Exhibit 99.3

ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

		Page
Report of Independent Registered Public Accounting Firm			1
Consolidated Balance Sheets as of December 31, 2008 and 2007			2
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007, and 2006			3
Consolidated Statements of Equity and Comprehensive Income for the Years Ended December 31, 2008, 2007, and 2006			4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007, and 2006			5
Notes to Consolidated Financial Statements			6
Supplementary Information			48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Encore Acquisition Company:

We have audited the accompanying consolidated balance sheets of Encore Acquisition Company (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008. 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 the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Encore Acquisition Company at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 9 to the consolidated financial statements, effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109.”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2009 expressed an unqualified opinion thereon.

Fort Worth, Texas
February 24, 2009, except for the matters related to the retrospective adoptions of SFAS No. 160 and FSP EITF 03-6-1 and the reorganization of operating segments described in Notes 2, 11 and 18 as to which the date is January 25, 2010

ENCORE ACQUISITION COMPANY

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

		December 31,
		2008				2007
ASSETS
Current assets:
Cash and cash equivalents		$	2,039			$	1,704
Accounts receivable, net of allowance for doubtful accounts of $381 and $0, respectively			129,065				134,880
Inventory			24,798				16,257
Derivatives			349,344				9,722
Deferred taxes			—				20,420
Income taxes receivable			29,445				2,661
Other			6,239				2,866
Total current assets			540,930				188,510
Properties and equipment, at cost — successful efforts method:
Proved properties, including wells and related equipment			3,538,459				2,845,776
Unproved properties			124,339				63,352
Accumulated depletion, depreciation, and amortization			(771,564	)			(489,004	)
			2,891,234				2,420,124
Other property and equipment			25,192				21,750
Accumulated depreciation			(12,753	)			(10,733	)
			12,439				11,017
Goodwill			60,606				60,606
Derivatives			38,497				34,579
Long-term receivables, net of allowance for doubtful accounts of $7,643 and $6,045, respectively			60,915				40,945
Other			28,574				28,780
Total assets		$	3,633,195			$	2,784,561
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	10,017			$	21,548
Accrued liabilities:
Lease operating			19,108				15,057
Development capital			79,435				48,359
Interest			11,808				12,795
Production, ad valorem, and severance taxes			25,133				24,694
Marketing			3,594				8,721
Derivatives			63,476				39,337
Oil and natural gas revenues payable			10,821				13,076
Deferred taxes			105,768				—
Other			23,092				21,143
Total current liabilities			352,252				204,730
Derivatives			8,922				47,091
Future abandonment cost, net of current portion			48,058				27,371
Deferred taxes			416,915				312,914
Long-term debt			1,319,811				1,120,236
Other			3,989				1,530
Total liabilities			2,149,947				1,713,872
Commitments and contingencies (see Note 4)
Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued and outstanding			—				—
Common stock, $.01 par value, 144,000,000 shares authorized, 51,551,937 and 53,303,464 issued and outstanding, respectively			516				534
Additional paid-in capital			525,763				538,620
Treasury stock, at cost, of 4,753 and 17,690 shares, respectively			(101	)			(590	)
Retained earnings			789,698				411,377
Accumulated other comprehensive loss			(1,748	)			(1,786	)
Total EAC stockholders’ equity			1,314,128				948,155
Noncontrolling interest			169,120				122,534
Total equity			1,483,248				1,070,689
Total liabilities and equity		$	3,633,195			$	2,784,561

The accompanying notes are an integral part of these consolidated financial statements.

ENCORE ACQUISITION COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

		Year Ended December 31,
		2008				2007				2006
Revenues:
Oil		$	897,443			$	562,817			$	346,974
Natural gas			227,479				150,107				146,325
Marketing			10,496				42,021				147,563
Total revenues			1,135,418				754,945				640,862
Expenses:
Production:
Lease operating			175,115				143,426				98,194
Production, ad valorem, and severance taxes			110,644				74,585				49,780
Depletion, depreciation, and amortization			228,252				183,980				113,463
Impairment of long-lived assets			59,526				—				—
Exploration			39,207				27,726				30,519
General and administrative			48,421				39,124				23,194
Marketing			9,570				40,549				148,571
Derivative fair value loss (gain)			(346,236	)			112,483				(24,388	)
Provision for doubtful accounts			1,984				5,816				1,970
Other operating			12,975				17,066				8,053
Total expenses			339,458				644,755				449,356
Operating income			795,960				110,190				191,506
Other income (expenses):
Interest			(73,173	)			(88,704	)			(45,131	)
Other			3,898				2,667				1,429
Total other expenses			(69,275	)			(86,037	)			(43,702	)
Income before income taxes			726,685				24,153				147,804
Income tax provision			(241,621	)			(14,476	)			(55,406	)
Consolidated net income			485,064				9,677				92,398
Less: net loss (income) attributable to noncontrolling interest			(54,252	)			7,478				—
Net income attributable to EAC stockholders		$	430,812			$	17,155			$	92,398
Net income per common share:
Basic		$	8.10			$	0.32			$	1.75
Diluted		$	8.01			$	0.31			$	1.74
Weighted average common shares outstanding:
Basic			52,270				53,170				51,865
Diluted			52,866				53,629				52,356

The accompanying notes are an integral part of these consolidated financial statements.

