Growth Continues - Core Area Strengthened
    CALGARY, Oct. 28 /CNW-PRN/ -
                                       Three months ended   Nine months ended
                                          September 30        September 30
                                         1998      1997      1998       1997
    Financial ($ thousands except per
     share amounts)
    Petroleum and Natural Gas Sales    43,249    38,163   125,386    122,256
    Funds From Operations              17,414    17,378    52,166     60,404
    Per Common Share  - Basic            0.17      0.17      0.50       0.58
                      - Fully Diluted    0.15      0.16      0.47       0.55
    Net Earnings (Loss)                  (516)    1,369       104      9,470
    Per Common Share  - Basic            0.00      0.01      0.00       0.09
                      - Fully Diluted    0.00      0.01      0.00       0.09
    Capital Expenditures               39,597    27,223   130,646     86,334
    BC Asset Acquisition                    -         -         -     45,426
    Long Term Debt                    214,933   133,338   214,933    133,338
    Weighted Average Outstanding
     Shares (thousands)
                      - Basic         105,711   104,498   105,349    104,307
                      - Fully Diluted 112,296   110,499   111,205    110,263
    Shares Outstanding (thousands)    105,854   104,721   105,854    104,721
      - Natural Gas (mcf/d)           145,683   128,910   140,628    127,574
      - Crude Oil (bbls/d)              9,272     7,145     9,076      6,509
      - Natural Gas Liquids (bbls/d)    3,453     2,226     2,944      2,353
      - Total (BOE/d)                  27,293    22,262    26,083     21,619
    Pricing (before hedging)
      - Natural Gas ($/mcf)              1.92      1.60      1.90       1.83
      - Crude Oil ($/bbl)               15.63     22.97     16.48      24.73
      - Natural Gas Liquids ($/bbl)     13.20     19.99     14.66      21.92
    To Our Shareholders
    - Quarterly average production reaches 27,293 barrels equivalent per day,
      a gain of 23 percent over the same period one year ago.
    - The Company has entered into a large-area farmin agreement in west
      central Alberta to exploit Mississippian Formations using horizontal
      drilling technology.
    - Encal announces expansion of its eastern Canada impact exploration
      program, with participation in the Shoal Point prospect, western
    West Central Core Area Strengthened

Encal continues to focus on building its asset base and operating
position within the Company's two core areas. During the third quarter,
Encal's position within west central Alberta was strengthened when the Company
finalized a regional farmin agreement covering an undeveloped land base
exceeding 55,000 gross acres. This farmin provides the opportunity to exploit
various Mississippian reservoirs and will result in the drilling of at least
eight wells by the end of the first quarter 1999. The farmin terms also
provide an economic incentive to test the application of natural gas
horizontal drilling technology. 
In addition, an asset exchange agreement has been executed for
significant producing assets and additional undeveloped land in the same
region. This asset swap involves the disposition by Encal of minor interest
non-operated properties in exchange for an operated, liquids rich, natural gas
producing property. This transaction is expected to close in November 1998. 
Wilson Creek Pipeline Project 
During the quarter, Encal initiated plans to construct a 25 mile, eight
inch diameter sour gas transmission line from the Wilson Creek compressor
station to the Gulf operated Rimbey Gas Plant. This pipeline will transport
raw gas to an underutilized facility and provide Encal with additional
processing capacity for volume growth as the Company exploits its proprietary
and farmin acreage. Encal as operator, will participate in the project for a
67 percent share. The pipeline will initially transport 25 mmcf/d net to Encal
and will have the potential to be expanded through the additional compression.
Application to construct the pipeline has been filed with the Alberta Energy
and Utilities Board for regulatory review and approval and a response is
expected by mid November. A portion of this gas will flow through various
other pipelines prior to the completion of this major project. 
Core Exploration and Development 
During the first three quarters of 1998, Encal participated in 119 wells
(69.1 net) of which 95 (61.0 net) were drilled within the Company's core
activity areas in northeastern British Columbia and west central Alberta. The
results included 56 gas wells (27.7 net) and 37 oil wells (20.3 net), yielding
a success rate of 78 percent (70 percent net). 
In the third quarter, the Company enjoyed continued drilling success
along the Columbia-Minehead trend in Alberta, where three more wells were
cased and completed for Cardium gas production. The Company continues to
maintain a substantial inventory of drilling locations on this long-life,
high-liquids project. Elsewhere, Encal added two more producers to its Cecil
light oil project at Rigel, British Columbia. The Company also commenced an
expanded exploitation program of its Mississippian light oil pool at
Westerose, Alberta using horizontal drilling technology. The initial results
of this program have been very encouraging and at least six more horizontal
locations are planned. 
