operator
conducted a pilot test to evaluate the specific applicability of CO(2) at the
CCA. That test demonstrated that injected CO(2) was effective at recovering
additional oil. The prior operator did not undertake a full-scale CO(2) tertiary
recovery project. We suspect that decision was based on the lack of commercially
available CO(2) and prevailing commodity prices.

Since that time, the industry has accumulated fifteen years of experience
with CO(2) tertiary recovery. In addition, more economical sources of CO(2)
supply have become available as there
34
<PAGE> 38

are increasing concerns related to gas processors continuing to vent CO(2), a
byproduct of their operations, to the atmosphere. Presently, there are two
viable sources of CO(2) near our CCA properties: the Dakota Gasification Plant
in North Dakota and Exxon's Shute Creek Gas Processing Plant in southeastern
Wyoming. Preliminary discussions with both parties have suggested that adequate
volumes of CO(2) are available at prices that we believe will permit full-scale
projects to be economically attractive.

Encore has begun the engineering studies necessary to fully evaluate the
economics of a field-scale project. Based on the results of the 1985 pilot and
upon results achieved from the Permian basin CO(2) floods, our preliminary
assessment of the total CO(2) project reserve potential at the CCA is
approximately 200 million barrels of oil. We believe this potential would be
actualized through a series of projects, each lasting 20 to 30 years.
Implementation of the first of these projects is at least three years in the
future.

LAND. A major portion of Encore's acreage position is subject to agreements
with Montana-Dakota Utilities Company (MDU) and Fidelity Gas Company. Various
Federal, state and private leases and contracts on mineral interests govern
Encore's oil and natural gas rights on the Cedar Creek Anticline. In addition,
the MDU/Fidelity agreements provide for various net profits interests (NPI)
ranging from 1% to 50% to be paid after the recovery of capital costs, operating
expenses and interest on several of the units. The net profits interests are
reflected in our reserve report and financial statements. Encore operates 99% of
our total CCA value. Of the fields we operate, we own an 86% weighted-average
working interest. The royalty burden is about 13%. Encore controls approximately
134,000 gross and 118,000 net leasehold acres along the Cedar Creek Anticline.

DESCRIPTION OF CROCKETT

The Crockett properties are located in the Permian Basin in West Texas.
Encore purchased all of these interests in Crockett County, Texas. The
properties produce mainly natural gas, 99% by reserve volume, and are part of
the prolific Val Verde basin natural gas area. The natural gas reservoirs in
this area have multi-pay potential in thick, porous zones. We believe that we
acquired quality, long-lived natural gas assets with significant development
potential at an attractive price through this acquisition. It also enabled us to
enter a basin well known for its abundant natural gas resources, low operating
costs and competitive finding costs. Attractive additional acquisition
opportunities will continue to make this a focus area for us.

The purchase price for this acquisition was $43.0 million, with an
effective date of April 1, 2000 and a closing date of March 30, 2000. The
Crockett properties consist primarily of three field groupings, Henderson, Ozona
and Hunt-Baggett. We operate 68% of the properties based on PV-10 reserve value.
There are 292 active wells currently producing 9.4 MMcf/D net to Encore. We
operate 135 wells producing from the Canyon and Strawn intervals.

This area provides the potential for additional infill and stepout
drilling. The limits of the Canyon and Strawn reservoirs have not been found,
and the multi-pay nature of the sands have the potential to add reserves and
value through continued development. The properties produce high quality natural
gas and liquids and are connected to several different markets.

DESCRIPTION OF LODGEPOLE

The Lodgepole properties are also located in the Williston Basin in Stark
County, North Dakota. The Lodgepole area is characterized by highly productive
wells, low R/P Index ratios and low lifting costs. The purchase price for these
properties was $35.2 million. The Lodgepole properties are 93% oil by volume,
and approximately 97% of the properties are non-operated. The Lodgepole
properties consist of working and overriding royalty interests in the Eland,
Stadium, Hiline, Livestock, Patterson Lake, and the Beattrice Ridl fields. The
major asset, constituting 88% of the reserve value, is the Eland Unit, which is
operated by Duncan Oil Inc. of
35
<PAGE> 39

Denver, Colorado. Encore owns a 26.0% working interest and 25.6% revenue
interest in the Eland Unit. We expect the Lodgepole properties to produce 2,600
BOE/D in 2000.

Because of the unique characteristics of its producing reservoir, namely
its high permeability and thick oil column, producing wells in the Eland Unit
are prolific, with some wells flowing as much as 1,000 barrels of oil per day.
As a result, the lifting costs for these properties average $0.75 per Bbl and
the gross profit margin on production, after royalties and taxes, is currently
greater than 90% of revenues.

DESCRIPTION OF INDIAN BASIN/VERDEN

The Indian Basin/Verden properties were acquired for $25.4 million on
August 24, 2000, effective April 1, 2000.

The Indian Basin, Cemetery, and Dagger Draw South Fields, collectively
referred to as the Indian Basin assets, are located in the Permian Basin of
southeast New Mexico. Encore owns varied non-operated working interests in two
Federal units and in six communitized areas. The reserves are 88% natural gas by
volume. Production is from Pennsylvanian-aged (Canyon) carbonates at 8,000 feet.
Encore's current net production is 4.8 MMcf/D and 76 Bbl/D. Marathon, Texaco and
Chevron are the major operators. Production from the area has been steadily
increasing over the past several years as the operators have successfully
recompleted the numerous behind-pipe zones containing additional natural gas.

The Verden assets, located in the Anadarko Basin of Oklahoma, are 93%
non-operated and 87% natural gas by volume. Encore's current net production is
3.4 MMcf/D and 80 Bbl/D. Apache is the principal operator. Production is from
the Springer formations below 15,000 feet. These deep, multi-pay, geologically
complex reservoirs have historically proven to be conducive to subsequent
drilling and workover operations beyond the initial development well. Since
acquiring the properties in late August, Encore has been presented with and
elected to participate in two separate development wells.

PROVED RESERVES

The following table sets forth estimated year-end proved reserves for the
periods indicated:

<TABLE>
<CAPTION>
PRO
HISTORICAL FORMA(1)
----------------------- --------
DECEMBER 31, JUNE 30, JUNE 30,
1999 2000 2000
------------ -------- --------
<S> <C> <C> <C>
Oil (MBbls)
Developed.................................. 67,019 72,506 72,843
Undeveloped................................ 12,198 12,210 12,210
-------- -------- --------
Total.............................. 79,217 84,716 85,053
======== ======== ========
Natural Gas (MMcf)
Developed.................................. 10,082 42,859 62,745
Undeveloped................................ 2,420 8,767 8,767
-------- -------- --------
Total.............................. 12,502 51,626 71,512
======== ======== ========
Total (MBOE)................................. 81,301 93,320 96,972
======== ======== ========
PV-10 (in thousands)
Developed.................................. $287,439 $523,041 $561,954
Undeveloped................................ 35,813 65,940 65,940
-------- -------- --------
Total.............................. $323,252 $588,981 $627,894
======== ======== ========
</TABLE>

---------------

(1) Includes Indian Basin/Verden, which was acquired subsequent to June 30,
2000. The Miller and Lents report on the Indian Basin/Verden properties was
prepared as of September 1, 2000, and has been adjusted by Encore to a June
30, 2000 effective date.

36
<PAGE> 40

Estimated quantities of oil and natural gas reserves and the present value
thereof are based upon reserve reports prepared by the independent petroleum
engineering firm of Miller and Lents, Ltd.

Proved developed reserves are proved reserves that are expected to be
recovered from existing wells with existing equipment and operating methods.
Proved undeveloped reserves are proved reserves that are expected to be
recovered from new wells drilled to known reservoirs on undrilled acreage for
which the existence and recoverability of such reserves can be estimated with
reasonable certainty, or from existing wells where a relatively major
expenditure is required to establish production.

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
exploitation expenditures. The data in the above table represents estimates
only. Oil and natural gas reserve engineering is inherently a subjective process
of estimating underground accumulations of oil and natural gas that cannot be
measured exactly, and estimates of other engineers might differ materially from
those shown above. The accuracy of any reserve estimate is a function of the
quality of available data and engineering and geological interpretation and
judgment. Results of drilling, testing and production after the date of the
estimate may justify revisions. Accordingly, reserve estimates may vary from the
quantities of oil and natural gas that are ultimately recovered.

Future prices received for production and costs may vary, perhaps
significantly, from the prices and costs assumed for purposes of these
estimates. The PV-10 shown should not be construed as the current market value
of the reserves. The 10% discount factor used to calculate present value, which
is mandated by the SEC, is not necessarily the most appropriate discount rate.
The present value, no matter what discount rate is used, is materially affected
by assumptions as to timing of future production, which may prove to be
inaccurate. For properties that we operate, expenses exclude our share of
overhead charges. In addition, the calculation of estimated future net revenues
does not take into account the effect of various cash outlays, including, among
other things, general and administrative costs and interest expense.

During the calendar year 2000, Encore filed estimates of oil and natural
gas reserves at December 31, 1999 with the U.S. Department of Energy on Form
EIA-23. This estimate was based on an internal reserve study and reflected more
reserves than those set forth in the table above. This reduction resulted from a
reassessment of some of our proved undeveloped reserves as a result of
additional drilling.

37
<PAGE> 41

PRODUCTION AND PRICE HISTORY

The following table sets forth information regarding net production of oil,
natural gas and natural gas liquids, and certain price and cost information for
each of the periods indicated:

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------- -------------------------
SIX MONTHS
SEVEN MONTHS ENDED SIX MONTHS
ENDED JUNE 30, YEAR ENDED ENDED
DECEMBER 31, ----------------- DECEMBER 31, JUNE 30,
1999(1) 1999(1) 2000(2) 1999(3) 2000(4)
------------ ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA(1):
Oil (MBbls)...................... 1,996 263 2,033 5,056 2,282
Natural Gas (MMcf)............... 455 60 1,314 8,549 3,549
Combined Volumes (per MBOE)...... 2,072 273 2,252 6,481 2,874
AVERAGE PRICES(5):
Oil (per Bbl).................... $19.61 $15.24 $26.53 $15.48 $27.09
Natural gas (per Mcf)............ 2.07 1.51 3.57 2.16 3.05
Combined Volumes (per BOE)....... 19.34 15.01 26.03 14.92 25.28
AVERAGE COSTS (PER BOE):
Lease operating expense.......... $ 4.06 $ 3.59 $ 3.52 $ 2.98 $ 3.38
Depletion, depreciation and
amortization.................. 2.55 2.66 3.75 4.12 4.26
General and administrative....... 1.95 5.16 .94 .81 .74
</TABLE>

---------------

(1) Prior to June 1, 1999, Encore had no production.

(2) Three months of Crockett and Lodgepole production from April to June 2000.

(3) Pro forma as if the Cedar Creek Anticline, Other Cedar Creek, Crockett,
Lodgepole, and Indian Basin/Verden acquisitions had taken place on January
1, 1999.

(4) Pro forma as if the Crockett, Lodgepole, and Indian Basin/Verden
acquisitions had taken place January 1, 2000.

(5) Does not include the effects of hedging transactions.

PRODUCING WELLS

The following table sets forth information at August 31, 2000 relating to
the producing wells in which we owned a working interest as of that date. We
also held royalty interests in 577 producing wells as of that date. Wells are
classified as oil or natural gas wells according to their predominant production
stream.

<TABLE>
<CAPTION>
AVERAGE
GROSS NET WORKING
WELLS WELLS INTEREST
----- ----- --------
<S> <C> <C> <C>
Cedar Creek Anticline....................................... 476 411 86%
Crockett.................................................... 271 106 39%
Lodgepole................................................... 25 6 23%
Indian Basin/Verden......................................... 160 21 13%
--- --- --
Total....................................................... 932(1) 544 58%(2)
=== === ==
</TABLE>

---------------

(1) Our total wells include 543 operated wells and 389 non-operated wells.

(2) Our total weighted average working interest is 58%.

38
<PAGE> 42

ACREAGE

The following table sets forth information at August 31, 2000 relating to
acreage held by us. Developed acreage is assigned to producing wells.
Undeveloped acreage is acreage held under lease, permit, contract or option that
is not in a spacing unit for a producing well, including leasehold interests
identified for exploitation or exploratory drilling.

<TABLE>
<CAPTION>
GROSS NET
ACREAGE ACREAGE
------- -------
<S> <C> <C>
Developed acreage........................................... 141,639 95,475
Undeveloped acreage......................................... 55,912 46,246
------- -------
Total............................................. 197,551 141,721
======= =======
</TABLE>

DRILLING RESULTS

The following table sets forth information with respect to wells drilled
during the periods indicated. The information should not be considered
indicative of future performance, nor should it be assumed that there is
necessarily any correlation between the number of productive wells drilled,
quantities of reserves found or economic value. Productive wells are those that
produce commercial quantities of hydrocarbons, whether or not they produce a
reasonable rate of return.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1999 2000
------------ --------------
<S> <C> <C>
DEVELOPMENT WELLS:
Productive
Gross................................................. 10.0 8.0
Net................................................... 8.3 5.1
Dry
Gross................................................. -- --
Net................................................... -- --
</TABLE>

In addition, two (1.9 net) wells were in the process of drilling at June
30, 2000.

MARKETING

Our oil and natural gas production is principally sold to end users,
marketers and other purchasers having access to nearby pipeline facilities. In
areas where there is no practical access to pipelines, oil is trucked to storage
facilities. Our marketing of oil and natural gas can be affected by factors
beyond our control, the effects of which cannot be accurately predicted. For the
fiscal year 1999, our largest purchasers included Equiva Trading Company (a
joint venture between Shell and Texaco), Conoco and Bear Paw Energy, which
accounted for 91%, 4%, and 3% of total oil and natural gas sales, respectively.

COMPETITION

We compete with major and independent oil and natural gas companies. Some
of our competitors have substantially greater financial and other resources than
we do. In addition, larger competitors may be able to absorb the burden of any
changes in Federal, state, provincial and local laws and regulations more easily
than we can, which would adversely affect our competitive position. Our
competitors may be able to pay more for productive oil and natural gas
properties and may be able to define, evaluate, bid for and purchase a greater
number of properties and prospects than we can. Further, these companies may
enjoy technological advantages and may be able to implement new technologies
more rapidly than we can. Our ability to acquire additional properties in the
future will depend upon our ability to conduct

39
<PAGE> 43

operations, to evaluate and select suitable properties, implement advanced
technologies and to consummate transactions in this highly competitive
environment.

REGULATORY MATTERS

FEDERAL REGULATION OF SALES AND TRANSPORTATION OF NATURAL GAS

Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated pursuant to the Natural Gas Act of 1938,
the Natural Gas Policy Act of 1978 and the regulations promulgated thereunder by
the Federal Energy Regulatory Commission. In the past, the Federal government
has regulated the prices at which natural gas could be sold. Deregulation of
natural gas sales by producers began with the enactment of the Natural Gas
Policy Act. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act,
which removed all remaining Natural Gas Act and Natural Gas Policy Act price and
non-price controls affecting producer sales of natural gas effective January 1,
1993. Congress could, however, reenact price controls in the future.

Our sales of natural gas are affected by the availability, terms and cost
of pipeline transportation. The price and terms for access to pipeline
transportation remain subject to extensive Federal regulation. Commencing in
April 1992, the Federal Energy Regulatory Commission issued Order No. 636 and a
series of related orders, which required interstate pipelines to provide
open-access transportation on a basis that is equal for all natural gas
suppliers. The Federal Energy Regulatory Commission has stated that it intends
for Order No. 636 to foster increased competition within all phases of the
natural gas industry. Although Order No. 636 does not directly regulate our
production and marketing activities, it does affect how buyers and sellers gain
access to the necessary transportation facilities and how we and our competitors
sell natural gas in the marketplace. The courts have largely affirmed the
significant features of Order No. 636 and the numerous related orders pertaining
to individual pipelines, although some appeals remain pending and the Federal
Energy Regulatory Commission continues to review and modify its regulations
regarding the transportation of natural gas. For example, the Federal Energy
Regulatory Commission has recently begun a broad review of its transportation
regulations, including how its regulations operate in conjunction with state
proposals for retail natural gas marketing restructuring, whether to eliminate
cost-of-service based rates for short-term transportation, whether to allocate
all short-term capacity on the basis of competitive auctions, and whether
changes to its long-term transportation service policies may be appropriate to
avoid a market bias toward short-term contracts. We cannot predict what action
the Federal Energy Regulatory Commission will take on these matters, nor can we
accurately predict whether the Federal Energy Regulatory Commission's actions
will achieve the goal of increasing competition in markets in which our natural
gas is sold. However, we do not believe that any action taken will affect us in
a way that materially differs from the way it affects other natural gas
producers, gatherers and marketers.

Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the Federal Energy Regulatory Commission
and the courts. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the Federal Energy Regulatory Commission and
Congress will continue.

FEDERAL LEASES

A substantial portion of our operations are located on Federal oil and
natural gas leases, which are administered by the Minerals Management Service.
Such leases contain relatively standardized terms and require compliance with
detailed Minerals Management Service regulations and orders which are subject to
interpretation and change by the Minerals

40
<PAGE> 44

Management Service. The Minerals Management Service also has regulations
restricting the flaring or venting of natural gas, and has proposed to amend
such regulations to prohibit the flaring of liquid hydrocarbons and oil without
prior authorization. Under some circumstances, the Minerals Management Service
may require any of our operations on Federal leases to be suspended or
terminated. Any such suspension or termination could materially adversely affect
our financial condition and results of operations.

The Minerals Management Service has recently issued a notice of proposed
rulemaking in which it proposes to amend its regulations governing the
calculation of royalties and the valuation of oil produced from Federal leases.
This proposed rule would modify the valuation procedures for both arm's-length
and non-arm's-length crude oil transactions, establish a new form for collecting
value differential data, and amend the valuation procedure for the sale of
Federal royalty oil. We cannot predict what action the Minerals Management
Service will take on this matter. We believe that these rules, if adopted as
proposed, will not have a material impact on our financial condition, liquidity
or results of operations.

OIL PRICE CONTROLS AND TRANSPORTATION RATES

Sales of oil, condensate and natural gas liquids by us are not currently
regulated and are made at market prices. Effective as of January 1, 1995, the
Federal Energy Regulatory Commission implemented regulations establishing an
indexing system for transportation rates for oil that could increase the cost of
transporting oil to the purchaser. We do not believe that these regulations
affect us any differently than other crude oil producers and marketers.

ENVIRONMENTAL REGULATIONS

Our operations, which include the bulk storage of oil and hazardous
materials, are subject to numerous laws and regulations governing the discharge
of materials into the environment or otherwise relating to environmental
protection, including those listed below. We could incur substantial costs,
including cleanup costs, fines and civil or criminal sanctions, as a result of
violations of or liabilities under environmental laws or the non-compliance with
environmental permits required at our facilities. Public interest in the
protection of the environment has increased dramatically in recent years.
Offshore drilling in some areas has been opposed by environmental groups and, in
some areas, has been restricted. To the extent laws are enacted or other
governmental action is taken that prohibits or restricts drilling or otherwise
imposes environmental protection requirements that result in increased costs to
the oil and natural gas industry, our business and prospects could be adversely
affected.

