) today reported third quarter 2005 results. In the third quarter of 2005 Encore generated net income of $20.9 million ($0.42 per diluted share), including a one-time loss on early extinguishment of debt of $19.5 million ($0.25 per diluted share) relating to the Company's debt refinancing and issuance of $300 million of 6.0% Senior Subordinated Notes due 2015.
In the third quarter of 2004, Encore generated net income of $21.0 million ($0.43 per diluted share). Net income also includes expenses for derivative fair value loss and non-cash stock based compensation totaling $3.2 million ($0.04 per diluted share) for the third quarter of 2005 and $3.1 million ($0.04 per diluted share) for the third quarter of 2004.
Jonny Brumley, President, said, "Management is pleased with the third quarter results. The high-pressure air injection project is working, drilling results are good, and the new acquisitions have increased our drilling inventory. We are looking forward to next year and expect our 2006 production growth rate to be in the mid-teens."
In the third quarter of 2005 Encore drilled 84 gross (56.1 net) wells, investing $92.6 million in development capital (excluding development-related asset retirement obligations). The Company also invested $32.4 million in property acquisitions and undeveloped leases. Encore operated 13 rigs during the third quarter of 2005 across all of its core areas.
The Company's drilling activity and capital investments drove an increase in third quarter 2005 production volumes of 9% to a record 28,202 barrels of oil equivalent ("BOE") per day (2.6 MMBOE), compared with third quarter 2004 production of 25,779 BOE per day (2.4 MMBOE). The net profits interests on the Cedar Creek Anticline ("CCA") reduced production by approximately 1,608 BOE per day in the third quarter of 2005 versus 1,114 BOE per day in the third quarter of 2004. Oil represented 65% and 71% of the Company's total production volumes in the third quarter of 2005 and 2004, respectively.
During the third quarter of 2005, lease operations expense increased to $17.9 million ($6.90 per BOE) from $12.6 million ($5.31 per BOE) in the third quarter of 2004 as a result of higher volumes and a higher cost operating environment. The Company incurred exploration expense of $4.8 million ($0.06 per diluted share) in the third quarter of 2005 as compared to $0.5 million ($0.01 per diluted share) in the third quarter of 2004.
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