Encal anticipates an active core area drilling program during the last
quarter of 1998 and into the first quarter of 1999, with more than eighty firm
and follow-up locations planned. A significant portion of this program is
directed towards natural gas prospects in northeastern British Columbia, where
the Company will pursue previous drilling success at Redeye, Slave-Gutah, and
Prespatou. In addition, the Company will expand its horizontal exploitation
program targeting Mississippian Formations in west central Alberta. Key
activity areas will include Wilson Creek, Innisfail, Sylvan Lake and
High Impact Exploration 
Encal's impact exploration program is structured to complement the
Company's core operations in western Canada. The impact program focuses on
large-scale natural gas prospects in northeastern British Columbia, moderate
size light oil and natural gas prospects in central Alberta, and high
risk/high reward concepts in the Gulf of St Lawrence region, eastern Canada. 
During the third quarter, Encal completed drilling operations on its
first two exploratory prospects on Anticosti Island, Quebec, in eastern
Canada. Although the Roliff and Jupiter wells failed to encounter a commercial
hydrocarbon accumulation, they did provide encouraging stratigraphic
information regarding potential reservoirs within the target Ordovician
Formations. The Company also participated in the acquisition of approximately
four hundred kilometers of new seismic data, principally on the eastern
section of the island. This data will be used to identify prospects for the
third and fourth wells in the exploration program, to be drilled in 1999 and
In September, Encal announced that it will participate in the Shoal Point
K-39 exploration well in western Newfoundland. This well will test a major
structural feature approximately 15 miles northeast of the Port au Port No. 1
well, which was drilled in 1995 and tested high quality light oil at rates
exceeding 1,700 barrels per day. The Shoal Point well will be drilled from an
onshore location utilizing a conventional western Canadian drilling rig, to an
estimated total depth of 2,440 meters. Encal will participate for a 37.5
percent working interest. The well is expected to spud in December, 1998. 
Over the next two quarters, Encal will also drill several impact
exploration wells in western Canada, which will test deep prospects at Eskai,
British Columbia and at Carbon, Alberta. 
For the nine months ended September 30, 1998, natural gas production
increased to 140.6 million cubic feet per day from 127.6 million cubic feet
per day during the same period of 1997. Increases in natural gas production
are attributable to successful exploration and development activity at Redeye
and Wilson Creek, combined with tie in of new wells at Crystal and Cherhill. 
Oil and NGL production increased 36 percent to 12,020 barrels per day for
the nine months ended September 30, 1998 compared to 8,862 barrels per day in
1997 as a result of successful exploration and development activity at Rigel,
Redeye, and Cadogan. 
During the quarter, Encal commenced waterflood operations on the
Company's third Cecil oil pool at Rigel, British Columbia. An application to
waterflood the fourth pool will be submitted to regulatory authorities during
the fourth quarter. 
Encal's crude oil prices decreased 33 percent to average $16.48 per
barrel during the nine months ended September 30, 1998 compared to $24.73
during the same period in 1997. Natural gas prices increased four percent
averaging $1.90 per thousand cubic feet during the nine months ended September
30, 1998 compared to $1.83 per thousand cubic feet in 1997. Natural gas
liquids prices decreased 32 percent averaging $14.66 per barrel during the
nine months ended September 30, 1998 compared to $21.92 per barrel in 1997. 
Natural gas prices have continued to show improvement through the third
quarter. Strong prices throughout the remainder of 1998 and 1999 are supported
by the expectation that Canadian gas supplies will not be sufficient to fill
new incremental pipeline capacity scheduled to come on stream this winter.
Through physical transactions, Encal has capitalized on the current pricing
environment by fixing the price on approximately 20 percent of its 1999
natural gas sales at a blended plant gate price of $2.70 per mcf for the
winter and $2.20 per mcf for the summer, yielding an overall 1999 average
price of $2.35 per mcf. 
Oil prices continue to test historical lows, although some relief has
been provided by the production cuts pledged by OPEC and non-OPEC producers.
Pricing tolerance levels remain uncertain, however these cuts have hopefully
established a floor price. Encal has hedged approximately nine percent of its
1998 crude oil production through financial transactions. 
Petroleum and natural gas sales for the nine months ended September 30,
1998 totaled $125.4 million compared to $122.3 million reported during the
same period in 1997. Royalty rates averaged 17.0 percent during the nine
months ended September 30, 1998 compared to 18.5 percent during the same
period in 1997. The decrease in royalty rates in 1998 is primarily due to
higher than expected prior period gas cost allowance deductions and lower
crude oil prices. Operating costs averaged $4.37 per barrel of oil equivalent
during the nine months ended September 30, 1998 compared to $4.30 per barrel
of oil equivalent during the same period in 1997. General and administrative
costs decreased four percent, averaging $1.08 per barrel of oil equivalent in
1998 compared to $1.13 in 1997. 
The unexpected fall in value of the Canadian dollar in relation to the US
dollar has impacted 1998 funds from operations with a realized year to date
foreign exchange hedging loss of $6.4 million. Year to date net hedging losses
including crude oil swaps amount to $3.9 million compared to $2.1 million in
1997. In order to more accurately reflect the quality of Encal's crude oil and
natural gas, the Company has adopted a revised presentation which separately
discloses hedging results. 