Under the Comprehensive Environmental Response, Compensation, and Liability
Act, also known as the "Superfund" law, as well as similar state statutes, an
owner or operator of real property or a person who arranges for disposal of
hazardous substances may be liable for the costs of removing or remediating
hazardous substance contamination. Liability may be imposed on a current owner
or operator without regard to fault and for the entire cost of the cleanup. It
is not uncommon for neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. However, we are not aware of any
current claims under the Superfund law or similar state statutes against us.

We conduct remedial activities at some of our facilities as a result of
spills of oil or produced water from current or historical activities. To date,
the cost of such activities have not been material. However, we could incur
significant cost at these or other sites if additional contaminants are detected
or clean-up obligations imposed.

Our operations are also subject to the regulation of air emissions under
the Clean Air Act, comparable state and local requirements and of water
discharges under the Clean Water Act. We

41
<PAGE> 45

may be required to incur capital expenditures to upgrade pollution control
equipment or become liable for non-compliance with applicable permits.

In addition, legislation has been proposed in Congress from time to time
that would reclassify some oil and natural gas exploration and production wastes
as "hazardous wastes", which would make the reclassified wastes subject to much
more stringent handling, disposal and clean-up requirements. This, or the
imposition of other environmental legislation, could increase our operating or
compliance costs.

We believe that we are in compliance in all material respects with current
applicable environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on us.

OPERATING HAZARDS AND INSURANCE

The oil and natural gas business involves a variety of operating risks,
including fires, explosions, blowouts, environmental hazards and other potential
events which can adversely affect our operations. Any of these problems could
adversely affect our ability to conduct operations and cause us to incur
substantial losses. Such losses could reduce or eliminate the funds available
for exploration, exploitation or leasehold acquisitions, or result in loss of
properties.

In accordance with industry practice, we maintain insurance against some,
but not all, potential risks and losses. We do not carry business interruption
insurance. For some risks, we may not obtain insurance if we believe the cost of
available insurance is excessive relative to the risks presented. In addition,
pollution and environmental risks generally are not fully insurable at a
reasonable cost. If a significant accident or other event occurs and is not
fully covered by insurance, it could adversely affect us.

TITLE TO PROPERTIES

We believe that our title to our oil and natural gas properties is good and
defensible in accordance with standards generally accepted in the oil and
natural gas industry.

Our properties are typically subject, in one degree or another, to one or
more of the following:

- royalties, overriding royalties, net profit interests and other burdens
under oil and natural gas leases;

- contractual obligations, including, in some cases, development
obligations, arising under operating agreements, farmout agreements,
production sales contracts and other agreements that may affect the
properties or their titles;

- liens that arise in the normal course of operations, such as those for
unpaid taxes, statutory liens securing unpaid suppliers and contractors
and contractual liens under operating agreements;

- pooling, unitization and communitization agreements, declarations and
orders; and

- easements, restrictions, rights-of-way and other matters that commonly
affect property.

We believe that the burdens and obligations affecting our properties are
conventional in the industry for similar properties and do not in the aggregate
materially interfere with the use of the properties.

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<PAGE> 46

EMPLOYEES

At August 31, 2000, we had a total of 74 full-time employees of which 31
are in field operations. We believe that our relationships with our employees
are satisfactory. None of our employees are covered by a collective bargaining
agreement. From time to time, we use the services of independent consultants and
contractors to perform various professional services, particularly in the areas
of construction, design, well-site surveillance, permitting and environmental
assessment. Currently we engage one engineering and two geology/geophysical
consultants. Independent contractors often perform field and on-site production
operation services for us, including pumping, maintenance, dispatching,
inspection and testing.

LEGAL PROCEEDINGS

From time to time, we may be a party to various legal proceedings. We are
not currently party to any material legal proceedings.

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<PAGE> 47

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the names, ages and positions of our
executive officers and directors as of August 31, 2000.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
I. Jon Brumley............................ 61 Chairman, President and Chief Executive
Officer
Gene R. Carlson........................... 47 Executive Vice President-Operations
Jon S. Brumley............................ 30 Executive Vice President-Business
Development
Kyle M. Schultz........................... 43 Executive Vice President-Exploitation
Morris B. Smith........................... 56 Executive Vice President and Chief
Financial Officer
Arnold L. Chavkin......................... 49 Director
Howard H. Newman.......................... 53 Director
Kenneth A. Hersh.......................... 37 Director
</TABLE>

The following biographies describe the business experience of our executive
officers and directors:

I. JON BRUMLEY, CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER SINCE
INCEPTION IN APRIL 1998. Mr. Brumley began his career with Southland Royalty
Company as a risk analyst in 1967 and became its President in 1974. In 1980,
Southland carved out two groups of producing properties and formed two royalty
trusts called the San Juan Basin Royalty Trust and the Permian Basin Royalty
Trust. These royalty trusts still trade on the NYSE under the symbols SJT and
PBT, respectively. In 1985, Southland was acquired by Burlington Northern
Railroad.

In 1986, Mr. Brumley co-founded Cross Timbers Oil Company to focus on the
acquisition and development of long-lived oil and natural gas properties. In
1992, Cross Timbers created the Cross Timbers Royalty Trust by carving out
non-operated producing properties and selling one half the trust units in the
public market and distributing the other half to the original investors. Cross
Timbers had a public offering in 1993 with an original market capitalization of
more than $200 million. Cross Timbers had acquired approximately $500 million of
properties when Mr. Brumley resigned in July 1996.

In August 1996, Mr. Brumley accepted the position of Chairman and CEO of
MESA, and MESA was merged with Parker Parsley to become Pioneer Natural
Resources Company. In May 1998, Mr. Brumley resigned as Executive Chairman of
Pioneer Natural Resources.

Mr. Brumley holds a BBA from the University of Texas and a MBA from the
University of Pennsylvania Wharton School of Business.

GENE R. CARLSON, EXECUTIVE VICE PRESIDENT -- OPERATIONS SINCE INCEPTION IN
APRIL 1998. Mr. Carlson is a 26-year veteran of the oil and natural gas
industry. He began his career with Exxon where he held various engineering
assignments. From 1977 to 1996 he held various positions with Southland Royalty
Company and Burlington Resources, including Engineering Manager, Denver Region.
He became Corporate Development Manager for Duncan Oil in 1996. He has
experience in evaluating acquisitions, managing reservoir exploitation and
operating oil and natural gas properties, concentrated in the Mid-continent,
Permian Basin and Rocky Mountain producing regions. Mr. Carlson is a 1974
graduate of Texas A&M University and holds a Bachelor of Science degree in
Mechanical Engineering.

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<PAGE> 48

JON S. BRUMLEY, EXECUTIVE VICE PRESIDENT -- BUSINESS DEVELOPMENT SINCE
INCEPTION IN APRIL 1998. Prior to joining Encore, Mr. Brumley held the position
of Manager of Commodity Risk and Commercial Projects for Pioneer Natural
Resources. He was with Pioneer since its creation by the merger of MESA and
Parker & Parsley in 1997. Before the merger, he served as Director -- Business
Development for MESA. From 1993 to 1996, he held various positions with Cross
Timbers Oil Company and North Central Oil Corporation. Mr. Brumley holds a
Bachelor of Business Administration in Marketing from the University of Texas.
He is the son of I. Jon Brumley.

KYLE M. SCHULTZ, EXECUTIVE VICE PRESIDENT -- EXPLOITATION SINCE INCEPTION
IN APRIL 1998. Prior to joining Encore, Mr. Schultz was a divisional Reservoir
Engineering Manager for Pioneer Natural Resources. From 1988 to 1997, he was
employed by Cross Timbers Oil Company. In 1996 he was named Vice
President -- Exploitation. Prior to 1998, he worked a total of nine years in the
Refining and Production Departments of Exxon. Mr. Schultz received a Bachelor of
Science degree in Chemical Engineering from the University of Texas in 1979.

MORRIS B. "SAM" SMITH, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
SINCE AUGUST 2000. Prior to joining Encore, Mr. Smith held the position of Vice
President of Finance and Chief Financial Officer for Union Pacific Resources
Group, Inc. Mr. Smith held this position since the spin-off of Union Pacific
Resources Group from Union Pacific Corporation in 1996. Mr. Smith began his
career with Shell Oil and held a variety of positions in Houston and California.
From 1976 to 1990, Mr. Smith held various positions with Union Pacific
Resources. In 1990 Mr. Smith joined Union Pacific Corporation as Assistant
Controller-Planning, moving to the Chief Financial Officer of U.S.P.C.I.
(Hazardous Waste Company) in 1993, Vice President of Finance for the Union
Pacific Railroad in 1995 and Vice President & Controller of Union Pacific
Corporation, then returned to Union Pacific Resources as the Chief Financial
Officer in 1996. Mr. Smith is a graduate of McMurry University located in
Abilene, Texas and holds a Bachelor of Business Administration degree in
Accounting. He also attended the Advanced Management Program/ International
Senior Management Program at Harvard Business School. He is a Certified Public
Accountant.

ARNOLD L. CHAVKIN, DIRECTOR SINCE 1998. Mr. Chavkin is an executive partner
with Chase Capital Partners, an affiliate of Chase Manhattan Bank. Prior to
joining Chase Capital Partners, Mr. Chavkin was a member of Chemical Bank's
merchant banking group and a generalist in its corporate finance group
specializing in mergers and acquisitions and private placements for the energy
industry. His experience prior to Chemical Bank included corporate development
for Freeport McMoRan as well as positions with Gulf and Western Industries and
Arthur Young & Company. Mr. Chavkin is a Certified Public Accountant. He
received his B.A. and M.B.A. degrees from Columbia University. Mr. Chavkin is a
director of American Tower Corporation, Better Minerals & Aggregates, Carrizo
Oil & Gas, Inc., Crown Media Holdings, Inc., HDFC Bank, R&B Falcon Corporation,
and Triton PCS, Inc. He serves on the Advisory Investment Boards of Richina
Group, the India Private Equity Fund and the Asia Development Partners Fund.

HOWARD H. NEWMAN, DIRECTOR SINCE 1998. Mr. Newman has been employed by E.M.
Warburg, Pincus & Co., LLC since January 1984 and has been a partner of Warburg,
Pincus & Co. since January 1987. Prior to that, he held various positions with
Morgan Stanley & Co., Incorporated from 1974 to 1983. Mr. Newman holds Bachelor
of Arts and Master of Arts degrees in economics from Yale University and a Ph.D.
degree in Business-Economics from Harvard University. He also spent two years
doing research in economics at Cambridge University. At Warburg Pincus, Mr.
Newman is currently Vice Chairman and a member of its Operating, Compensation
and Investment Policy Committees. He is also a director of ADVO, Inc., Cox
Insurance Holdings, Plc., Dime Bancorp Inc., Eagle Family Foods Holdings, Inc.,
EEX Corporation, Newfield Exploration Company, Spinnaker Exploration Company and
several privately held companies. He also serves as Vice Chairman of the Yale
Alumni Fund.

45
<PAGE> 49

KENNETH A. HERSH, DIRECTOR SINCE 1998. From 1989 to the present, Mr. Hersh
has been a manager and Managing Director of the Natural Gas Partners private
equity investment funds. Previously, he was employed by the investment banking
division of Morgan Stanley & Co. Incorporated where he was a member of the
firm's energy group, specializing in oil and gas financing and acquisition
transactions. He is also a director of Prize Energy Corp., an independent oil
and gas company and several private companies. Mr. Hersh earned an MBA from the
Stanford University Graduate School of Business and a BA from Princeton
University.

COMMITTEES OF THE BOARD OF DIRECTORS

We have been a privately owned company to date, with substantial outside
investor participation. As a result, our Board of Directors has not yet
established an audit committee or a compensation committee. Shortly after
becoming a public company, however, we intend to name additional independent
directors, and our Board of Directors will establish those committees with
appropriate independent director participation.

AUDIT COMMITTEE

Our audit committee will be responsible for:

- recommending the selection of our independent accountants;

- reviewing and approving the scope of our independent accountants' audit
activity and extent of non-audit services;

- reviewing with management and the independent accountants the adequacy
of our basic accounting systems;

- reviewing our financial statements with management and the independent
accountants and exercising general oversight of our financial reporting
process; and

- reviewing our litigation and other legal matters that may affect our
financial condition and monitoring compliance with our business ethics
and other policies.

COMPENSATION COMMITTEE

Our compensation committee's responsibilities will include:

- administering and granting awards under our stock option plan;

- reviewing the compensation of our chief executive officer and
recommendations of the chief executive officer as to appropriate
compensation for our other executive officers and key personnel;

- examining periodically our general compensation structure; and

- supervising our welfare and pension plans and compensation plans.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our board of directors or compensation
committee. Prior to October 2000, compensation matters were addressed by our
entire board of directors, on which Messrs. I. Jon Brumley, Jon S. Brumley and
Kyle Schultz serve. Each of those persons purchased shares of our common stock
in 1998. Each also is a party to an agreement pursuant to which we granted him
registration rights for those shares. For a description of these transactions,
please read "Certain Transactions".

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<PAGE> 50

COMPENSATION OF DIRECTORS

We paid no compensation to any non-employee director in 1999.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation of our chief executive officer and each of the next four most
highly compensated officers for 1999. The annual compensation amounts in the
table exclude perquisites and other personal benefits for individuals for whom
the aggregate amount of such compensation does not exceed the lesser of (i)
$50,000 or (ii) 10% of the total annual salary and bonus for such named
executive officer in that year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------------ OTHER ANNUAL TOTAL
SALARY BONUS COMPENSATION COMPENSATION
------ ----- ------------ ------------
<S> <C> <C> <C> <C>
I. Jon Brumley....................... $300,000 $78,000 $ -- $378,000
Chairman, President and Chief
Executive Officer
Jon S. Brumley....................... 190,000 51,300 -- 241,300
Executive Vice President
-- Business Development
Kyle Schultz......................... 190,000 55,100 -- 245,100
Executive Vice President
-- Exploitation
Gene Carlson......................... 190,000 47,500 -- 237,500
Executive Vice President
-- Operations
Bruce B. Selkirk(1).................. 190,000 45,600 -- 235,600
Executive Vice President and Chief
Financial Officer
</TABLE>

---------------

(1) Mr. Selkirk resigned from Encore in March 2000.

DESCRIPTION OF THE ENCORE INCENTIVE STOCK PLAN

Encore's Shareholders and Board of Directors will approve the adoption of
the Encore Acquisition Company 2000 Stock Plan (the "Plan").

The purpose of the Plan will be to promote the acquisition, by directors
and certain employees of Encore and its subsidiaries, of a proprietary interest
in Encore through ownership of our common stock. This ownership is intended to
encourage employees to remain with us and to attract other qualified persons to
become employees and directors. The Plan provides for the awarding of restricted
stock and the granting of options to purchase shares of common stock to
directors, officers and other eligible employees of the Company. All full time
regular employees will be eligible to participate in the Plan.

The Plan will be administered by the Compensation Committee of the Board of
Directors. The Committee will interpret and administer the Plan and will
determine the participants to be granted options or awarded restricted stock,
the options or awards granted to the participants, the exercise price (which may
not be less than the fair market value of the common stock) of options, vesting
provisions and other terms of each option and award.

47
<PAGE> 51

The Plan provides for the granting of options and awarding restricted stock
to directors and employees. No more than six percent (6%) of the outstanding
shares of common stock may be issued under the Plan, and no person may be issued
incentive stock options covering shares with a fair market value at the date of
grant, in excess of $100,000 exercisable in any calendar year. For purposes of
determining the number of shares available for issuance under the Plan, only net
shares issued are counted as issued. Net shares would exclude shares delivered
or withheld for payment of exercising an option or for payment of tax
withholding and would exclude shares remaining subject to options which expire
or are terminated and restricted shares that are forfeited. Options may be
either incentive stock options authorized under Section 422 of the Internal
Revenue Code or non-qualified options which do not qualify as incentive stock
options.

OPTIONS

The term of each option will be fixed by the Committee, but may not be
longer than ten years from the date of grant. The exercise price of each option
will be determined by the Committee, but may not be less than the fair market
value of the common stock on the date of grant in the case of incentive stock
options or 85% of fair market value in the case of non-qualified options. Each
option will be exercisable at the times and subject to any conditions
established by the Committee, and unless otherwise determined by the Committee
all options will vest upon a change in control of Encore, as defined in the
Plan. The exercise price will be paid in cash or, if permitted by the Committee,
in common stock previously owned by the option holder. The Committee may provide
the option holder with the right to satisfy any minimum withholding tax
obligation by delivery of previously owned shares or withholding shares
otherwise issuable upon exercise of the option. In the event of a stock dividend
or stock split, the number of shares subject to outstanding options will be
proportionately increased and the exercise price proportionately decreased,
unless the Committee determines otherwise. The number of shares available under
the Plan and maximum number of shares issuable to one person will also be
proportionately increased, unless the Committee determines otherwise. In the
event of a combination of shares, recapitalization, reclassification, merger or
other similar capital or corporate structure change, the Committee may adjust
the terms of outstanding options, the number of shares available under the Plan,
the maximum number of shares issuable to one person and other provisions of the
Plan.

Upon the death or disability of an option holder, all options held by that
person will become fully exercisable and terminate after one year. Upon the
resignation of a director or of an employee with the consent of Encore, the
person's options will terminate twelve months after the resignation. Upon
retirement, a holder's options will become fully exercisable and terminate three
years later or, if earlier, at the expiration date of the option. In the event
of any other termination of employment of an option holder, all options held by
that person will immediately terminate.

The Plan will terminate ten years after its adoption by Shareholders. The
Board of Directors may at any time suspend or terminate the Plan or amend the
Plan in any respect; except that without Shareholder approval no amendment may
increase the maximum number of shares subject to the Plan, increase the maximum
number of shares covered by options that may be granted to one person, change
the class of employees eligible to receive options or decrease the minimum
option exercise price at which options may be granted.

RESTRICTED STOCK

A restricted stock award is an award of common stock ("Restricted Stock")
that is subject to such restrictions on transferability and other restrictions,
if any, as the Committee may impose at the date of grant or thereafter, which
restrictions may lapse separately or in combinations at such time, under such
circumstances, including without limitation a specified period of employment or
the satisfaction of pre-established performance goals, in such installments, or
48
<PAGE> 52

otherwise, as the Compensation Committee may determine. The Compensation
Committee may grant Restricted Stock to such persons, in such amounts, and
subject to such terms and conditions as the Compensation Committee may determine
in its discretion. Shares of Restricted Stock granted to executive officers may
vest upon the attainment of performance goals pre-established by the
Compensation Committee.

CERTAIN TRANSACTIONS

Following is a discussion of transactions between us and our officers,
directors and stockholders owning more than 5% of the outstanding shares of
common stock.

REGISTRATION RIGHTS

Encore, Warburg Pincus Equity Partners, Chase Venture Capital Associates,
Natural Gas Partners V, First Union Capital Partners and our other stockholders,
together holding 100% of our common stock prior to this offering, are parties to
a registration rights agreement. This registration rights agreement is described
under "Description of Capital Stock -- Registration Rights".

INVESTMENTS IN ENCORE

Since our inception, our executive officers, directors and 5% stockholders
have invested cash and other property in Encore in exchange for shares of our
Class A and Class B common stock. The following table summarizes the shares of
our Class A and Class B common stock acquired from us by our executive officers,
directors and 5% stockholders since our inception. The shares were purchased
pursuant to subscription agreements and a stock purchase agreement that require
each stockholder to contribute additional capital for his or its shares upon
call by Encore. Those agreements and the commitments to contribute additional
capital are terminable by the holders of 70% of our Class B Stock and will be
terminated in the recapitalization effected prior to this offering.

