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     -------------------------------------------------------------------------     Operations     Production       - 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     Highlights     - 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       Newfoundland     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 Westerose.  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 2000.  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.  Production  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.  Marketing  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.  Financial  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.  Outlook  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     -------------------------------------------------------------------------                                                  (unaudited)     Assets     Current     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     Current     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     -------------------------------------------------------------------------     Revenues     Petroleum and Natural Gas Sales                  125,386         122,256     Royalties                                         20,661          22,261     Hedging Losses                                     3,947           2,071     -------------------------------------------------------------------------                                                      100,778          97,924     -------------------------------------------------------------------------     Expenses     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.     /CONTACT:  Karen L. Ruzicki, Encal Energy Ltd., (403) 50-3300, Fax: (403) 266-3896/  (ENL. ECA)  CO:  Encal Energy Ltd. ST:  Alberta IN:  OIL SU:  ERN  -30- -0- Oct/28/1998   16:53 EOS   (PRN)    Oct/28/98    16:53      86 â -0- (PRN) Oct/28/1998   17:08