For the nine months ended September 30, 1998, funds from operations were
$52.2 million ($0.50 per share) compared to $60.4 million ($0.58 per share)
during the same period of the prior year. Earnings were $104,000 ($0.00 per
share) compared to $9.5 million ($0.09 per share) in 1997. 
Total capital expenditures for the nine months ended September 30, 1998
were $130.6 million compared to $131.8 million for the same period in 1997.
Exploration expenditures during the period inclusive of land, seismic,
drilling and completions accounted for $76.4 million with an additional $37.5
million incurred on equipment, gathering systems, facilities and injection
fluids. During the nine months ended September 30, 1998 the Company has spent
$20.4 million on acquisitions of core properties and received $3.7 million
from the disposition of non-core properties. 
Long term debt was $214.9 million at September 30, 1998 compared to
$143.4 million at December 31, 1997 and $133.3 million at September 30, 1997.
The Company currently has credit facilities of $260 million. Year end debt is
forecasted to be approximately $220 million. 
Encal's operating results continue to generate growth consistent with
previously stated targets. We are pleased with the progress to date and expect
a continuation of this trend. 
As we approach the new gas contract year and the winter heating season,
it appears that prior predictions of considerably increased natural gas
pricing will prove to be correct. The combination of reduced drilling activity
with increased pipeline capacity has the potential to create a gas supply
shortfall in Alberta this winter. As a result, Encal will continue to focus on
natural gas drilling, while oil drilling over the short term will be limited
to development activities at Rigel, B.C. 
With a borrowing base of $260 million, increasing cash flow from volume
growth and improved natural gas pricing during 1999, Encal will be in a strong
position to fund a capital expenditure program capable of generating continued
growth from our large inventory of internal opportunities. 

    On behalf of the Board
    David D. Johnson
    President and CEO
    October 28, 1998
    Balance Sheets
                                                September 30     December 31
    ($ thousands)                                       1998            1997
    Accounts Receivable                               22,011          18,366
    Inventory                                          7,731           5,923
                                                      29,742          24,289
    Petroleum Property and Equipment                 568,827         486,541
    Deferred Foreign Exchange Losses                   7,059           2,706
                                                     605,628         513,536
    Liabilities and Shareholders' Equity
    Accounts Payable                                  49,013          34,698
    Bank Debt                                        138,638          71,959
    Senior Notes Payable                              76,295          71,455
    Site Restoration and Reclamation                   9,090           8,233
    Deferred Income Taxes                             51,558          49,737
                                                     275,581         201,384
    Shareholders' Equity
    Share Capital                                    247,985         244,509
    Retained Earnings                                 33,049          32,945
                                                     281,034         277,454
                                                     605,628         513,536
    Statements of Earnings
    Nine Months Ended September 30
    (unaudited, $ thousands except per share amounts)   1998            1997
    Petroleum and Natural Gas Sales                  125,386         122,256
    Royalties                                         20,661          22,261
    Hedging Losses                                     3,947           2,071
                                                     100,778          97,924
    Production                                        31,082          25,372
    General and Administrative                         7,693           6,649
    Financing Charges                                  9,291           4,932
    Depletion and Depreciation                        49,770          41,900
                                                      97,836          78,853
    Earnings Before Income Taxes                       2,942          19,071
    Income Taxes
    Deferred                                           1,017           9,034
    Large Corporation Tax                              1,821             567
                                                       2,838           9,601
    Net Earnings                                         104           9,470
    Earnings per Share
    Basic                                               0.00            0.09
    Fully Diluted                                       0.00            0.09
    Statements of Changes
    in Financial Position
    Nine Months Ended September 30
    (unaudited, $ thousands except per share amounts)   1998            1997
    Operating Activities
    Net Earnings                                         104           9,470
    Depletion and Depreciation                        49,770          41,900
    Deferred Income Taxes                              1,821           9,034
    Amortization of Deferred Foreign Exchange Losses     471               -
    Funds from Operations                             52,166          60,404
    Change in Non-Cash Working Capital                (2,654)          4,129
                                                      49,512          64,533
    Financing Activities
    Bank Debt                                         66,679          69,292
    Senior Notes Payable                                  16               -
    Common Shares                                      3,476           2,283
                                                      70,171          71,575
    Investing Activities
    Petroleum Property and Equipment                (134,353)       (158,370)
    Sales of Petroleum Property and Equipment          3,707          26,610
    Site Restoration and Reclamation                    (553)           (795)
    Change in Non-Cash Working Capital                11,516          (3,553)
                                                    (119,683)       (136,108)
    Change in Cash                                         -               -
    Funds from Operations per Share
    Basic                                               0.50            0.58
    Fully Diluted                                       0.47            0.55

SOURCE:  Encal Energy Ltd.
    -0-                              10/28/1998

/CONTACT:  Karen L. Ruzicki, Encal Energy Ltd., (403) 50-3300, Fax: (403)
CO:  Encal Energy Ltd.
ST:  Alberta
-0- Oct/28/1998   16:53
EOS   (PRN)    Oct/28/98    16:53      86
-0- (PRN) Oct/28/1998   17:08
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