<TABLE>
<CAPTION>
CLASS A CLASS B
EXECUTIVE OFFICERS, DIRECTORS AND COMMON COMMON
5% STOCKHOLDERS STOCK STOCK
--------------------------------- ------- -------
<S> <C> <C>
Warburg, Pincus Equity Partners L.P.(1)..................... -- 140,000
Chase Venture Capital Associates, L.P.(2)................... -- 100,000
Natural Gas Partners V, L.P.(3)............................. -- 30,000
First Union Capital Partners, Inc.(4)....................... -- 20,000
I. Jon Brumley(5)........................................... 39,944 3,536
Jon S. Brumley(6)........................................... 9,249 374
Kyle M. Schultz(7).......................................... 6,144 248
Gene R. Carlson(8).......................................... 3,050 123
Morris B. Smith(9).......................................... 1,238 50
</TABLE>

---------------

(1) Warburg, Pincus Equity Partners paid us $57.5 million of its $140 million
commitment for the shares listed above. One of our directors, Mr. Howard H.
Newman, is affiliated with Warburg Pincus Equity Partners. You can read more
about Mr. Newman's affiliation with Warburg, Pincus Equity Partners under
the heading "Security Ownership of Management and Certain Beneficial
Owners". Warburg Pincus Equity Partners' Class B shares will be converted
into shares of common stock in the recapitalization to be effected
before we complete our initial public offering.

(2) Chase Venture Capital Associates paid us $41.1 million of its $100 million
commitment for the shares listed above. One of our directors, Mr. Arnold L.
Chavkin, is affiliated with Chase Venture Capital Associates. You can read
more about Mr. Chavkin's affiliation with Chase

49
<PAGE> 53

Venture Capital Associates under the heading "Security Ownership of
Management and Certain Beneficial Owners". Chase Venture Capital Associates'
Class B shares will be converted into shares of common stock in the
recapitalization to be effected before we complete our initial public
offering.

(3) Natural Gas Partners V paid us $12.3 million of its $30 million commitment
for the shares listed above. One of our directors, Mr. Kenneth A. Hersh, is
affiliated with Natural Gas Partners V. You can read more about Mr. Hersh's
affiliation with Natural Gas Partners V under the heading "Security
Ownership of Management and Certain Beneficial Owners". Natural Gas
Partners' Class B shares will be converted into shares of common stock
in the recapitalization to be effected before we complete our initial public
offering.

(4) First Union Capital Partners paid us $8.2 million of its $20 million
commitment for the shares listed above. First Union Capital Partners' Class
B shares will be converted into shares of common stock in the
recapitalization to be effected before we complete our initial public
offering.

(5) Mr. I.J. Brumley paid us $2.1 million of his $5.2 million commitment for the
shares listed above, which will be converted into shares of common
stock in the recapitalization.

(6) Mr. J.S. Brumley paid us $307,000 of his $747,000 commitment for the shares
listed above, which will be converted into shares of common stock in
the recapitalization.

(7) Mr. Schultz paid us $204,000 of his $496,000 commitment for the shares
listed above, which will be converted into shares of common stock in
the recapitalization.

(8) Mr. Carlson paid us $101,000 of his $246,000 commitment for the shares
listed above, which will be converted into shares of common stock in
the recapitalization.

(9) Mr. Smith paid us $41,000 of his $100,000 commitment for the shares listed
above, which will be converted into shares of common stock in the
recapitalization.

INDEMNIFICATION AGREEMENTS

We have entered into indemnification agreements with our officers and
directors containing provisions requiring us, among other things to indemnify
our officers and directors against liabilities that may arise by reason of their
status or service as officers or directors, other than liabilities arising from
willful misconduct of a culpable nature, and to advance expenses they incur as a
result of any proceeding against them as to which they could be indemnified.

SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL HOLDERS

The following presents information regarding beneficial ownership of our
common stock as of August 31, 2000 as though the Recapitalization were completed
on that day by:

- each person who we know owns beneficially more than 5% of our common
stock;

- each of our directors;

- our chief executive officer and each of our four other most highly
compensated executive officers; and

- all our executive officers and directors as a group.

Immediately prior to the closing of this offering, our Class A and Class B
common stock will be converted into a single class of common stock. The number
of shares into which each class will be converted will be determined to give
effect to the Class B preferential return and the Class A subordinated interest
based on our valuation in the public offering. See "Recapitalization".

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<PAGE> 54

Unless otherwise indicated, each person listed has sole voting and
dispositive power over the shares indicated as owned by that person, and the
address of each stockholder is the same as our address. Furthermore, under the
regulations of the SEC, shares are deemed to be "beneficially owned" by a person
if he directly or indirectly has or shares the power to vote or dispose of these
shares, whether or not he has any pecuniary interest in these shares, or if he
has the right to acquire the power to vote or dispose of shares within 60 days,
including any right to acquire through the exercise of any option, warrant or
right. The table does not reflect beneficial ownership of shares issuable upon
exercise of stock options expected to be granted upon completion of this
offering.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------------------
PERCENT
-------------------
BEFORE AFTER
BENEFICIAL OWNER SHARES OFFERING OFFERING
---------------- ------ -------- --------
<S> <C> <C> <C>
Warburg, Pincus Equity Partners L.P.(1)...................
Chase Venture Capital Associates, L.P.(2).................
Natural Gas Partners V, L.P.(3)...........................
First Union Capital Partners, Inc.(4).....................
I. Jon Brumley(5).........................................
Jon S. Brumley............................................
Kyle Schultz..............................................
Gene Carlson..............................................
Morris B. Smith...........................................
Howard H. Newman(1).......................................
Arnold L. Chavkin(2)......................................
Kenneth A. Hersh(3).......................................
All executive officers and directors as a group...........
</TABLE>

---------------

* Represents beneficial ownership of less than 1%.

(1) This holder's address is 466 Lexington Avenue, New York, New York 10017. The
sole general partner of Warburg, Pincus Equity Partners is Warburg, Pincus &
Co. E. M. Warburg, Pincus & Co., LLC, a New York limited liability company,
manages Warburg, Pincus Equity Partners, Lionel I. Pincus is the managing
member of E. M. Warburg, Pincus & Co., LLC and the managing partner of
Warburg, Pincus & Co. and may be deemed to control both entities. Mr. Howard
H. Newman is a Managing Director and a member of E. M. Warburg, Pincus &
Co., LLC. and a general partner of Warburg, Pincus & Co. As such, Mr. Newman
may be deemed to have an indirect pecuniary interest in an indeterminate
portion of the shares beneficially owned by Warburg, Pincus Equity Partners.
Mr. Newman disclaims beneficial ownership of the shares owned by Warburg,
Pincus Equity Partners.

(2) This holder's address is 1221 Avenue of the Americas, New York, New York
10020-1080. Chase Capital Partners is the sole general partner of Chase
Venture Capital Associates, L.P. Mr. Arnold L. Chavkin is an executive
partner of Chase Capital Partners and as such may be deemed to have shared
voting and dispositive power with respect to the shares owned by Chase
Venture Capital Associates, L.P. Mr. Chavkin disclaims beneficial ownership
of shares owned by Chase Venture Capital Associates, L.P.

(3) This holder's address is 125 E. John Carpenter Freeway, Irving, Texas 75062.
As manager of Natural Gas Partners V, L.P., Mr. Kenneth A. Hersh may be
deemed to have shared voting and dispositive power with respect to the
shares owned by that entity. Mr. Hersh disclaims beneficial ownership of all
shares owned by Natural Gas Partners V, L.P.

(4) The address of this holder is 301 S. College Street, 5th Floor, Charlotte,
North Carolina 28288-0732.

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<PAGE> 55

(5) The shares are owned by a limited partnership, the sole general partner of
which is a corporation of which Mr. Brumley is the sole officer and director
and the principal shareholder. Accordingly, Mr. Brumley has sole voting and
dispositive power with respect to such shares.

DESCRIPTION OF CAPITAL STOCK

After the effect of this offering, the capitalization of Encore will be
substantially modified. We are currently authorized to issue 375,000 shares of
common stock, par value $0.01 per share consisting of 75,000 shares of Class A
common stock and 300,000 shares of Class B common stock and 1,000 shares of
preferred stock. As of June 30, 2000, 70,746 shares of Class A common stock and
294,780 shares of Class B common stock, par value $0.01, were outstanding. Class
A and Class B holders of common stock vote together as a single class on all
matters voted on by our shareholders, and each shareholder is entitled to one
vote (or a fraction thereof) for each share (or fraction thereof) of Class A or
Class B common stock owned by the shareholder. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of Class A and
Class B shares are entitled to receive ratable dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available for the payment of dividends once the Class B shareholders receive as
distributions an amount equal to each Class B shareholder's total investment in
Encore plus a return on investment of 7% per annum. In the event of any
voluntary or involuntary liquidation, after payment or provision for payment of
the debts and other liabilities of Encore, the holders of Class A and Class B
shares are entitled to share in the remaining net assets of Encore in the same
manner as dividends are distributed. All outstanding shares of common stock are
fully paid and nonassessable.

On the closing of this offering, our authorized capital stock will consist
of shares of common stock, $0.01 par value, and shares of preferred stock,
$0.01 par value.

COMMON STOCK

Immediately prior to this offering, there will be shares of common
stock outstanding and held of record by 29 stockholders. There will be
shares of common stock outstanding (assuming no exercise of the underwriters'
over-allotment option) after giving effect to the sale of the shares of common
stock to the public in this offering. The holders of common stock are entitled
to one vote per share on all matters to be voted on by the stockholders. Subject
to preferences that may be applicable to any outstanding preferred stock, the
holders of common stock are entitled to receive ratable dividends, if any, as
may be declared from time to time by the board of directors out of funds legally
available for the payment of dividends. In the event of the liquidation,
dissolution, or winding up of Encore, the holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to prior distribution rights of preferred stock, if any, then outstanding. The
common stock has no preemptive, conversion or other subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.

PREFERRED STOCK

On the closing of this offering, shares of preferred stock will be
authorized and no shares will be outstanding. The board of directors, without
further vote or action by the stockholders, has the authority to issue the
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series. The issuance

52
<PAGE> 56

of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Encore without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. We currently have no plans to issue any of the
preferred stock.

DELAWARE TAKEOVER STATUTE

We have opted out of Section 203 of the Delaware General Corporation Law
("DGCL"). DGCL Section 203 regulates corporate acquisitions and prevents certain
Delaware corporations, including those whose securities are listed on the New
York Stock Exchange from engaging, under certain circumstances, in a "business
combination" with any "interested stockholder" for three years following the
date that such stockholder became an interested stockholder. For purposes of
DGCL Section 203, a "business combination" includes, among other things, a
merger or consolidation involving Encore and the interested stockholder and the
sale of 10% or more of our assets. In general, DGCL Section 203 defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
of our outstanding voting stock and any entity or person affiliated with or
controlling or controlled by such entity or person.

REGISTRATION RIGHTS

After this offering, the holders of approximately shares of common
stock or rights to acquire such shares will be entitled to rights with respect
to the registration of such shares under the Securities Act. Under the terms of
the agreement between us and the holders of such registrable securities, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such common stock in the registration.
Additionally, such holders are also entitled to demand registration rights,
pursuant to which they may require us on up to three occasions to file a
registration statement under the Securities Act at our expense with respect to
their shares of common stock, and we are required to use all reasonable efforts
to effect such registration. All of these registration rights are subject to
certain conditions and limitations, including the right of the underwriters of
an offering to limit the number of shares included in such registration and our
right not to effect a requested registration within 180 days following an
offering of our securities, including the offering made by this prospectus.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is .

SHARES AVAILABLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. Sales of substantial amounts of our
common stock in the public market could cause the market price of our common
stock to fall and could affect our ability to raise capital on terms favorable
to us in the future.

Upon completion of this offering, we will have outstanding shares of
common stock, assuming the underwriters' over-allotment option is not exercised.
Of these shares, shares, or shares if the underwriters exercise their
over-allotment option in full, of the common stock sold in this offering will be
freely tradable without restriction under the Securities Act unless purchased by
our affiliates as that term is defined in Rule 144 under the Securities Act. The
remaining shares of common stock outstanding will be restricted securities under
Rule 144 and
53
<PAGE> 57

may in the future be sold without registration under the Securities Act to the
extent permitted by Rule 144 or any other applicable exemption under the
Securities Act, subject to the restrictions on transfer contained in the lock-up
agreements described below and in "Underwriting".

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:

- one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; or

- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.

Sales under Rule 144 also are subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an affiliate of
us at any time during the three months preceding a sale and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner except an affiliate, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

RULE 701

Rule 701 permits resales of shares in reliance on Rule 144 but without
compliance with specified restrictions of Rule 144. Any employee, officer or
director of or consultant to Encore who purchased his or her shares under a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell those shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling those shares.

STOCK OPTIONS

Following the consummation of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act covering shares of
common stock reserved for issuance under our incentive stock plan. Based on the
number of shares currently reserved for issuance under the plan that
registration statement would cover up to shares issuable as restricted
stock awards or on exercise of the options. No options have been issued as of
the date of this offering, but Encore expects to grant up to options
immediately following the offering at an exercise price equal to the public
offering price. The registration statement on Form S-8 will automatically become
effective upon filing. Accordingly, subject to the exercise of those options,
shares registered under that registration statement will be available for sale
in the open market immediately after the 90-day lock-up agreements expire.

LOCK-UP AGREEMENTS

All of our officers, directors and substantially all of our stockholders
have signed Lock-Up Agreements under which they agreed not to transfer or
dispose of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for
54
<PAGE> 58

shares of common stock, for a period of 180 days after the date of this
prospectus. Transfers or dispositions can be made sooner with the prior written
consent of Goldman, Sachs & Co.

LEGAL MATTERS

The validity of the shares of common stock offered hereby have been passed
upon for Encore by Kelly, Hart & Hallman, P.C., Fort Worth, Texas. Certain legal
matters related to the common stock offered hereby will be passed upon for the
Underwriters by Baker Botts L.L.P., Houston, Texas.

EXPERTS

The audited financial statements included in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

The estimated reserve evaluations and related calculations of Miller &
Lents, Ltd. our independent petroleum engineers, have been included in this
prospectus in reliance upon authority of those firms as experts in petroleum
engineering.

WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement we have filed with the
SEC relating to our common stock. As permitted by SEC rules, this prospectus
does not contain all of the information we have included in the registration
statement and the accompanying exhibits and schedules we filed with the SEC. You
may refer to the registration statement, exhibits and schedules for more
information about us and our common stock. You can read and copy the
registration statement, exhibits and schedules at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional
offices located at Seven World Trade Center, New York, New York 10048, and at
500 West Madison Street, Chicago, Illinois 60661. You can obtain information
about the operation of the SEC's Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of that site is
http://www.sec.gov.

Following this offering, we will be required to file current reports,
quarterly reports, annual reports, proxy statements and other information with
the SEC. You may read and copy those reports, proxy statements and other
information at the SEC's Public Reference Room and regional offices or through
its Internet site. We intend to furnish our stockholders with annual reports
that will include a description of our operations and audited consolidated
financial statements certified by an independent public accounting firm.

55
<PAGE> 59

GLOSSARY OF OIL AND NATURAL GAS TERMS

The following are abbreviations and definitions of certain terms commonly
used in the oil and natural gas industry and this prospectus:

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in
reference to oil or other liquid hydrocarbons.

Bbl/D. One stock tank barrel of oil or other liquid hydrocarbons per day.

Bcf. One billion cubic feet of natural gas at standard atmospheric
conditions.

BCFE. One billion cubic feet equivalent of natural gas, calculated by
converting oil to equivalent Mcf at a ratio of six Mcf to one Bbl of oil.

BOE. One barrel of oil equivalent, calculated by converting natural gas to
oil equivalent barrels at a ratio of six Mcf to one Bbl of oil.

BOE/D. One barrel of oil equivalent per day, calculated by converting
natural gas to oil equivalent barrels at a ratio of six Mcf to one Bbl of oil.

CO(2). Carbon dioxide.

Completion. The installation of permanent equipment for the production of
oil or natural gas.

Delay Rentals. Fees paid to the owner of the oil and natural gas lease
prior to the commencement of production.

Developed Acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.

Development Well. A well drilled within or in close proximity to an area of
known production targeting existing reservoirs.

Exploratory Well. A well drilled to find and produce oil or natural gas in
an unproved area or to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir.

Finding and Development Costs. Capital costs incurred in the acquisition,
development, exploitation and revisions of proved oil and natural gas reserves,
divided by proved reserve additions.

Gross Acres or Gross Wells. The total acres or wells, as the case may be,
in which we have a working interest.

Horizontal Drilling. A drilling operation in which a portion of the well is
drilled horizontally within a productive or potentially productive formation.
This operation usually yields a well which has the ability to produce higher
volumes than a vertical well drilled in the same formation.

Infill Drilling. A drilling operation in which one or more development
wells is drilled within the proven boundaries of a field between two or more
other wells.

Injector Well or Injector. A well which is used to place liquids or natural
gases into the producing zone during secondary/tertiary recovery operations to
assist in maintaining reservoir pressure and enhancing recoveries from the
field.

MBbl. One thousand barrels of oil or other liquid hydrocarbons.

MBOE. One thousand barrels of oil equivalent, calculated by converting gas
to oil equivalent barrels at a ratio of six Mcf to one Bbl of oil.

Mcf. One thousand cubic feet of natural gas.

MMBbl. One million barrels of oil or other liquid hydrocarbons.
56
<PAGE> 60

MMBtu. One million British thermal units. One British thermal unit is the
amount of heat required to raise the temperature of one pound of water one
degree Fahrenheit.

MMcf. One million cubic feet of natural gas.

MMcf/D. One million cubic feet of natural gas per day.

Net Acres or Net Wells. Gross acres or wells multiplied, as the case may
be, by the percentage working interest owned by us.

Net Production. Production that is owned by Encore less royalties and
production due others.

NYMEX. New York Mercantile Exchange.

Oil. Crude oil or condensate.

Operating Income. Gross oil and natural gas revenue less applicable
production taxes and lease operating expense.

Operator. The individual or company responsible for the exploration,
exploitation and production of an oil or natural gas well or lease.

Present Value of Future Net Revenues or Present Value or PV-10. The pretax
present value of estimated future revenues to be generated from the production
of proved reserves calculated in accordance with SEC guidelines, net of
estimated production and future development costs, using prices and costs as of
the date of estimation without future escalation, without giving effect to
hedging activities, non-property related expenses such as general and
administrative expenses, debt service and depreciation, depletion and
amortization, and discounted using an annual discount rate of 10%.

Proved Developed Reserves. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.

Proved Reserves. The estimated quantities of oil, natural gas and natural
gas liquids that geological and engineering data demonstrate with reasonable
certainty are recoverable in future years from known reservoirs under existing
economic and operating conditions.

Proved Undeveloped Reserves. Reserves that are expected to be recovered
from new wells on undrilled acreage or from existing wells where a relatively
major expenditure is required for recompletion.

Reserve-To-Production Index or R/P Index. An estimate expressed in years,
of the total estimated proved reserves attributable to a producing property
divided by production from the property for the 12 months preceding the date as
of which the proved reserves were estimated.

Royalty. An interest in an oil and natural gas lease that gives the owner
of the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.

Scf. A cubic foot of natural gas measured at standard conditions, which are
60 degreesF and 14.7 psi atmospheric pressure.

Tertiary Recovery. An enhanced recovery operation that normally occurs
after waterflooding in which chemicals or natural gasses are used as the
injectant.

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<PAGE> 61

Waterflood. A secondary recovery operation in which water is injected into
the producing formation in order to maintain reservoir pressure and force oil
toward and into the producing wells.

Working Interest. An interest in an oil and natural gas lease that gives
the owner of the interest the right to drill for and produce oil and natural gas
on the leased acreage and requires the owner to pay a share of the costs of
drilling and production operations.

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<PAGE> 62

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Encore Acquisition Company
Report of Independent Public Accountants.................. F-1
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-2
Consolidated Statements of Operations for the Year ended
December 31, 1999 and the period from inception (April
22, 1998) to December 31, 1998......................... F-3
Consolidated Statements of Stockholders' Equity for the
Year ended December 31, 1999 and the period from
inception (April 22, 1998) to December 31, 1998........ F-4
Consolidated Statements of Cash Flows for the Year ended
December 31, 1999 and the period from inception (April
22, 1998) to December 31, 1998......................... F-5
Notes to Consolidated Financial Statements................ F-6
Consolidated Balance Sheet as of June 30, 2000
(unaudited)............................................ F-19
Consolidated Statements of Operations for the six months
ended June 30, 2000 and 1999 (unaudited)............... F-20
Consolidated Statement of Cash Flows for the six months
ended June 30, 2000 and 1999 (unaudited)............... F-21
Notes to Interim Consolidated Financial Statements
(unaudited)............................................ F-22
Cedar Creek Acquisition
Report of Independent Public Accountants.................. F-26
Statements of Revenues and Direct Operating Expenses for
the periods ended May 31, 1999 and 1998 and the years
ended December 31, 1998, 1997 and 1996................. F-27
Notes to Statements of Revenues and Direct Operating
Expenses............................................... F-28
Crockett Acquisition
Report of Independent Public Accountants.................. F-31
Statements of Revenues and Direct Operating Expenses for
the quarters ended March 31, 2000 and 1999 and the
years ended December 31, 1999 and 1998................. F-32
Notes to Statements of Revenues and Direct Operating
Expenses............................................... F-33
Lodgepole Acquisition
Report of Independent Public Accountants.................. F-36
Statements of Revenues and Direct Operating Expenses for
the quarters ended March 31, 2000 and 1999 and the
years ended December 31, 1999 and 1998................. F-37
Notes to Statements of Revenues and Direct Operating
Expenses............................................... F-38
Indian Basin/Verden Acquisition
Report of Independent Public Accountants.................. F-41
Statements of Revenues and Direct Operating Expenses for
periods ended June 30, 2000 and 1999 and the years
ended December 31, 2000 and 1999....................... F-42
Notes to Statements of Revenues and Direct Operating
Expenses............................................... F-43
</TABLE>

59
<PAGE> 63

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Encore Acquisition Company:

We have audited the accompanying consolidated balance sheets of Encore
Acquisition Company (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for year ended December 31, 1999, and the
period from inception (April 22, 1998) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Encore Acquisition Company
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for year ended December 31, 1999, and for the
period from inception (April 22, 1998) to December 31, 1998, in conformity with
accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Dallas, Texas
March 10, 2000 (except with
respect to the matters
discussed in Note 13,
as to which the date
is October 6, 2000)

F-1
<PAGE> 64

ENCORE ACQUISITION COMPANY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS

Current Assets:
Cash and cash equivalents................................. $ 6,497 $ 3,467
Accounts receivable....................................... 9,895 1
Inventory and other....................................... 1,374 7
--------- ---------
Total Current Assets.............................. 17,766 3,475
--------- ---------
Properties and Equipment, at cost:
Oil and gas properties, successful efforts method......... 200,686 --
Accumulated depletion, depreciation and amortization...... (5,101) --
--------- ---------
195,585
--------- ---------
Other property and equipment.............................. 1,304 289
Accumulated depletion, depreciation and amortization...... (224) (18)
--------- ---------
1,080 271
--------- ---------
Other Assets:
Debt issuance costs, net.................................. 498 --
Bond collateral........................................... 463 --
Commodity contract premiums............................... 168 --
Other..................................................... 11 5
--------- ---------
Total Other Assets................................ 1,140 5
--------- ---------
Total Assets...................................... $ 215,571 $ 3,751
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable.......................................... $ 5,979 $ 48
Accrued liabilities....................................... 6,661 8
--------- ---------
Total Current Liabilities......................... 12,640 56
--------- ---------
Long-term debt.............................................. 99,250 --
Deferred income taxes....................................... 1,259 --
--------- ---------
Total Liabilities................................. 113,149 56
--------- ---------
Commitments and Contingencies............................... -- --
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000 shares authorized,
none issued and outstanding............................ -- --
Class A common stock, $.01 par value, 75,000 shares
authorized 72,522 and 70,019 issued and outstanding.... 1 1
Class B common stock, $.01 par value, 300,000 shares
authorized 294,852 and 294,751 issued and
outstanding............................................ 3 3
Additional paid-in capital................................ 297,142 297,158
Common stock subscription receivable...................... (196,719) (292,457)
Retained earnings......................................... 1,995 (1,010)
--------- ---------
Total Stockholders' Equity........................ 102,422 3,695
--------- ---------
Total Liabilities and Stockholders' Equity........ $ 215,571 $ 3,751
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 65

ENCORE ACQUISITION COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
(INCEPTION TO DATE)
YEAR ENDED APRIL 22, 1998 TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -------------------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues:
Oil................................................. $ 34,706 $ --
Gas................................................. 942 --
-------- --------
Total revenues........................................ 35,648 --
Expenses:
Production --
Lease operations.................................... 8,408 --
Production and severance tax........................ 5,427 --
Net proceeds........................................ 4,384 --
General and administrative.......................... 4,047 1,066
Depreciation, depletion and amortization............ 5,283 18
-------- --------
Total expenses........................................ 27,549 1,084
-------- --------
Operating income (loss)............................... 8,099 (1,084)
-------- --------
Other income (expenses):
Interest............................................ (4,037) --
Other............................................... 202 74
-------- --------
Total other income (expenses)......................... (3,835) 74
-------- --------
Income (loss) before income taxes..................... 4,264 (1,010)
Provision for income taxes............................ (1,259) --
-------- --------
Net income (loss)..................................... $ 3,005 $ (1,010)
======== ========
Income (loss) per common share:
Basic and diluted................................... $ 8.20 $ (5.18)
Weighted average common shares outstanding............ 366,631 195,036
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 66

ENCORE ACQUISITION COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1999

<TABLE>
<CAPTION>
RETAINED CLASS A CLASS B
EARNINGS COMMON COMMON PAID-IN SUBSCRIPTION STOCKHOLDERS'
(DEFICIT) STOCK STOCK CAPITAL RECEIVABLE EQUITY
--------- ------- ------- ------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY AT
APRIL 22, 1998........ $ -- $ -- $ -- $ -- $ -- $ --
Deficit accumulated
during development
stage................. (1,010) -- -- -- -- (1,010)
Issuance of 70,019
shares of A common
stock and 294,751 of B
common stock.......... -- 1 3 5,114 -- 5,118
Offering costs.......... -- -- -- (413) -- (413)
Common stock
Subscription
Receivable............ -- -- -- 292,457 (292,457) --
------- ---- ---- -------- --------- --------
BALANCE AT DECEMBER 31,
1998.................. (1,010) 1 3 297,158 (292,457) 3,695
------- ---- ---- -------- --------- --------
Net income.............. 3,005 -- -- -- -- 3,005
Offering costs.......... -- -- -- (16) -- (16)
Issuance of 2,503 shares
of A common stock and
101 of B common
stock................. -- -- -- -- 95,738 95,738
------- ---- ---- -------- --------- --------
BALANCE AT DECEMBER 31,
1999.................. $ 1,995 $ 1 $ 3 $297,142 $(196,719) $102,422
======= ==== ==== ======== ========= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 67

ENCORE ACQUISITION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(INCEPTION TO DATE)
YEAR ENDED APRIL 22, 1998 TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -------------------
(IN THOUSANDS)
<S> <C> <C>
Operating Activities
Net income (loss)..................................... $ 3,005 $(1,010)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization............ 5,283 18
Deferred taxes...................................... 1,259 --
Other non-cash charges.............................. 97 --
Changes in operating assets and liabilities:
Accounts receivable................................. (9,894) (1)
Other current assets................................ (1,367) (7)
Other assets........................................ (1,208) (5)
Accounts payable and accrued liabilities............ 12,584 56
--------- -------
Cash Provided (Used) by Operating
Activities.......................................... 9,759 (949)
Investing Activities
Purchases of other property and equipment........... (1,015) (289)
Acquisition and development of oil and gas
properties....................................... (200,686) --
--------- -------
Cash Used by Investing Activities..................... (201,701) (289)
Financing Activities
Proceeds from capital calls......................... 95,738 5,118
Offering costs paid................................. (16) (413)
Proceeds from long-term debt........................ 100,250 125
Payments on long-term debt.......................... (1,000) (125)
--------- -------
Cash Provided by Financing Activities................. 194,972 4,705
Increase in Cash and Cash Equivalents................. 3,030 3,467
Cash and Cash Equivalents, Beginning of Period........ 3,467 --
--------- -------
Cash and Cash Equivalents, End of Period.............. $ 6,497 $ 3,467
========= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 68

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA)

1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION

Encore Acquisition Company ("Encore"), a Delaware Corporation, is an
independent (non-integrated) oil and gas company in the United States. We were
organized in April 1998 and are engaged in the acquisition, development,
exploitation and production of crude oil and natural gas properties in the
continental United States. Our sole producing area at December 31, 1999 was the
Cedar Creek Anticline located in Southeastern Montana and Southwestern North
Dakota.

Effective June 1, 1999, we were no longer in the development stage.
Included in Stockholders' Equity is a $2.2 million loss accumulated during the
development stage.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

Our consolidated financial statements include the accounts of all
subsidiaries in which we hold a controlling interest. All material intercompany
balances and transactions are eliminated.

OIL AND GAS PROPERTIES

We utilize the successful efforts method of accounting for our oil and gas
properties. Under this method, all development costs and acquisition costs of
proved properties are capitalized and amortized on a unit-of-production basis
over the remaining life of proved developed reserves or proved reserves, as
applicable. Exploration expenses, including geological and geophysical expenses
and delay rentals, are charged to expense as incurred. Costs of drilling
exploratory wells are initially capitalized, but charged to expense if and when
the well is determined to be unsuccessful. Natural gas volumes are converted to
equivalent barrels at the rate of six Mcf to one barrel.

Encore has adopted Statement of Financial Accounting Standards, No. 121
("SFAS 121"), "Accounting for the Impairment of Long Lived Assets and for Long
Lived Assets to be Disposed Of". Under SFAS 121 we are required to assess the
need for an impairment of capitalized costs of oil and gas properties and other
assets. If impairment is indicated based on undiscounted expected future net
cash flows, then it is recognized to the extent that net capitalized costs
exceed discounted expected future net cash flows. During 1999 and 1998, we did
not provide for any such impairments.

INVENTORIES

Inventories are comprised principally of materials and supplies, and are
stated at the lower of cost (determined on an average basis) or market.

INCOME TAXES

Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and

F-6
<PAGE> 69
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

their respective tax bases. Valuation allowances are established when necessary
to reduce deferred tax assets to amounts expected to be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.

State franchise taxes are also calculated on a stand-alone basis.

REVENUE RECOGNITION

Revenues are generally recognized from jointly owned properties as oil and
natural gas is produced and sold net of royalties. Revenues from natural gas
production are generally recorded using the sales method, net of royalties.
Under this method, revenue is recognized based on the cash received rather than
the proportionate share of natural gas produced. Natural gas imbalances at
December 31, 1999 and 1998 were zero.

NET PROCEEDS

We have reflected the net profits interest on our Cedar Creek Anticline
properties as an expense on the accompanying statement of operations. The net
profits interest is calculated based on a stated percentage of revenue less
operating expenses, production taxes, interest expense, overhead and development
costs of the burdened properties.

HEDGING AND RELATED ACTIVITIES

We use various financial instruments for non-trading purposes in the normal
course of our business to manage and reduce price volatility and other market
risks associated with our crude oil production. This activity is referred to as
hedging. These arrangements are structured to reduce our exposure to commodity
price decreases, but they can also limit the benefit we might otherwise receive
from commodity price increases. Our risk management activity is generally
accomplished through over-the-counter forward contracts. These agreements are
accounted for as hedges using the deferral method of accounting. Gains and
losses resulting from these transactions are deferred and included in other
assets or accrued liabilities, as appropriate, until the physical production
required by the contracts is delivered. At the time of delivery, the resulting
gains and losses are recognized as an adjustment to oil and gas sales.

The cash flows related to any recognized gains or losses associated with
these hedges are reported as cash flows from operations. If the hedge is
terminated prior to maturity, gains or losses are deferred and included in
income in the same period as the physical production required by the contracts
is delivered.

We also use derivative instruments in the form of interest rate swaps.
These swaps primarily serve to hedge against interest rate exposure. These
agreements are accounted for as hedges using the accrual method of accounting.
The differences to be paid or received on swaps designated as hedges are
included in interest expense during the period to which the payment or receipt
relates. The related amounts payable to, or receivable from, the counterparties
are included in other assets or accrued liabilities. The cash flows related to
recognize gains or losses associated with these hedges are reported as cash
flows from operations.

The conditions to be met for a derivative instrument to qualify as a hedge
are the following: (1) the item to be hedged exposes us to price or interest
rate risk; (2) the derivative reduces our risk exposure and is designated as a
hedge at the time the derivative contract is entered into; and (3) at the
inception of the hedge and throughout the hedge period there is a high

F-7
<PAGE> 70
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

correlation of changes in the market value of the derivative instrument and the
fair value of the underlying item being hedged. (See Note 12.)

USE OF ESTIMATES

Preparing financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Estimates with regard to these financial statements include the estimate of
proved oil and gas reserve volumes and the estimated future developments,
dismantlement and abandonment costs used in determining amortization provisions.

COMPREHENSIVE INCOME

During 1998, Encore adopted Statement of Financial Accounting Standards No.
130 ("SFAS 130") "Reporting Comprehensive Income", which establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income includes net
income and other comprehensive income, which includes, but is not limited to,
unrealized gains for marketable securities and future contracts, foreign
currency translation adjustments and minimum pension liability adjustments. SFAS
130 did not have any effect on Encore's financial condition or operations.

OTHER

All liquid investments with an original maturity of three months or less
are considered to be cash equivalents.

3. OIL AND GAS PROPERTIES

Costs, both capitalized and expensed, incurred in oil and gas producing
activities were as follows for the year ended December 31, 1999 (in thousands).

<TABLE>
<S> <C>
Proved Property Acquisition Costs....................... $193,626
Development Costs....................................... 7,060
--------
Total......................................... $200,686
========
</TABLE>

ACQUISITION OF CEDAR CREEK ANTICLINE PROPERTIES

During June 1999, we purchased from Shell Western E&P Inc. their interests
in approximately 475 oil and gas properties (450 operated, 25 non-operated) in
the Cedar Creek Anticline located in Southeastern Montana and Southwestern North
Dakota for $173.3 million ($171.8 million of proved properties and $1.5 million
of inventory and other equipment).

The acquisition has been accounted for as a purchase. The operating results
of the Shell Western properties have been included in our consolidated financial
statements since the date of acquisition.

During July and October 1999, we purchased additional working interests
within the Cedar Creek Anticline properties from various working interest owners
for $21.8 million. These acquisitions were also accounted for as a purchase and
included in our consolidated financial

F-8
<PAGE> 71
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

statements since the date of acquisition. Pro forma information, as if the
acquisitions were consummated on January 1, 1999 is as follows:

Summary Pro Forma Data

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
-----------------
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $53,854 $39,156
Net income.................................................. 2,155 2,474
Earnings per share.......................................... $ 5.88 $ 12.68
</TABLE>

4. COMMITMENTS AND CONTINGENCIES

LEASES

We lease office space and equipment. The leases on most of the office space
and equipment contain renewal provisions. The following table summarizes our
estimated minimum future payments under operating leases that have remaining
noncancelable lease terms in excess of one year as of December 31, 1999 (in
thousands):

<TABLE>
<S> <C>
2000........................................................ $292
2001........................................................ 377
2002........................................................ 377
2003........................................................ 377
2004........................................................ 347
2005 and later years........................................ 542
</TABLE>

Our operating lease rental expense was approximately $262 in 1999 and $45
in 1998.

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts Payable and Accrued liabilities were as follows at December 31 (in
thousands):

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accounts payable trade...................................... $ 4,885 $48
Oil & gas revenue payable................................... 1,046 --
Property and production taxes............................... 3,342 --
Net proceeds payable........................................ 1,264 --
Hedge settlements payable................................... 1,094 --
Interest.................................................... 606 --
Other....................................................... 403 8
------- ---
Total............................................. $12,640 $56
======= ===
</TABLE>

F-9
<PAGE> 72
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INDEBTEDNESS

The following indebtedness was outstanding at December 31 (in thousands):

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Senior Credit Facility...................................... $99,250 $--
------- ---
Total............................................. $99,250 $--
======= ===
</TABLE>

In May 1999, Encore entered into a senior credit facility agreement with a
group of banks, due as of May 2004. Commitments under this facility totaled $300
million. The borrowing base, as established in the facility agreement, was $105
million at December 31, 1999. During 1999, the average interest rate under the
facility was 7.2 percent. Encore pays certain fees based on the unused portion
of the borrowing base. Covenants, in addition to other requirements, require
maintenance of a current working capital ratio of one to one as defined and
adjusted for unused portions of the credit facility.

Encore has two options with respect to interest rate elections on
borrowings under the credit facility. Encore may either elect an interest rate
equal to:

- the alternate base rate plus the applicable credit spread, which is
called the prime basis; or

- a Eurodollar rate, which is the London Interbank Offered Rate, plus the
applicable credit spread, which is called the LIBOR basis.

The applicable credit spread, as defined in the credit facility, ranges
from .75% to 1.50% based on borrowing base usage. The LIBOR basis option
provides for one-, two-, three-, six-and twelve-month interest periods.

On May 26, 1998 and August 11, 1998, Encore entered into two separate
unsecured credit agreements with a bank under which it could borrow up to a
total of $150 million and provided for interest to be paid at a rate of 7.25%.
During 1998, borrowings of $125 million were made under the credit agreements.
Upon Encore's initial capital call which was made on August 18, 1998, all
amounts outstanding under the credit agreements were paid and the credit
agreements were canceled.

Consolidated cash payments for interest were $3.4 million and $0.3 million,
respectively for 1999 and 1998.

F-10
<PAGE> 73
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Encore periodically enters into interest rate swap agreements with the
objective of managing interest rate risk. In 1999, we entered into interest rate
swaps with notional amount of $74.1 million as follows:

<TABLE>
<CAPTION>
LIBOR
NOTIONAL TRANSACTION FIXED PAYMENT
AMOUNT EFFECTIVE DATE TERMINATION DATE TYPE DATES DATES
-------- -------------- ---------------- ----------- ----- -------
<S> <C> <C> <C> <C> <C>
$10,250,000.......... October 29, 1999 October 30, 2000 Fixed Rate Swap 6.20% 3 month
LIBOR
$13,083,333.......... November 30, 1999 November 30, 2001 Fixed Rate Swap 6.26% 3 month
LIBOR
$44,250,000.......... September 1, 1999 September 1, 2002 Fixed Rate Swap 6.23% 3 month
LIBOR
$ 6,500,000.......... October 1, 1999 October 1, 2002 Fixed Rate Swap 6.16% 3 month
LIBOR
</TABLE>

As a result of our hedging transactions for interest we realized a pre-tax
loss of approximately $0.1 million in 1999.

7. TAXES

INCOME TAXES

The components of the income tax expense is comprised of the following (in
thousands):

<TABLE>
<CAPTION>
(INCEPTION TO DATE)
APRIL 22, 1998 TO
1999 DECEMBER 31, 1998
---- -------------------
<S> <C> <C>
Federal:
Current............................................ $ -- $--
Deferred........................................... 1,038 --
------ --
Total federal.............................. 1,038 --
------ --
State:
Current............................................ -- --
Deferred........................................... 221 --
------ --
Total state................................ 221 --
------ --
Income tax expense................................... $1,259 $--
====== ==
</TABLE>

Reconciliation of income tax expense with tax at the Federal statutory rate
is as follows (in thousands):

<TABLE>
<CAPTION>
(INCEPTION TO DATE)
APRIL 22, 1998 TO
1999 DECEMBER 31, 1998
---- -------------------
<S> <C> <C>
Income (loss) before income taxes.................... $4,264 $(1,010)
====== =======
Tax at statutory rate................................ 1,450 (344)
State income taxes, net of federal benefit........... 190 --
Valuation allowance.................................. (342) 342
Other................................................ (39) 2
------ -------
Income tax expense................................... $1,259 $ --
====== =======
</TABLE>

F-11
<PAGE> 74
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The major components of the net deferred tax liability are comprised of the
following at December 31 (in thousands):

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Depreciation, depletion and amortization.................... $ -- $ 6
Book basis of oil and gas properties in excess of tax
basis..................................................... 1,655 --
------ -----
Total deferred tax liabilities.................... 1,655 6
------ -----
Net operating loss carry forward............................ 342 326
Depreciation, depletion and amortization.................... 29 --
Valuation allowance for deferred tax assets................. -- (342)
Capitalized start-up costs.................................. 25 22
------ -----
Total deferred tax assets......................... 396 6
------ -----
Net deferred income tax liability........................... $1,259 $ --
====== =====
</TABLE>

At December 31, 1999, Encore had a net operating loss carry forward of
$888,000 which can be carried forward to reduce future Federal income taxes
payable, scheduled to expire in 2018. No cash income tax payments were made in
1999 or 1998.

TAXES OTHER THAN INCOME TAXES

Taxes other than income taxes were comprised of the following (in
thousands):

<TABLE>
<CAPTION>
(INCEPTION TO DATE)
APRIL 22, 1998 TO
1999 DECEMBER 31, 1998
---- -------------------
<S> <C> <C>
Production/Severance................................. $5,427 $--
Property............................................. 288 --
Payroll and other.................................... 143 51
------ ---
Total...................................... $5,858 $51
====== ===
</TABLE>

8. STOCKHOLDERS' EQUITY

PRIVATE PLACEMENT OF COMMON STOCK

On August 18, 1998, Encore entered into a Stock Purchase and a
Stockholders' Agreement (collectively the "Agreements"), with members of
Encore's management ("Management") and non-management investors (the
"Investors"). Under the terms of the Agreements, 294,901 shares of Class B
Common Stock, par value $0.01 per share ( the "Class B") and 73,725 shares of
Class A Common Stock, par value $0.01 per share ("Class A") were authorized to
be issued for a total amount of committed consideration to be invested in Encore
of $298 million by Management and the Investors.

Significant provisions of the Agreements include, among other terms, that
the Class B shares are to be entitled to a preference distribution equal to 7%
of its original cost calculated per annum compounded annually, and, after
receipt of the original cost plus the preference distribution, the Class B
Shares will be entitled to 80% of the total common equity value of the Company
with Class A Common Stock being entitled to 20% of the total common equity value
of Encore. Additionally, Encore is subject to a five-year period from the
closing date of the Agreements to make capital calls for the amount of committed
consideration.

F-12
<PAGE> 75
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1999 and 1998, 294,852 and 294,751 shares of Class B and
72,522 and 70,019 shares of Class A are issued and outstanding. The remaining
shares of Class B and shares of Class A are reserved for issuance to future
Management members. The total Management capital commitment for Class A and
Class B shares was approximately $8 million. Total Class A and Class B shares
issued, or reserved for future issuance, to management was 73,725 shares and
4,901 shares, respectively. Encore has reserved for issuance to employee stock
options representing 1% of Encore's shares on a fully diluted basis. There were
no options issued or outstanding at December 31, 1999 or 1998.

Funding procedures to Encore will be initiated pursuant to terms of
Subscription Agreements entered into by Management and Investors whereby total
capital contributions for specified amounts were subscribed to the Company.
Capital calls will be initiated by Encore on an as needed basis for acquisitions
and other general corporate purposes.

During 1999, capital calls totaling $95.7 million were initiated in order
to fund the acquisitions of oil and gas properties.

During 1998, one capital call in the amount of $5 million was initiated in
order to fund Encore's administrative and overhead costs. At December 31, 1998,
certain Management members had pre-funded capital call requirements in the
amount of $123,000. These funds were used to fund the start-up cost and expenses
until closing of the Agreements.

PREFERRED STOCK

Encore has authorized a class of undesignated preferred stock consisting of
1,000 shares, none of which are issued and outstanding. The Board of Directors
has not determined the rights and privileges of holders of such preferred stock
and Encore has no current plans to issue any shares of preferred stock.

9. EARNINGS (LOSS) PER SHARE (EPS)

Encore has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128") "Earnings Per Share". Under SFAS 128, Encore must report basic
earnings per share, which excludes the effect of potentially dilutive
securities, and diluted earnings per share, which excludes the effect of all
potentially dilutive securities.

Earnings (loss) per common share for the periods presented is based on
weighted average common shares outstanding for the period.

The following table reflects earnings (loss) per share data for the periods
ended December 31:

<TABLE>
<CAPTION>
1999 EARNINGS SHARES PER SHARE
---- -------- ------ ---------
<S> <C> <C> <C>
Basic
Net Income......................................... $3,005
------
Income Available To Common Stock-Basic............. $3,005 366,631 $8.20
======
Diluted
Effect Of Dilutive Securities:
Stock Options...................................... -- --
------ -------
Income Available To Common Stock-Diluted........... $3,005 366,631 $8.20
====== ======= =====
</TABLE>

F-13
<PAGE> 76
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
(INCEPTION TO DATE )
APRIL 22, 1998 TO DECEMBER 31, 1998 EARNINGS SHARES PER SHARE
----------------------------------- -------- ------ ---------
<S> <C> <C> <C>
Basic
Net Loss.......................................... $(1,010)
-------
Loss Available to common stock-diluted............ $(1,010) $195,036 $(5.18)
=======
Diluted
Effect of dilutive securities:
Stock options..................................... -- --
------- --------
Loss available to common stock-diluted............ $(1,010) $195,036 $(5.18)
======= ======== ======
</TABLE>

10. EMPLOYEE BENEFIT PLAN

We make contributions to the Encore Acquisition Company 401(k) Plan, which
is a voluntary and contributory plan for eligible employees. Our contributions,
which are based on a percentage of matching employee contributions, totaled
$126,000 in 1999 and $2,000 in 1998.

11. FINANCIAL INSTRUMENTS

The following table sets forth the book value and estimated fair value of
financial instruments (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
-------------------- ----------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $ 6,497 $ 6,497 $3,467 $3,467
Senior debt.............................. (99,250) (99,250) -- --
Long-term commodity contract............. -- (5,494) -- --
Interest rate swaps...................... -- 746 -- --
</TABLE>

The book value of cash and equivalents approximates fair value because of
the short maturity of those instruments. The fair value of senior debt is
presented at face value given its floating rate structure.

We use various financial instruments for non-trading purposes, in the
normal course of our business to manage and reduce price volatility and other
market risks associated with our natural gas and petroleum liquids production.
This activity is referred to as hedging. These arrangements are structured to
reduce our exposure to commodity price decreases, but they can also limit the
benefit we might otherwise receive from commodity price increases. Our risk
management activity is generally accomplished through over-the-counter forward
contract. The counterparties to these transactions are principally major
financial institutions and major oil and gas and other industrial companies. We
monitor the creditworthiness of the counterparties and do not anticipate
material nonperformance by the counterparties.

As a result of all of our hedging transactions for crude oil we realized a
pre-tax loss of approximately $4.4 million in 1999.

F-14
<PAGE> 77
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes our open hedging positions as of December
31, 1999:

<TABLE>
<CAPTION>
FINANCIAL TIME
PRODUCT INSTRUMENT PERIOD VOLUME PRICES
------- ---------- ------ ------ ------
<C> <S> <C> <C> <C>
Jan -- Jun
Oil Collar 2000 500 Bbl/d $17.00/Bbl-$26.52/Bbl
Jan -- Dec
Oil Collar 2000 1000 Bbl/d $16.00/Bbl-$19.15/Bbl
Jan -- Dec
Oil Swap 2000 1000 Bbl/d $16.97/Bbl
Jan -- Dec
Oil Swap 2000 500 Bbl/d $18.20/Bbl
Jan -- Dec
Oil Swap 2001 1000 Bbl/d $16.97/Bbl
Jan -- Dec
Oil Swap 2002 1000 Bbl/d $16.97/Bbl
Jan -- Jun
Oil 3-way Collar 2000 500 Bbl/d $16.00/Bbl/$18.50/Bbl/$20.75/Bbl
Jan -- Dec
Oil 3-way Collar 2000 500 Bbl/d $17.00/Bbl/$20.00/Bbl/$23.35/Bbl
Jan -- Dec
Oil 3-way Collar 2000 500 Bbl/d $17.00/Bbl/$20.00/Bbl/$22.26/Bbl
Jan -- Dec
Oil 3-way Collar 2000 500 Bbl/d $19.00/Bbl/$22.00/Bbl/$24.92/Bbl
Jan -- Dec
Oil 3-way Collar 2001 500 Bbl/d $16.00/Bbl/$19.00/Bbl/$21.65/Bbl
</TABLE>

A "collar" is a financial instrument or a combination of financial
instruments which establishes a range of prices to be received relating to a set
commodity volume. This arrangement, in effect, allows us to receive no less than
a stated minimum or floor price per unit of volume and no more than a stated
maximum or ceiling price per unit of volume.

A "swap" is a financial instrument which allows for the exchange of
variable and fixed-rate payment streams based on a specified contract principal
or notional amount of volume.

A "put" is an option contract that gives the holder the right to sell the
underlying commodity at a specified price for a certain fixed period of time.

A "call" is an option contract that gives the holder the right to buy the
underlying commodity at a specified price for a certain fixed period of time.

A "3-way collar" is defined by Encore entering into a cost collar where
Encore pays for the excess premium by selling a put below the floor Encore has
purchased. The effect of the sold put, when combined with a collar, is that if
the price of oil falls below the sold put price, then Encore will receive the
market price plus the spread between the sold put and the floor of the collar.

The fair values (our unrealized pre-tax gain or loss) for 2000 and
thereafter hedged transactions in place as of December 31, 1999 would be a $5.5
million loss for crude oil. This hypothetical loss is calculated based on
brokers' forward price quotes and NYMEX forward price quotes as of December 31,
1999, which for 2000 averaged $22.73 per Bbl for crude oil. The actual gains or
losses we realize from our hedge transactions may vary significantly due to the
fluctuation of prices in the commodity markets. In order to calculate the
hypothetical gain/loss, the relevant variables are (1) the type of commodity,
(2) the delivery price and (3) the delivery location. We do not take into
account the time value of money because of the short-term nature of our hedging
instruments. These calculations may be used to analyze the gains and losses we
might realize on our financial hedging contracts and do not reflect the effects
of price changes on our actual physical commodity sales. Crude oil prices
fluctuated between $11.38 per Bbl and $27.98 per Bbl (NYMEX WTI-for delivery at
Cushing, Oklahoma) during 1999.

12. NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and

F-15
<PAGE> 78
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Hedging Activities". This standard requires us to recognize all of our
derivative and hedging instruments in our statements of financial position as
either assets or liabilities and measured at fair value. In addition, all
hedging relationships must be designated, documented and reassessed
periodically. On July 7, 1999, the Financial Accounting Standards Board delayed
the effective date of SFAS 133 for one year. The delay, published as SFAS No.
137, applies to quarterly and annual financial statements. SFAS No. 133, as
revised by SFAS No. 137, is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. We have not yet quantified the impacts of
adopting SFAS No. 133 on our financial statements. However, SFAS No. 133 could
increase volatility in earnings and comprehensive income.

13. SUBSEQUENT EVENTS

On February 23, 2000, Encore executed a purchase and sale agreement to
acquire working interests in 278 wells located in Crockett County Texas
(approximately 130 wells operated, 148 non-operated) for $43 million. The
transaction closed March 30, 2000.

On March 6, 2000, Encore executed a purchase and sale agreement to acquire
working interests in 30 wells, (28 non-operated, 2 operated) located in Stark
County, North Dakota for $35.2 million. The transaction closed March 31, 2000.

On October 6, 2000, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission for an initial public offering
("IPO") of the Company's common stock. Prior to the IPO, the Company intends to
complete a recapitalization of its current Class A and Class B shares into a
single class of stock. Such recapitalization has not been reflected in the
accompanying financial statements.

SUPPLEMENTAL INFORMATION

OIL & GAS PRODUCING ACTIVITIES

The estimates of the Company's proved oil and gas reserves, which are
located entirely within the United States, were prepared in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board. Proved oil and gas reserve quantities are
based on estimates prepared by Miller and Lents, Ltd., who are independent
petroleum engineers. There are numerous uncertainties inherent in estimating
quantities of proved reserves and projecting future rates of production and
timing of development expenditures. The following reserve data represents
estimates only and should not be construed as being exact.

Future prices received for production and future production costs may vary,
perhaps significantly from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections. In accordance with the
Securities and Exchange Commission's guidelines, the Company's estimates of
future net cash flows from the Company's proved properties and the
representative value thereof are made using oil and natural gas prices in effect
as of the dates of such estimates and are held constant throughout the life of
the properties. Average prices used in estimating net cash flows at December 31,
1999 were $23.50 per barrel for oil and $2.00 per Mcf for natural gas.

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. Oil and gas reserve

F-16
<PAGE> 79
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

engineering is and must be recognized as a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in any exact
way, and estimates of other engineers might differ materially from those shown
below. The accuracy of any reserve estimate is a function of the quality of
available data and engineering and estimates may justify revisions. Accordingly,
reserve estimates are often materially different from the quantities of oil and
gas that are ultimately recovered. Reserve estimates are integral in
management's analysis of impairments of oil and gas properties and the
calculation of depreciation, depletion and amortization on its properties.

Estimated net quantities of proved oil and gas reserves of Encore were as
follows (in thousands):

<TABLE>
<CAPTION>
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
December 31, 1999
Proved Reserves................................ 79,217 12,502 81,301
Proved Developed Reserves...................... 67,019 10,082 68,699
</TABLE>

The change in proved reserves were as follows for the year ended (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
Reserves at beginning of year.................... -- -- --
Acquisitions of minerals-in-place................ 79,571 12,637 81,678
Extensions and discoveries....................... 1,641 320 1,694
Revisions of estimates........................... -- -- --
Production....................................... (1,995) (455) (2,071)
------ ------ ------
Reserves at end of year.......................... 79,217 12,502 81,301
====== ====== ======
</TABLE>

The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves is as follows at (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Future cash inflows......................................... $ 1,886,612
Future production costs..................................... (991,458)
Future development costs.................................... (31,561)
-----------
Future income tax expense................................... (258,113)
-----------
Future net cash flows....................................... 605,480
10% annual discount......................................... (332,525)
Standardized measure of discounted estimated future net cash
flows..................................................... $ 272,955
===========
</TABLE>

F-17
<PAGE> 80
ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Primary changes in the standardized measure of discounted estimated future
net cash flows are as follows for the year ended (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Standardized measure, beginning of year..................... $ --
Extensions and discoveries................................ 9,304
Acquisitions of minerals-in-place......................... 349,596
Sales, net of production costs............................ (17,429)
Change in timing and other................................ (18,219)
Net change in income taxes................................ (50,297)
---------
Standardized measure, end of year........................... $ 272,955
=========
</TABLE>

F-18
<PAGE> 81

ENCORE ACQUISITION COMPANY

CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000

<TABLE>
<CAPTION>
JUNE 30,
2000
--------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 5,031
Accounts receivable....................................... 16,146
Inventory and other....................................... 2,133
---------
Total Current Assets........................................ 23,310
---------
Properties and Equipment, at cost:
Oil and gas properties, successful efforts method......... 287,359
Accumulated depletion, depreciation and amortization...... (13,391)
---------
273,968
---------
Other property and equipment.............................. 1,583
Accumulated depletion, depreciation and amortization...... (393)
---------
1,190
---------
Other Assets:
Debt issuance costs, net.................................. 581
Bond collateral........................................... 477
Commodity contract premiums............................... 3,222
Other..................................................... 11
---------
Total Other Assets................................. 4,291
---------
Total Assets....................................... $ 302,759
=========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable.......................................... $ 4,904
Income tax payable........................................ 3,707
Accrued liabilities....................................... 11,989
Current portion of note payable........................... 20,171
---------
Total Current Liabilities.......................... 40,771
---------
Long-Term Debt:
Bank debt................................................. 117,500
Note payable.............................................. 8,540
---------
Total Long-Term Debt............................... 126,040
---------
Deferred income taxes....................................... 3,377
---------
Total Liabilities.................................. 170,188
=========
Commitments and Contingencies............................... --

Stockholders' Equity
Preferred stock, $.01 par value, 1,000 shares authorized,
none issued and outstanding............................. --
Class A common stock, $.01 par value, 75,000 shares
authorized 73,265 and 72,522 issued, of which 2,519 are
being held as treasury stock............................ 1
Class B common stock, $.01 par value, 300,000 shares
authorized 294,882 and 294,852 issued, of which 102 are
being held as treasury stock............................ 3
Additional paid-in capital................................ 297,142
Common stock subscription receivable...................... (175,201)
Notes receivable -- officers and employees................ (23)
Retained earnings......................................... 10,733
Class A common stock held in treasury, at cost, 2,519
shares.................................................. (42)
Class B common stock held in treasury, at cost, 102
shares.................................................. (42)
---------
Total Stockholders' Equity......................... 132,571
---------
Total Liabilities and Stockholders' Equity......... $ 302,759
=========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 82

ENCORE ACQUISITION COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS
ENDED JUNE 30, 2000 AND 1999

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-------------------
2000 1999
---- ----
(UNAUDITED)
(IN THOUSANDS
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues:
Oil....................................................... $ 46,153 $ 3,932
Gas....................................................... 4,329 90
-------- --------
Total revenues.............................................. 50,482 4,022
Expenses:
Production --
Lease operations....................................... 7,930 980
Production, ad valorem and severance tax............... 6,609 554
Net proceeds.............................................. 6,662 546
General and administrative................................ 2,113 1,407
Depreciation, depletion and amortization.................. 8,437 726
-------- --------
Total expenses.............................................. 31,751 4,213
-------- --------
Operating income (loss)..................................... 18,731 (191)
-------- --------
Other income (expenses):
Interest.................................................. (4,484) (495)
Other..................................................... 317 73
-------- --------
Total other income (expenses)............................... (4,167) (422)
-------- --------
Income (loss) before income taxes........................... 14,564 (613)
Provision for income taxes.................................. (5,825) (215)
-------- --------
Net income (loss)........................................... $ 8,739 $ (828)
======== ========
Income (loss) per common share:
Basic and diluted........................................... $ 23.81 $ (2.26)
Weighted average common shares outstanding.................. 367,102 365,877
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 83

ENCORE ACQUISITION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS
ENDED JUNE 30, 2000 AND 1999

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------
2000 1999
---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Operating activities
Net income (loss)........................................... $ 8,739 $ (828)
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation, depletion and amortization.................. 8,437 726
Income taxes payable...................................... 3,707 --
Deferred taxes............................................ 2,118 215
Other non-cash charges.................................... 104 14
Changes in operating assets and liabilities:
Accounts receivable....................................... (6,251) (5,654)
Other current assets...................................... (759) (252)
Other assets.............................................. (3,234) (1,527)
Accounts payable and accrued liabilities.................. 4,253 4,101
-------- ---------
Cash provided (used) by operating activities................ 17,114 (3,205)
Investing activities
Purchases of other property and equipment................. (279) (748)
Acquisition and development of oil and gas properties..... (51,473) (187,623)
-------- ---------
Cash used by investing activities........................... (51,752) (188,371)
Financing activities
Proceeds from capital calls............................... 21,495 95,738
Repurchase of common stock................................ (84) (16)
Proceeds from long-term debt.............................. 47,000 95,000
Payments on long-term debt................................ (35,239) --
-------- ---------
Cash provided by financing activities....................... 33,172 190,722
Decrease in cash and cash equivalents....................... (1,466) (854)
Cash and cash equivalents, beginning of period.............. 6,497 3,467
-------- ---------
Cash and cash equivalents, end of period.................... $ 5,031 $ 2,613
======== =========
Supplemental disclosure of non-cash investing and financing
activities:
Note payable issued for purchase of oil and gas
properties................................................ $ 35,200 $ --
Notes receivable from officers and employees in connection
with capital calls........................................ $ 23 $ --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 84

ENCORE ACQUISITION COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

1. FORMATION OF THE COMPANY AND BASIS OF PRESENTATION

Encore Acquisition Company "Encore", a Delaware corporation is an
independent (non-integrated) oil and gas company in the United States. We were
organized in April 1998 and are engaged in the acquisition, development,
exploitation and production of crude oil and natural gas properties in the
continental United States. Our producing areas are in the Cedar Creek Anticline
located in Southeastern Montana and Southwestern North Dakota and in Crockett
County, Texas.

2. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring items) necessary to present fairly the financial position of the
Company as of June 30, 2000 and the results of operations and cash flows for the
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission's rules and regulations. The results of operations for
the periods presented are not necessarily indicative of the results to be
expected for the full year. Management believes the disclosures made are
adequate to ensure that the information is not misleading, and suggests that
these financial statements be read in conjunction with the Company's December
31, 1999 audited financial statements.

3. ACQUISITIONS

On March 30, 2000 and March 31, 2000, respectively, we completed
acquisitions of producing properties from Cross Timbers Oil Company ("Cross
Timbers") and Burlington Resources Oil & Gas Company ("Burlington"). The Cross
Timbers acquisition included 282 wells in Crockett County, Texas, 128 of which
we now operate. The Burlington acquisition included six properties in North
Dakota, of which two we now operate. The Cross Timbers properties were purchased
for $43.0 million. The Burlington properties were purchased for $35.2 million,
and the purchase price was financed by a note payable to Burlington for $35.2
million. Capital calls totalling $21.5 million were initiated in March 2000 in
order to fund the Cross Timbers properties.

These acquisitions have been accounted for as purchases. The operating
results of the acquired properties have been included in our consolidated
financial statements since the date of acquisition.

We previously acquired properties in the Cedar Creek Anticline in June,
July and October 1999. The 1999 acquisitions were also accounted for as
purchases, with the operating results of the acquired properties included in our
consolidated financial statements since the date of acquisition. Pro forma
information, as if the 1999 and 2000 acquisitions were consummated on January 1,
1999, is as follows:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
-----------------
2000 1999
---- ----
<S> <C> <C>
Revenues.................................................... $59,616 $33,497
Net income.................................................. 12,173 (676)
Earnings per share.......................................... 33.16 (1.84)
</TABLE>

F-22
<PAGE> 85
ENCORE ACQUISITION COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As previously discussed, the Company financed the Burlington acquisition
with a $35.2 million note payable to Burlington. The note payable bears interest
at 4% compounded monthly and is payable in monthly installments, with the last
payment due on January 2, 2002. Burlington may demand payment at any time with
45 days notice of all remaining principal and interest outstanding less a demand
premium, as defined in the agreement.

4. SUBSEQUENT EVENTS

INDIAN BASIN/VERDEN ACQUISITION

The Company executed a purchase and sale agreement to acquire working
interests in 160 wells located in Oklahoma and New Mexico (approximately 7 wells
operated, 153 non-operated) for $25.4 million. The transaction closed on August
24, 2000 with an effective date of April 1,2000.

SUPPLEMENTAL INFORMATION

OIL & GAS PRODUCING ACTIVITIES

The estimates of the Company's proved oil and gas reserves, which are
located entirely within the United States, were prepared in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board. Proved oil and gas reserve quantities are
based on estimates prepared by Miller and Lents, LTD., who are independent
petroleum engineers. There are numerous uncertainties inherent in estimating
quantities of proved reserves and projecting future rates of production and
timing of development expenditures. The following reserve data represents
estimates only and should not be construed as being exact.

Future prices received for production and future production costs may vary,
perhaps significantly from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections. In accordance with the
Securities and Exchange Commission's guidelines, the Company's estimates of
future net cash flows from the Company's proved properties and the
representative value thereof are made using oil and natural gas prices in effect
as of the dates of such estimates and are held constant throughout the life of
the properties. Average prices used in estimating net cash flows at June 30,
2000 were as follows: $30.43, per barrel for oil, and $4.49 for natural gas.

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. Oil and natural gas reserve engineering is and must be
recognized as a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in any exact way, and estimates of other
engineers might differ materially from those shown below. The accuracy of any
reserve estimate is a function of the quality of available data and engineering
and estimates may justify revisions. Accordingly, reserve estimates are often
materially different from the quantities of oil and gas that are ultimately
recovered. Reserve estimates are integral in management's analysis of
impairments of oil and gas properties and the calculation of depreciation,
depletion and amortization on its properties.

F-23
<PAGE> 86
ENCORE ACQUISITION COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Estimated net quantities of proved oil and gas reserves of Encore were as
follows (in thousands):

<TABLE>
<CAPTION>
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
June 30, 2000
Proved Reserves................................... 84,715 51,625 93,320
Proved Developed Reserves......................... 72,505 42,859 79,648
</TABLE>

The changes in proved reserves were as follows for the period ended (in
thousands):

<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------------
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
Reserves at beginning of year............................... 79,217 12,502 81,301
Acquisitions of minerals-in-place........................... 2,698 39,821 9,335
Extensions and discoveries.................................. 1,153 246 1,194
Revisions of estimates...................................... 3,680 370 3,742
Production.................................................. (2,033) (1,314) (2,252)
------ ------ ------
Reserves at end of period................................... 84,715 51,625 93,320
====== ====== ======
</TABLE>

The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves is as follows at (in
thousands):

<TABLE>
<CAPTION>
JUNE 30, 2000
-------------
<S> <C>
Future cash inflows......................................... $ 2,651,262
Future production costs..................................... (1,336,026)
Future development costs.................................... (36,007)
Future income tax expense................................... (396,241)
-----------
Future net cash flows....................................... 882,988
10% annual discount......................................... (424,780)
-----------
Standardized measure of discounted estimated future net cash
flows..................................................... $ 458,208
===========
</TABLE>

F-24
<PAGE> 87
ENCORE ACQUISITION COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Primary changes in the standardized measure of discounted estimated future
net cash flows are as follows for the period ended (in thousands):

<TABLE>
<CAPTION>
JUNE 30, 2000
-------------
<S> <C>
Standardized measure, beginning of period................... $272,955
Net change in sales prices, net of production costs....... 64,700
Development costs incurred during the year................ 6,400
Revisions of quantity estimates........................... 18,408
Extensions and discoveries................................ 11,981
Accretion of discount..................................... 32,326
Change in future development costs........................ (9,355)
Acquisitions of minerals-in-place......................... 138,621
Sales of reserves in place................................ --
Sales, net of production costs............................ (29,281)
Change in timing and other................................ 31,929
Net change in income taxes................................ (80,476)
--------
Standardized measure, end of period......................... $458,208
========
</TABLE>

F-25
<PAGE> 88

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Encore Acquisition Company:

We have audited the accompanying statements of revenues and direct
operating expense of Shell's interest in certain Montana properties (the
"Properties") acquired by Encore Acquisition Company (the "Company") for each of
the three years in the period ended December 31, 1998. These statements of
revenues and direct operating expenses are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements of
revenues and direct operating expenses based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of revenues and direct
operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of revenues and direct operating expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements of
revenues and direct operating expenses. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of Shell's interest in the Properties acquired by the
Company for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
October 8, 1999

F-26
<PAGE> 89

CEDAR CREEK ANTICLINE ACQUISITION

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PERIODS ENDED MAY 31, 1999 AND 1998 AND THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
ENDED ENDED
MAY 31, 1999 MAY 31, 1998 1998 1997 1996
------------ ------------ ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Oil & gas revenues.................. $15,968 $21,509 $39,156 $61,568 $70,886
Direct operating expenses
Production and other.............. 5,578 6,843 14,999 19,418 17,904
Production taxes.................. 2,927 2,913 5,440 6,641 8,467
Net proceeds...................... 1,504 2,173 6,909 5,422 10,468
------- ------- ------- ------- -------
Total direct operating
expenses................ 10,009 11,929 27,348 31,481 36,839
Excess of revenue over direct
operating expenses................ $ 5,959 $ 9,580 $11,808 $30,087 $34,047
======= ======= ======= ======= =======
</TABLE>

F-27
<PAGE> 90

CEDAR CREEK ANTICLINE ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

1. BASIS OF PRESENTATION:

On March 12, 1999, Encore Operating L.P. (the "Company"), entered into an
agreement, effective June 1, 1999, with Shell Western E&P, Inc. and Shell
Onshore Ventures, Inc. (collectively "Shell"), to acquire certain oil and gas
producing properties ("Shell Properties"). The acquisition of the Shell
Properties closed on June 1, 1999. The total purchase price was allocated to
proved properties. The Shell Properties consist of interests in approximately
450 producing operated and nonoperated wells in Montana and North Dakota.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts revenues and expenses during the
reported period. Actual results could differ from those estimates.

The accompanying statements of revenues and direct operating expenses do
not include general and administrative expense, interest income or expense, a
provision for depreciation, depletion and amortization or any provision for
income taxes because the property interests acquired represent only a portion of
a business and the costs incurred by Shell are not necessarily indicative of the
costs to be incurred by the Company. The accompanying statements of revenue and
direct operating expenses are presented for the periods ended May 31, 1999 and
1998 and each of the three years in the period ended December 31, 1998.

Historical financial information reflecting financial position, results of
operations, and cash flows of the Shell Properties is not presented because the
acquisition cost was assigned to the oil and gas property interests acquired.
Accordingly, the historical statements of revenues and direct operating expenses
have been presented in lieu of the financial statements required under Rule 3-05
of Securities and Exchange Commission Regulation S-X.

2. SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED):

Future prices received for production and future production costs may vary,
perhaps significantly from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections. In accordance with the
Securities and Exchange Commission's guidelines, the Company's estimates of
future net cash flows from the Company's proved properties and the
representative value thereof are made using oil and natural gas prices in effect
as of the dates of such estimates and are held constant throughout the life of
the properties. Average prices used in estimating net cash flows at December 31,
1998, December 31, 1997 and December 31, 1996 were as follows: $10.00, $15.56,
and $23.82 per barrel for oil, respectively, and $1.69, $1.95, and $3.72 per Mcf
for natural gas, respectively.

F-28
<PAGE> 91
CEDAR CREEK ANTICLINE ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. Oil and natural gas reserve engineering is and must be
recognized as a subjective process of estimating underground accumulations of
oil and natural gas that cannot be measured in any exact way, and estimates of
other engineers might differ materially from those shown below. The accuracy of
any reserve estimate is a function of the quality of available data and
engineering and estimates may justify revisions. Accordingly, reserve estimates
are often materially different from the quantities of oil and gas that are
ultimately recovered. Reserve estimates are integral in management's analysis of
impairments of oil and natural gas properties and the calculation of
depreciation, depletion and amortization on its properties.

Estimated net quantities of proved oil and natural gas reserves of the
Properties were as follows (in thousands):

<TABLE>
<CAPTION>
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
December 31, 1996
Proved Reserves.................................. 75,867 12,705 77,985
Proved Developed Reserves........................ 65,039 10,558 66,799
December 31, 1997
Proved Reserves.................................. 68,148 11,315 70,034
Proved Developed Reserves........................ 57,369 9,179 58,899
December 31, 1998
Proved Reserves.................................. 54,357 9,276 55,903
Proved Developed Reserves........................ 44,672 7,218 45,875
</TABLE>

The changes in proved reserves were as follows for the years ended:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- ------------------------- -------------------------
NATURAL OIL NATURAL OIL NATURAL OIL
OIL GAS EQUIV. OIL GAS EQUIV. OIL GAS EQUIV.
(MBBL) (MMCF) (MBOE) (MBBL) (MMCF) (MBOE) (MBBL) (MMCF) (MBOE)
------ ------- ------ ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves at beginning of
year....................... 68,148 11,315 70,034 75,867 12,705 77,985 79,890 13,557 82,150
Revisions of estimates....... (9,530) (1,432) (9,769) (3,913) (561) (4,007) -- --
Production................... (3,458) (606) (3,559) (3,806) (829) (3,944) (4,023) (852) (4,165)
------- ------ ------- ------ ------ ------ ------ ------ ------
Reserves at end of period.... 55,160 9,277 56,706 68,148 11,315 70,034 75,867 12,705 77,985
======= ====== ======= ====== ====== ====== ====== ====== ======
</TABLE>

The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves is as follows at (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Future cash inflows................... $ 567,540 $1,082,443 $ 1,854,632
Future production costs............... (335,712) (598,124) (936,425)
Future development costs.............. (28,017) (28,017) (28,017)
--------- ---------- -----------
Future net cash flows................. 203,811 456,302 890,190
10% annual discount................... (123,167) (278,559) (554,278)
--------- ---------- -----------
Standardized measure of discounted
estimated future net cash flows..... $ 80,644 $ 177,743 $ 335,912
========= ========== ===========
</TABLE>

F-29
<PAGE> 92
CEDAR CREEK ANTICLINE ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

Primary changes in the standardized measure of discounted estimated future
net cash flows are as follows for the years ended (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Standardized measure, beginning of
year................................ $ 177,743 $ 335,912 $216,189
Net change in sales prices, net of
production costs.................... (78,971) (143,351) 128,328
Revisions of quantity estimates....... (15,553) (10,318) --
Accretion of discount................. 17,774 33,591 21,619
Change in timing and other............ (9,867) (11,383) --
Sales, net of production costs........ (10,482) (26,708) (30,224)
Net change in income taxes............ -- -- --
--------- --------- --------
Standardized measure, end of year..... $ 80,644 $ 177,743 $335,912
========= ========= ========
</TABLE>

F-30
<PAGE> 93

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Encore Acquisition Company:

We have audited the accompanying statements of revenues and direct
operating expense of Cross Timbers Oil Company's interest in certain Texas
properties (the "Properties") acquired by Encore Acquisition Company (the
"Company") for the years ended December 31, 1999 and 1998. These statements of
revenues and direct operating expenses are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements of
revenues and direct operating expenses based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statements of
revenues and direct operating expenses are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of revenues and direct operating expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements of revenues and direct operating expenses. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of Cross Timbers Oil Company's interest in the
Properties acquired by the Company for the years ended December 31, 1999 and
1998 in conformity with accounting principles generally accepted in the United
States.

ARTHUR ANDERSEN LLP

Dallas, Texas,
September 1, 2000

F-31
<PAGE> 94

CROCKETT ACQUISITION

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999 AND THE
YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
QUARTER
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------- ---------------
2000 1999 1999 1998
---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Oil and natural gas revenues............................ $2,461 $1,938 $9,177 $9,505
Direct operating expenses:
Production and other.................................. 406 66 1,639 1,861
Production taxes...................................... 108 64 594 673
------ ------ ------ ------
Total direct operating expenses............... 514 130 2,233 2,534
Excess of revenue over direct operating expenses........ $1,947 $1,808 $6,944 $6,971
====== ====== ====== ======
</TABLE>

F-32
<PAGE> 95

CROCKETT ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

1. BASIS OF PRESENTATION:

On March 30, 2000, Encore Operating L.P. (the "Company") purchased 282
wells ("Cross Timbers Properties") in Crockett County, Texas from Cross Timbers
Oil Company ("Cross Timbers"). Of the wells, 128 are operated by Encore. The
remaining properties are operated by other operators. The wells produce gas and
gas condensate, which is sold to Enron.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts revenues and expenses
during the reported period. Actual results could differ from those estimates.

The accompanying statements of revenues and direct operating expenses do
not include general and administrative expense, interest income or expense, a
provision for depreciation, depletion and amortization or any provision for
income taxes because the property interests acquired represent only a portion of
a business and the costs incurred by Cross Timbers are not necessarily
indicative of the costs to be incurred by the Company. The accompanying
statements of revenue and direct operating expenses are presented for the
quarters ended March 31, 2000 and 1999 and each of the two years in the period
ended December 31, 1999.

Historical financial information reflecting financial position, results of
operations, and cash flows of the Cross Timbers Properties is not presented
because the acquisition cost was assigned to the oil and gas property interests
acquired. Accordingly, the historical statements of revenues and direct
operating expenses have been presented in lieu of the financial statements
required under Rule 3-05 of Securities and Exchange Commission Regulation S-X.

2. SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED):

Future prices received for production and future production costs may vary,
perhaps significantly from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections. In accordance with the
Securities and Exchange Commission's guidelines, the Company's estimates of
future net cash flows from the Company's proved properties and the
representative value thereof are made using oil and natural gas prices in effect
as of the dates of such estimates and are held constant throughout the life of
the properties. Average prices used in estimating net cash flows at December 31,
1999 and December 31, 1998 were as follows: $25.50, and $11.95 per barrel for
oil, respectively, and $2.63, and $2.27 per Mcf for natural gas, respectively.

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

engineers might differ materially from those shown below. The accuracy of any
reserve estimate is a function of the quality of available data and engineering
and estimates may justify revisions. Accordingly, reserve estimates are often
materially different from the quantities of oil and gas that are ultimately
recovered. Reserve estimates are integral in management's analysis of
impairments of oil and gas properties and the calculation of depreciation,
depletion and amortization on its properties.

Estimated net quantities of proved oil and gas reserves of the Properties
were as follows (in thousands):

<TABLE>
<CAPTION>
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
December 31, 1998
Proved Reserves................................. 77 38,779 6,540
Proved Developed Reserves....................... 77 32,315 5,463
December 31, 1999
Proved Reserves................................. 73 37,535 6,329
Proved Developed Reserves....................... 73 31,146 5,264
</TABLE>

The changes in proved reserves were as follows for the years ended (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- -----------------------------
NATURAL OIL NATURAL OIL
OIL GAS EQUIVALENT OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE) (MBBL) (MMCF) (MBOE)
------ ------- ---------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Reserves at beginning of
year..................... 77 38,779 6,540 75 35,493 5,990
Revisions of estimates..... 15 2,487 430 21 7,539 1,278
Production................. (19) (3,731) (641) (19) (4,253) (728)
--- ------ ----- --- ------ -----
Reserves at end of
period................... 73 37,535 6,329 77 38,779 6,540
=== ====== ===== === ====== =====
</TABLE>

The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves is as follows at (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Future cash inflows....................... $100,618 $ 89,038
Future production costs................... (31,388) (27,521)
Future development costs.................. (4,421) (4,421)
-------- --------
Future net cash flows..................... 64,809 57,096
10% annual discount....................... (27,367) (23,274)
-------- --------
Standardized measure of discounted
estimated future net cash flows......... $ 37,442 $ 33,822
======== ========
</TABLE>

F-34
<PAGE> 97
CROCKETT ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

Primary changes in the standardized measure of discounted estimated future
net cash flows are as follows for the years ended (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Standardized measure, beginning of year... $33,822 $ 38,030
Net change in sales prices, net of
production costs..................... 5,706 (6,993)
Revisions of quantity estimates......... 2,991 7,171
Accretion of discount................... 3,382 3,803
Sales, net of production costs.......... (6,944) (6,971)
Change in timing and other.............. (1,515) (1,218)
------- --------
Standardized measure, end of year......... $37,442 $ 33,822
======= ========
</TABLE>

F-35
<PAGE> 98

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Encore Acquisition Company:

We have audited the accompanying statements of revenues and direct
operating expenses of Burlington Resources Oil and Gas Company's interest in
certain North Dakota properties (the "Properties") acquired by Encore
Acquisition Company (the "Company") for the years ended December 31, 1999 and
1998. These statements of revenues and direct operating expenses are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements of revenues and direct operating expenses based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statements of
revenues and direct operating expenses are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of revenues and direct operating expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements of revenues and direct operating expenses. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of Burlington Resources Oil and Gas Company's interest
in the Properties acquired by the Company for the years ended December 31, 1999
and 1998, in conformity with accounting principles generally accepted in the
United States.

ARTHUR ANDERSEN LLP

Dallas, Texas,
September 1, 2000

F-36
<PAGE> 99

LODGEPOLE ACQUISITION

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999 AND FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
QUARTER
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------- -----------------
2000 1999 1999 1998
---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Oil and gas revenues.................................. $6,674 $3,215 $19,803 $14,455
Direct operating expenses:
Production and other................................ 117 92 252 255
Production taxes.................................... 320 192 994 761
------ ------ ------- -------
Total direct operating expenses............. 437 284 1,246 1,016
Excess of revenue over direct operating expenses...... $6,237 $2,931 $18,557 $13,439
====== ====== ======= =======
</TABLE>

F-37
<PAGE> 100

LODGEPOLE ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

1. BASIS OF PRESENTATION:

On March 31, 2000, Encore Operating L.P. (the "Company") purchased six
properties ("Burlington Properties") in North Dakota from Burlington Resources
Oil & Gas Company ("Burlington"). Of the properties, two are operated by Encore
and those properties represent only 2.5% of the total value of the properties.
These properties produce only oil.

The accompanying statements of revenues and direct operating expenses do
not include general and administrative expense, interest income or expense, a
provision for depreciation, depletion and amortization or any provision for
income taxes because the property interests acquired represent only a portion of
a business and the costs incurred by Burlington are not necessarily indicative
of the costs to be incurred by the Company. The accompanying statements of
revenue and direct operating expenses are presented for the quarter ended March
31, 2000 and each of the two years in the period ended December 31, 1999.

Historical financial information reflecting financial position, results of
operations, and cash flows of the Burlington Properties is not presented because
the acquisition cost was assigned to the oil and gas property interests
acquired. Accordingly, the historical statements of revenues and direct
operating expenses have been presented in lieu of the financial statements
required under Rule 3-05 of Securities and Exchange Commission Regulation S-X.

2. SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED):

Future prices received for production and future production costs may vary,
perhaps significantly from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections. In accordance with the
Securities and Exchange Commission's guidelines, the Company's estimates of
future net cash flows from the Company's proved properties and the
representative value thereof are made using oil and natural gas prices in effect
as of the dates of such estimates and are held constant throughout the life of
the properties. Average prices used in estimating net cash flows at December 31,
1999 and December 31, 1998 were as follows: $25.05, and $11.51 per barrel for
oil, respectively, and $2.47, and $2.12 per Mcf for natural gas, respectively.

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

Estimated net quantities of proved oil and gas reserves of the Properties
were as follows (in thousands):

<TABLE>
<CAPTION>
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
December 31, 1998
Proved Reserves.................................... 2,628 1,359 2,854
Proved Developed Reserves.......................... 2,628 1,359 2,854
December 31, 1999
Proved Reserves.................................... 2,427 1,154 2,619
Proved Developed Reserves.......................... 2,427 1,154 2,619
</TABLE>

The changes in proved reserves were as follows for the years ended (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- --------------------------------
NATURAL OIL NATURAL OIL
OIL GAS EQUIVALENT OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE) (MBBL) (MMCF) (MBOE)
------ ------- ---------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Reserves at beginning of year....... 2,628 1,359 2,854 3,692 1,958 4,018
Revisions of estimates.............. 945 345 1,003 371 (112) 352
Production.......................... (1,146) (550) (1,238) (1,435) (487) (1,516)
------ ----- ------ ------ ----- ------
Reserves at end of
period............................ 2,427 1,154 2,619 2,628 1,359 2,854
====== ===== ====== ====== ===== ======
</TABLE>

The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves is as follows at (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Future cash inflows....................... $63,640 $33,130
Future production costs................... (8,762) (5,504)
Future development costs.................. (311) (311)
------- -------
Future net cash flows..................... 54,567 27,315
10% annual discount....................... (7,380) (3,218)
------- -------
Standardized measure of discounted
estimated future net cash flows......... $47,187 $24,097
======= =======
</TABLE>

F-39
<PAGE> 102
LODGEPOLE ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

Primary changes in the standardized measure of discounted estimated future
net cash flows are as follows for the years ended (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Standardized measure, beginning of year... $ 24,097 $ 49,669
Net change in sales prices, net of
production costs..................... 23,588 (18,027)
Revisions of quantity estimates......... 18,523 2,884
Accretion of discount................... 2,410 4,967
Sales, net of production costs.......... (18,557) (13,439)
Change in timing and other.............. (2,874) (1,957)
-------- --------
Standardized measure, end of year......... $ 47,187 $ 24,097
======== ========
</TABLE>

F-40
<PAGE> 103

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Encore Acquisition Company:

We have audited the accompanying statements of revenues and direct
operating expenses of Pioneer Natural Resources USA, Inc.'s interest in certain
southwestern United States properties (the "Properties") acquired by Encore
Acquisition Company (the "Company") for the year ended December 31, 1999. These
statements of revenues and direct operating expenses are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
statements of revenues and direct operating expenses based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statements of
revenues and direct operating expenses are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of revenues and direct operating expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements of revenues and direct operating expenses. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of Burlington Resources Oil and Gas Company's interest
in the Properties acquired by the Company for the year ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States.

ARTHUR ANDERSEN LLP

Dallas, Texas,
September 15, 2000

F-41
<PAGE> 104

INDIAN BASIN/VERDEN ACQUISITION

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PERIODS ENDED JUNE 30, 2000 AND 1999
AND THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 1999
------------- ------------- ----
(UNAUDITED)
<S> <C> <C> <C>
Oil and gas revenues............................... $4,882 $4,395 $9,433
Direct operating expenses:
Production and other............................. 1,259 1,195 2,257
Production taxes................................. 481 532 942
------ ------ ------
Total direct operating expenses.................... 1,740 1,727 3,199
Excess of revenue over direct operating expenses... $3,142 $2,668 $6,234
====== ====== ======
</TABLE>

F-42
<PAGE> 105

INDIAN BASIN/VERDEN ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

1. BASIS OF PRESENTATION:

On September 1, 2000, Encore Operating L.P. (the "Company") purchased
properties ("Pioneer properties") in the southwestern United States from Pioneer
Natural Resources USA, Inc. ("Pioneer") for $25.4 million.

The accompanying statements of revenues and direct operating expenses do
not include general and administrative expense, interest income or expense, a
provision for depreciation, depletion and amortization or any provision for
income taxes because the property interests acquired represent only a portion of
a business and the costs incurred by Pioneer are not necessarily indicative of
the costs to be incurred by the Company. The accompanying statements of revenue
and direct operating expenses are presented for the periods ended June 30, 2000
and 1999 and the year ended December 31, 1999.

Historical financial information reflecting financial position, results of
operations, and cash flows of the Pioneer Properties is not presented because
the acquisition cost was assigned to the oil and gas property interests
acquired. Accordingly, the historical statements of revenues and direct
operating expenses have been presented in lieu of the financial statements
required under Rule 3-05 of Securities and Exchange Commission Regulation S-X.

2. SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED):

Future prices received for production and future production costs may vary,
perhaps significantly from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections. In accordance with the
Securities and Exchange Commission's guidelines, the Company's estimates of
future net cash flows from the Company's proved properties and the
representative value thereof are made using oil and natural gas prices in effect
as of the dates of such estimates and are held constant throughout the life of
the properties. Average prices used in estimating net cash flows at December 31,
1999 were $24.40 per barrel for oil and $2.08 per Mcf for natural gas.

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

Accordingly, reserve estimates are often materially different from the
quantities of oil and gas that are ultimately recovered. Reserve estimates are
integral in management's analysis of impairments of oil and gas properties and
the calculation of depreciation, depletion and amortization on its properties.

Estimated net quantities of proved oil and gas reserves of the Properties
were as follows:

<TABLE>
<CAPTION>
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
December 31, 1999
Proved Reserves................................... 318 19,288 3,533
Proved Developed Reserves......................... 318 19,288 3,533
</TABLE>

The change in proved reserves were as follows for the year ended (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------
NATURAL OIL
OIL GAS EQUIVALENT
(MBBL) (MMCF) (MBOE)
------ ------- ----------
<S> <C> <C> <C>
Reserves at beginning of year....................... 234 22,070 3,912
Revisions of estimates.............................. 231 645 339
Production.......................................... (147) (3,427) (718)
---- ------ -----
Reserves at end of period........................... 318 19,288 3,533
==== ====== =====
</TABLE>

The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves is as follows at (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Future cash inflows......................................... $ 46,823
Future production costs..................................... (17,263)
Future development costs.................................... (6)
--------
Future net cash flows....................................... 29,554
10% annual discount......................................... (10,700)
--------
Standardized measure of discounted estimated future net cash
flows..................................................... $ 18,854
========
</TABLE>

Primary changes in the standardized measure of discounted estimated future
net cash flows are as follows for the year ended (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Standardized measure, beginning of year..................... $16,691
Net change in sales prices, net of production costs....... 5,253
Revisions of quantity estimates........................... 1,889
Accretion of discount..................................... 1,669
Sales, net of production costs............................ (6,234)
Change in timing and other................................ (414)
-------
Standardized measure, end of year........................... $18,854
=======
</TABLE>

F-44
<PAGE> 107
ANNEX A

[MILLER AND LENTS, LTD. LETTERHEAD]

September 11, 2000

Encore Acquisition Partners, Inc.
777 Main Street, Suite 1400
Fort Worth, Texas 76102

Re: Encore Acquisition Partners, Inc.
Reserves and Future Net Revenue
As of June 30, 2000
SEC Case

Gentlemen:

At your request, we estimated the proved reserves and projected future
net revenue as of June 30, 2000, attributable to the Encore Acquisition
Partners, Inc. (Encore) net interests in properties located in southeastern
Montana, North Dakota, and Texas. The properties include approximately 1,007
active producing and injection wells of which 653 are operated by Encore.

We performed our evaluations, designated as the SEC Case, using
unescalated prices, operating expenses, and capital expenditures provided by
Encore. The aggregate results of our evaluation are as follows:

Reserves and Future Net Revenue as of June 30 2000

<TABLE>
<CAPTION>
Future Net Revenue
Net Reserves -----------------------------
---------------------- Discounted at
Oil, Gas, Undiscounted, 10% Per Year,
Reserve Category MBbls MMcf $M $M
---------------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Proved Producing 72,352.4 41,105.3 1,213,668.6 518,186.6
Proved Nonproducing 152.9 1,753.7 8,727.4 4,853.8
Proved Undeveloped 12,210.5 8,766.6 215,454.0 65,940.4
-------- -------- ----------- ---------
Total Proved 84,715.8 51,625.6 1,437,870.0 588,980.8
</TABLE>

<PAGE> 108

Encore Acquisition Partners, Inc. September 11, 2000
Page 2

Proved reserves and future net revenue were estimated in accordance
with the standards of the Securities Exchange Commission Regulation S-X, Rule
4-10. The Securities and Exchange Commission definition of proved reserves is
shown in the Appendix. Gas volumes for each property are stated at the pressure
and temperature bases appropriate for the sales contract or state regulatory
authority. Total gas reserves were obtained by summing the reserves for all the
individual properties and are therefore stated herein at a mixed pressure base.
No provisions for the possible consequences, if any, of product sales imbalances
were included in our projections since we have received no relevant data.

Future net revenue as used herein is defined as the total revenue
attributable to (1) Encore's working interest less royalties, overriding
royalties, production and ad valorem taxes, operating costs, net proceeds
interest payments, and future capital expenditures and (2) Encore's royalty
interest less production and ad valorem taxes. Our projections of future net
revenue are shown both undiscounted and discounted at 10 percent per annum. The
effects of depreciation, depletion, or Federal Income Tax are not considered. We
assumed that abandonment costs would be equal to salvage values at abandonment.
Future costs, if any, for restoration of producing properties to satisfy
environmental standards are not deducted from estimates of future net revenue as
such are beyond the scope of our assignment. Estimates of future net revenue and
discounted future net revenue are not intended and should not be interpreted to
represent fair market value for the estimated reserves.

Encore provided benchmark prices of $32.50 per barrel and $4.33 per Mcf
that represent market prices on June 30, 2000 in accordance with Securities and
Exchange Commission guidelines. Price adjustments were made for each property
based on differentials between benchmark and actual prices as estimated by
Encore and include considerations such as gas Btu, oil gravity, and
transportation charges. Operating costs were based on actual costs as of June
30, 2000 as provided by Encore. Costs were held constant for the remaining
economic life of each property. Future capital was unescalated.

Future production and net revenue forecasts for properties are included
as exhibits to this report and are identified in the Index to Exhibits. The
summary section shows combined proved reserves for all fields and contains cash
flows by reserve category. The remaining exhibits are grouped into three main
Encore production regions: (1) Cedar Creek Anticline, (2) Crockett County,
Texas, and (3) Lodgepole.

Cedar Creek Anticline (CCA) is a 100-mile-long by 6-mile-wide structure
located in southeastern Montana and western North Dakota. Primary producing
formations are the Red River at 8,800 feet, the Stony Mountain at 8,600 feet,
and the Interlake at 8,300 feet. The productive intervals are geologically
continuous, but CCA has been subdivided into several regulatory fields. A large
portion of properties owned by Encore in the CCA fields are burdened by net
proceeds interest (NPI) payments. Exhibits for CCA properties are summarized by
keycodes that represent units or areas of common interest at which NPI payments
are calculated. A keycode is the lowest level at which NPI payments are
calculated. The one-line summary of reserves and future net revenues for
individual wells, by keycode, are prior to deducting NPI payments. NPI payments
are deducted at the keycode total lines. The modeling and calculation of NPI
payments were provided by Encore and were not verified by Miller and Lents, Ltd.
as such was beyond the scope of our evaluation.

<PAGE> 109

Encore Acquisition Partners, Inc. September 11, 2000
Page 3

Crockett County, Texas properties are located in the Val Verde Basin of
West Texas with production from four regulatory fields: Ozona, Hunt-Baggett,
Davidson Ranch, and Henderson. Primary producing formations are the Strawn
carbonates at 8,500 feet and the Canyon sandstones at 7,500 feet. The fields are
typically developed on 40-acre spacing. Exhibits are summarized by property
designation; i.e., operated, non-operated, or royalty; field, and reserve
category.

Lodgepole properties consist of both working and overriding royalty
interests in six fields located in Stark County, North Dakota near the city of
Dickinson. The primary producing formation is the Mississippian-age Waulsortian
mound. Of the six evaluated, the major field is the Eland, Lodgepole Unit, which
has a 200-foot-thick oil column extending over 4,133 acres. In this unit, water
is injected in the bottom water portion of the reservoir to maintain pressure,
and oil is produced from wells completed high on the structure. Exhibits for the
six properties in this production region are summarized by unit.

Proved producing reserves were based primarily on extrapolation of
historical performance trends. We relied mainly on production rate versus time
decline curves. In those wells producing at high water-cuts, water-oil ratios
versus cumulative production trends were used to estimate reserves. Estimates
and projections for proved nonproducing and proved undeveloped reserves were
based on volumetric calculations or analogies. Reserve estimates from analogies
and volumetric calculations are often less certain than reserve estimates based
on well performance obtained over a period during which a substantial portion of
the reserves were produced.

In conducting this evaluation, we relied upon production histories,
well test data, well logs, and other engineering and geological data supplied by
Encore. To a lesser extent, non-confidential data existing in the files of
Miller and Lents. Ltd. and data from commercial services and of public record
were used. The operating expenses, ownership interests, reversion provisions,
current payout status, NPI payments, and product prices were provided by Encore.
We also relied upon Encore's representations to us of planned schedules and the
estimated costs for future well work. None of this information was independently
verified as such was beyond the scope of our assignment.

The evaluations presented in this report, with the exception of those
parameters specified by others, reflect our informed judgment based on accepted
standards of professional investigation but are subject to those generally
recognized uncertainties associated with interpretation of geological,
geophysical, and engineering information. Government policies and market
conditions different from those employed in this study may cause the total
quantity of oil or gas to be recovered, actual production rates, prices
received, or operating and capital costs to vary from those presented in this
report.

Miller and Lents, Ltd. is an independent oil and gas consulting firm.
No director, officer, or key employee of Miller and Lents, Ltd. has any
financial ownership in Encore or any affiliate of Encore. Our compensation for
the required investigations and preparation of this report is not contingent
upon the results obtained and reported, and we have not performed other work
that would affect our objectivity. Production of this report was supervised by
an officer of the firm who is a professionally qualified and

<PAGE> 110

Encore Acquisition Partners, Inc. September 11, 2000
Page 4

licensed Professional Engineer in the State of Texas with more than five years
of relevant experience in the estimation, assessment, and evaluation of oil and
gas reserves.

Very truly yours,

MILLER AND LENTS, LTD.

By /s/ CARL D. RICHARD
----------------------------------
Carl D. Richard

By /s/ JAMES C. PEARSON
----------------------------------
James C. Pearson
Chairman

CDR/psh

<PAGE> 111

Appendix

PROVED RESERVES DEFINITIONS
IN ACCORDANCE WITH
SECURITIES AND EXCHANGE COMMISSION REGULATION S-X

PROVED OIL AND GAS RESERVES

Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e., prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements but not on
escalations based upon future conditions.

1. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation
test. The area of a reservoir considered proved includes (a) that
portion delineated by drilling and defined by gas-oil and/or
oil-water contacts, if any, and (b) the immediately adjoining
portions not yet drilled but which can be reasonably judged as
economically productive on the basis of available geological and
engineering data. In the absence of information on fluid contacts,
the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.

2. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are
included in the proved classification when successful testing by a
pilot project or the operation of an installed program in the
reservoirs provides support for the engineering analysis on which
the project or program was based.

3. Estimates of proved reserves do not include the following:

a. Oil that may become available from known reservoirs but is
classified separately as indicated additional reserves.

b. Crude oil, natural gas, and natural gas liquids, the recovery
of which is subject to reasonable doubt because of uncertainty
as to geology, reservoir characteristics, or economic factors.

c. Crude oil, natural gas, and natural gas liquids, that may
occur in undrilled prospects.

d. Crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite, and other such
sources.

Depending UPON their status of development, proved reserves are
subdivided into proved developed reserves and proved undeveloped reserves.

PROVED DEVELOPED OIL AND GAS RESERVES

Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as proved developed reserves only after testing by a pilot project or
after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.

PROVED UNDEVELOPED OIL AND GAS RESERVES

Proved undeveloped oil and gas reserves are reserves that are expected
to be recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled. Proved reserves
for other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.

<PAGE> 112

UNDERWRITING

Encore and the underwriters named below (the "Underwriters") have entered
into an underwriting agreement with respect to the shares being offered. Subject
to certain conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co., Credit
Suisse First Boston Corporation, Dain Rauscher Incorporated, and Petrie Parkman
& Co., Inc. are the representatives of the Underwriters.

<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Credit Suisse First Boston Corporation......................
Dain Rauscher Incorporated..................................
Petrie Parkman & Co., Inc. .................................
-----------
Total.............................................
===========
</TABLE>

If the Underwriters sell more than the total number set forth in the table
above, the Underwriters have an option to buy up to an additional shares
from Encore to cover such sales. They may exercise that option for 30 days. If
any shares are purchased pursuant to this option, the Underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by Encore. Such amounts are shown
assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.

Paid by Encore
--------------

<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>

Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial offering price, the representatives may change the offering price and
the other selling terms.

Encore, its officers, directors and principal stockholders have agreed with
the Underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180 days
after the date of this prospectus, except with the prior written consent of
Goldman, Sachs & Co. This agreement does not apply to any existing employee
benefit plans. See "Shares Available for Future Sale" for a discussion of
certain transfer restrictions.

Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Encore and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Encore's historical performance, estimates of the business
potential and earnings prospects of Encore, an assessment of Encore's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.

We intend to make application for listing of the common stock on the New
York Stock Exchange under the symbol " ".
U-1
<PAGE> 113

In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Shorts sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the Underwriters'
option to purchase additional shares from Encore in the offering. The
Underwriters may close out any covered short position by either exercising their
option to purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
Underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the overallotment option. "Naked" short sales are any
sales in excess of such option. The Underwriters must close out any naked short
position by purchasing shares in the open market. A naked short position is more
likely to be created if the Underwriters are concerned that there may be
downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering.
Stabilizing transactions consist of various bids for or purchases of common
stock made by the Underwriters in the open market prior to the completion of the
offering.

The Underwriters may also impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.

Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of Encore's
stock, and together with the imposition of the penalty bid, may stabilize,
maintain or otherwise affect the market price of the common stock. As a result,
the price of the common stock may be higher than the price that otherwise might
exist in the open market. If these activities are commenced, they may be
discontinued at any time. These transactions may be effected on the New York
Stock Exchange, in the over-the-counter market or otherwise.

The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.

Encore estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $
.

Encore has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

Credit Suisse First Boston Corporation, one of the underwriters for this
offering, is a subsidiary of Credit Suisse Group, which indirectly holds a 19.9%
passive minority interest in Warburg, Pincus & Co., the general partner of
Warburg, Pincus Ventures, one of our principal stockholders. Because of the
relationship between Credit Suisse Group and Warburg, Pincus & Co. the offering
is being conducted in accordance with Rule 2720 of the National Association of
Securities Dealers. That rule requires that the initial public offering price
can be no higher than that recommended by a "qualified independent underwriter",
as defined by the NASD. Goldman, Sachs & Co. has served in that capacity and
performed due diligence investigations and reviewed and participated in the
registration statement of which this prospectus forms a part. Goldman, Sachs &
Co. will receive $10,000 from Encore Acquisition Company as compensation for
such role. Some of the underwriters or their affiliates have from time to time
provided investment banking and financial advisory services to us and our
affiliates in the ordinary course of business, for which they have received
customary fees, and they may continue to do so in the future.

U-2
<PAGE> 114

------------------------------------------------------
------------------------------------------------------

No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is unlawful to do so. The information contained in
this prospectus is current only as of its date.

----------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 8
Special Note Regarding Forward-
Looking Statements.................. 15
Use of Proceeds....................... 17
Dividend Policy....................... 17
Recapitalization...................... 17
Dilution.............................. 18
Capitalization........................ 19
Pro Forma Financial Statements........ 20
Selected Consolidated Financial
Data................................ 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business and Properties............... 33
Regulatory Matters.................... 40
Management............................ 44
Committees of the Board of
Directors........................... 46
Certain Transactions.................. 49
Security Ownership of Management and
Certain Beneficial Owners........... 50
Description of Capital Stock.......... 52
Shares Available for Future Sale...... 53
Legal Matters......................... 55
Experts............................... 55
Where You Can Find More Information... 55
Glossary of Oil and Natural Gas
Terms............................... 56
Index to Consolidated Financial
Statements.......................... 59
Report of Independent Public
Accountants......................... F-1
Miller and Lents, Ltd. Report......... A-1
Underwriting.......................... U-1
</TABLE>

----------------------

Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------

ENCORE ACQUISITION COMPANY

Common Stock
-----------------------------

[ENCORE LOGO]

-----------------------------

GOLDMAN, SACHS & CO.

CREDIT SUISSE FIRST BOSTON

DAIN RAUSCHER WESSELS

PETRIE PARKMAN & CO.

Representatives of the Underwriters

------------------------------------------------------
------------------------------------------------------
<PAGE> 115

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions are set forth in the following table. The company will pay all
expenses of issuance and distribution. Each amount, except for the SEC and New
York Stock Exchange fees, is estimated.

<TABLE>
<S> <C> <C>
SEC registration fees....................................... $33,000
NASD filing fee............................................. $13,000
New York Stock Exchange application listing fee............. $ *
Transfer agent's and registrar's fees and expenses.......... $ *
Printing and engraving expenses............................. $ *
Legal fees and expenses..................................... $ *
Accounting fees and expenses................................ $ *
Miscellaneous............................................... $ *
------- --------
Total............................................. $ *
======= ========
</TABLE>

---------------

* To be included by amendment.

ITEM 14 INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our certificate of incorporation provides that no director or officer shall
be personally liable to us or our stockholders for monetary damages for breach
of fiduciary duties as a director for any act or omission; provided, however,
that the director may be liable for any claim resulting from an act or omission
that has not met the standard of conduct permissible under the Delaware General
Corporation Law to indemnify the director or officer for the amount claimed.

Our bylaws provide that we shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in our right) by reason of the fact
that he is or was a director or officer of Encore, or is or was serving at our
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to our best interests, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Subject to the foregoing, we shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in our right to procure a judgment in our favor
by reason of the fact that he is or was a director or officer, or is or was
serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to our
best interests and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable for negligence or misconduct in the performance of his duty to us
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such

II-1
<PAGE> 116

expenses which the Delaware Court of Chancery or such other court shall deem
proper. Pursuant to our Bylaws, we may purchase and maintain insurance on behalf
of any person who is or was a director or officer, or is or was a director or
officer of the Corporation serving at our request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not we would have the power or the obligation to indemnify him
against such liability. Under the Bylaws, we may, to the extent authorized from
time to time by our Board of Directors, provide rights to indemnification and
the advancement of expenses to our employees and agents similar to those rights
conferred in our Bylaws to our directors and officers.

We have entered into indemnification agreements with our directors and
officers, which indemnify each person to the fullest extent permitted by
Delaware law and obligate us to purchase and maintain insurance or similar
protection on behalf of our directors and officers against personal liability
against him or incurred by or on behalf of him in the capacity as a director or
officer of Encore. Any insurance policy providing liability coverage for
directors and officers of Encore shall continue until as long as the director or
officer serves in such capacity. Pursuant to the agreements, we also agree to
hold harmless and indemnify each person against expenses incurred by reason of
the fact that the person is or was a director, officer, employee or agent of us,
unless his acts were committed in bad faith, were the result of active and
deliberate dishonesty, or resulted in personal financial profit or other
advantage to which he was not legally entitled.

ITEM 15 RECENT SALES OF UNREGISTERED SECURITIES

Since our inception, we issued and sold the following securities to certain
individual and institutional investors, including certain of our directors,
officers and key employees, in transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereunder:

On August 18, 1998, Encore entered into a Stock Purchase and a
Stockholders' Agreement (collectively the "Agreements"), with five members of
Encore's management ("Management") and four non-management investors (the
"Investors"). Under the terms of the Agreements, 294,901 shares of Class B
Common Stock, par value $0.01 per share (the "Class B") and 73,695 shares of
Class A Common Stock, par value $0.01 per share ("Class A") were authorized to
be issued for a total amount of committed consideration to be invested in Encore
of $298 million by Management and the Investors. Subsequent to August 18, 1998
an additional 9,962 shares of Class A Common Stock and 403 shares of Class B
Common Stock were sold for an aggregate of $1.0 million in cash and commitments
to 21 key employees of Encore. As of June 30, 2000, 294,780 shares of Class B
and 70,746 shares of Class A were issued and outstanding. The remaining shares
of Class B and shares of Class A are reserved for issuance to future Management
members. Each purchaser represented that he or it was purchasing the shares for
investment and each such person had sufficient knowledge and experience to
evaluate the merits and risks of such investment.

No underwriters were involved in connection with the sales of securities
referred to in this Item 15.

All shares of Class A and Class B common stock will be converted into a
single class of common stock in connection with the recapitalization to be
effected in connection with this offering.

II-2
<PAGE> 117

ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of
Encore Acquisition Partners, Inc.
3.2 -- First Amendment to Amended and Restated Certificate of
Incorporation of Encore Acquisition Partners, Inc.
changing its name to Encore Acquisition Company.
3.3 -- Amended and Restated Bylaws of Encore Acquisition
Partners, Inc.
4.1 -- Specimen certificate of Encore Acquisition Company.
4.2 -- Registration Rights Agreement dated as of August 18, 1998
among Encore Acquisition Partners, Inc. and the
stockholder named therein.
4.3 -- Stockholders' Agreement of Encore Acquisition Partners,
Inc. dated as of August 18, 1998.
4.4 -- Stock Purchase Agreement among Encore Acquisition
Partners, Inc. and the Investor Stockholders and the
Management Stockholders dated as of August 18, 1998.
5.1 -- Opinion of Kelly, Hart & Hallman, P.C.
10.1 -- Credit Agreement dated as of May 7, 1999, by and among
Encore Operating, L.P., Encore Acquisition Partners,
Inc., and a syndicate of banks led by NationsBank, N.A.,
First Union National Bank, and BankBoston, N.A.
10.2 -- Letter Agreement effective as of August 24, 2000 amending
the Credit Agreement.
10.3 -- Pledge Agreement by Encore Acquisition Partners, Inc. in
favor NationsBank, N.A. dated as of May 7, 1999.
10.4 -- 2000 Stock Incentive Plan of Encore Acquisition Company.
10.5 -- Management Stock Ownership Plan effective as of August
18, 1998.
10.6 -- Form of Indemnity Agreement.
10.7 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and I. Jon Brumley dated as of
August 18, 1998.
10.8 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and Jon S. Brumley dated as of
August 18, 1998.
10.9 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and Gene Carlson dated as of
August 18, 1998.
10.10 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and Kyle Schultz dated as of
August 18, 1998.
10.11 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and Morris B. Smith dated as
of August 1, 2000.
10.12 -- Purchase and Sale Agreement between Shell Western E&P
Inc. and Shell Onshore Ventures Inc., as sellers, and
Encore Operating, L.P., as buyer, dated as of March 12,
1999.
</TABLE>

II-3
<PAGE> 118

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
10.13 -- Amendment to Purchase and Sale Agreement between Shell
Western E&P Inc. and Shell Onshore Ventures Inc., as
sellers, and Encore Operating, L.P., as buyer, dated as
of May 26, 1999.
10.14 -- Second Amendment to Purchase and Sale Agreement between
Shell Western E&P Inc. and Shell Onshore Ventures Inc.,
as sellers, and Encore Operating, L.P., as buyer, dated
as of May 28, 1999.
10.15 -- Purchase and Sale Agreement dated February 23, 2000
between Cross Timbers Oil Company and Encore Operating,
L.P.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Kelly, Hart & Hallman, P.C. (included in its
opinion filed as Exhibit 5.1).
23.3 -- Consent of Miller and Lents, Ltd.
24 -- Power of Attorney (included on the signature page
hereto).
27 -- Financial Data Schedule (included in SEC filing only).
</TABLE>

ITEM 17 UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 119

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Worth, State of Texas, on .

ENCORE ACQUISITION COMPANY

By: /s/ I. JON BRUMLEY
----------------------------------
I. Jon Brumley
Chairman, President
and Chief Executive Officer

POWER OF ATTORNEY

The undersigned directors and officers of Encore Acquisition Company hereby
constitute and appoint each of I. Jon Brumley and Morris B. Smith, with full
power to act and with full power of substitution and resubstitution, our true
and lawful attorney-in-fact and agent with full power to execute in our name and
behalf in the capacities indicated below any and all amendments (including
post-effective amendments and amendments thereto) to this Registration Statement
and to file the same, with all exhibits and other documents relating thereto and
any registration statement relating to any offering made pursuant to this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act with the SEC and hereby ratify and confirm all
that such attorney-in-fact or his substitute shall lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated below:

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>

/s/ I. JON BRUMLEY Chairman, President and Chief October 6, 2000
----------------------------------------------------- Executive Officer
I. Jon Brumley

/s/ JON S. BRUMLEY Executive Vice President -- October 6, 2000
----------------------------------------------------- Business Development,
Jon S. Brumley Secretary and Assistant
Treasurer and Director

/s/ KYLE M. SCHULTZ Executive Vice President -- October 6, 2000
----------------------------------------------------- Exploitation and Director
Kyle M. Schultz

/s/ MORRIS B. SMITH Chief Financial Officer, October 6, 2000
----------------------------------------------------- Treasurer and Executive Vice
Morris B. Smith President

/s/ KENNETH A. HERSH Director October 6, 2000
-----------------------------------------------------
Kenneth A. Hersh
</TABLE>

II-5
<PAGE> 120

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>

/s/ ARNOLD L. CHAVKIN Director October 6, 2000
-----------------------------------------------------
Arnold L. Chavkin

/s/ HOWARD H. NEWMAN Director October 6, 2000
-----------------------------------------------------
Howard H. Newman
</TABLE>

II-6
<PAGE> 121

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
1 -- Form of Underwriting Agreement.+
3.1 -- Amended and Restated Certificate of Incorporation of
Encore Acquisition Partners, Inc.
3.2 -- First Amendment to Amended and Restated Certificate of
Incorporation of Encore Acquisition Partners, Inc.
changing its name to Encore Acquisition Company.
3.3 -- Amended and Restated Bylaws of Encore Acquisition
Partners, Inc.
4.1 -- Specimen certificate of Encore Acquisition Company.+
4.2 -- Registration Rights Agreement dated as of August 18, 1998
among Encore Acquisition Partners, Inc. and the
stockholder named therein.
4.3 -- Stockholders' Agreement of Encore Acquisition Partners,
Inc. dated as of August 18, 1998.
4.4 -- Stock Purchase Agreement among Encore Acquisition
Partners, Inc. and the Investor Stockholders and the
Management Stockholders dated as of August 18, 1998.
5.1 -- Opinion of Kelly, Hart & Hallman, P.C.+
10.1 -- Credit Agreement dated as of May 7, 1999, by and among
Encore Operating, L.P., Encore Acquisition Partners,
Inc., and a syndicate of banks led by NationsBank, N.A.,
First Union National Bank, and BankBoston, N.A.
10.2 -- Letter Agreement effective as of August 24, 2000 amending
the Credit Agreement.
10.3 -- Pledge Agreement by Encore Acquisition Partners, Inc. in
favor NationsBank, N.A. dated as of May 7, 1999.
10.4 -- 2000 Stock Incentive Plan of Encore Acquisition Company.+
10.5 -- Management Stock Ownership Plan effective as of August
18, 1998.
10.6 -- Form of Indemnity Agreement.
10.7 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and I. Jon Brumley dated as of
August 18, 1998.
10.8 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and Jon S. Brumley dated as of
August 18, 1998.
10.9 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and Gene Carlson dated as of
August 18, 1998.
10.10 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and Kyle Schultz dated as of
August 18, 1998.
10.11 -- Confidentiality and Non-Compete Agreement between Encore
Acquisition Partners, Inc. and Morris B. Smith dated as
of August 1, 2000.
10.12 -- Purchase and Sale Agreement between Shell Western E&P
Inc. and Shell Onshore Ventures Inc., as sellers, and
Encore Operating, L.P., as buyer, dated as of March 12,
1999.
10.13 -- Amendment to Purchase and Sale Agreement between Shell
Western E&P Inc. and Shell Onshore Ventures Inc., as
sellers, and Encore Operating, L.P., as buyer, dated as
of May 26, 1999.
</TABLE>

II-7
<PAGE> 122

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
10.14 -- Second Amendment to Purchase and Sale Agreement between
Shell Western E&P Inc. and Shell Onshore Ventures Inc.,
as sellers, and Encore Operating, L.P., as buyer, dated
as of May 28, 1999.
10.15 -- Purchase and Sale Agreement dated February 23, 2000
between Cross Timbers Oil Company and Encore Operating,
L.P.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Kelly, Hart & Hallman, P.C. (included in its
opinion filed as Exhibit 5.1).
23.3 -- Consent of Miller and Lents, Ltd.
24 -- Power of Attorney (included on the signature page
hereto).
27 -- Financial Data Schedule (included in SEC filing only).
</TABLE>

+ to be filed by amendment

II-8