ENCORE ACQUISITION COMPANY

CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(in thousands)

		EAC Stockholders
		Issued																								Accumulated
		Shares of								Additional				Shares of												Other
		Common				Common				Paid-in				Treasury				Treasury				Retained				Comprehensive				Noncontrolling				Total
		Stock				Stock				Capital				Stock				Stock				Earnings				Loss				Interest				Equity
Balance at December 31, 2005			48,785			$	488			$	316,619				(11	)		$	(375	)		$	302,875			$	(72,826	)		$	—			$	546,781
Exercise of stock options and vesting of restricted stock			280				3				3,641				—				—				—				—				—				3,644
Purchase of treasury stock			—				—				—				(25	)			(633	)			—				—				—				(633	)
Cancellation of treasury stock			(18	)			—				(195	)			18				551				(356	)			—				—				—
Issuance of common stock			4,000				40				127,061				—				—				—				—				—				127,101
Non-cash stock-based compensation			—				—				10,075				—				—				—				—				—				10,075
Components of comprehensive income:
Net income			—				—				—				—				—				92,398				—				—				92,398
Change in deferred hedge gain/loss, net of tax of $22,365			—				—				—				—				—				—				37,499				—				37,499
Total comprehensive income																																			129,897
Balance at December 31, 2006			53,047				531				457,201				(18	)			(457	)			394,917				(35,327	)			—				816,865
Exercise of stock options and vesting of restricted stock			313				3				1,587				—				—				—				—				—				1,590
Purchase of treasury stock			—				—				—				(39	)			(1,136	)			—				—				—				(1,136	)
Cancellation of treasury stock			(39	)			—				(338	)			39				1,003				(665	)			—				—				—
Non-cash equity-based compensation			—				—				14,632				—				—				—				—				2,627				17,259
ENP issuance of common units, net of offering costs			—				—				(12,088	)			—				—				—				—				205,549				193,461
ENP cash distributions to noncontrolling interests			—				—				—				—				—				(30	)			—				(538	)			(568	)
Adjustment to reflect gain on ENP issuance of common units			—				—				77,626				—				—				—				—				(77,626	)			—
Components of comprehensive income:
Net income			—				—				—				—				—				17,155				—				(7,478	)			9,677
Amortization of deferred hedge losses, net of tax of $20,047			—				—				—				—				—				—				33,541				—				33,541
Total comprehensive income																																			43,218
Balance at December 31, 2007			53,321				534				538,620				(18	)			(590	)			411,377				(1,786	)			122,534				1,070,689
Exercise of stock options and vesting of restricted stock			300				2				2,620				—				—				—				—				—				2,622
Repurchase and retirement of common stock			(2,018	)			(20	)			(19,279	)			—				—				(47,871	)			—				—				(67,170	)
Purchase of treasury stock			—				—				—				(33	)			(1,055	)			—				—				—				(1,055	)
Cancellation of treasury stock			(46	)			—				(465	)			46				1,544				(1,079	)			—				—				—
Non-cash equity-based compensation			—				—				14,505				—				—				—				—				1,697				16,202
ENP issuance of common units			—				—				—				—				—				—				—				5,748				5,748
ENP cash distributions to noncontrolling interests			—				—				—				—				—				(3,541	)			—				(24,004	)			(27,545	)
Adjustment to reflect gain on ENP issuance of common units			—				—				3,458				—				—				—				—				(3,458	)			—
Economic uniformity adjustment related to conversion of management incentive units			—				—				(13,920	)			—				—				—				—				13,920				—
Other			—				—				224				—				—				—				—				—				224
Components of comprehensive income:
Net income			—				—				—				—				—				430,812				—				54,252				485,064
Change in deferred hedge loss on interest rate swaps, net of tax of $957			—				—				—				—				—				—				(1,748	)			(1,569	)			(3,317	)
Amortization of deferred loss on commodity derivative contracts, net of tax of $1,071			—				—				—				—				—				—				1,786				—				1,786
Total comprehensive income																																			483,533
Balance at December 31, 2008			51,557			$	516			$	525,763				(5	)		$	(101	)		$	789,698			$	(1,748	)		$	169,120			$	1,483,248

The accompanying notes are an integral part of these consolidated financial statements.

ENCORE ACQUISITION COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Year Ended December 31,
		2008				2007				2006
Cash flows from operating activities:
Consolidated net income		$	485,064			$	9,677			$	92,398
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depletion, depreciation, and amortization			228,252				183,980				113,463
Impairment of long-lived assets			59,526				—				—
Non-cash exploration expense			34,874				25,487				28,128
Deferred taxes			232,614				12,588				51,220
Non-cash equity-based compensation expense			14,115				15,997				8,980
Non-cash derivative loss (gain)			(299,914	)			130,910				(10,434	)
Loss (gain) on disposition of assets			(3,623	)			7,409				(297	)
Provision for doubtful accounts			1,984				5,816				1,970
Other			6,479				10,182				7,577
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable			(8,488	)			(48,647	)			(2,275	)
Current derivatives			(13,681	)			(17,430	)			—
Other current assets			(35,495	)			3,108				(4,945	)
Long-term derivatives			(8,601	)			(35,750	)			—
Other assets			(2,174	)			(1,214	)			(365	)
Accounts payable			(11,468	)			4,461				1,833
Other current liabilities			(14,351	)			14,788				10,080
Other noncurrent liabilities			(1,876	)			(1,655	)			—
Net cash provided by operating activities			663,237				319,707				297,333
Cash flows from investing activities:
Proceeds from disposition of assets			4,235				287,928				1,522
Purchases of other property and equipment			(4,208	)			(3,519	)			(4,290	)
Acquisition of oil and natural gas properties			(142,559	)			(848,545	)			(30,119	)
Development of oil and natural gas properties			(560,997	)			(335,897	)			(340,582	)
Net advances to working interest partners			(24,817	)			(29,523	)			(22,425	)
Other			—				—				(1,536	)
Net cash used in investing activities			(728,346	)			(929,556	)			(397,430	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs			—				—				127,101
Proceeds from issuance of ENP common units, net of issuance costs			—				193,461				—
Repurchase and retirement of common stock			(67,170	)			—				—
Exercise of stock options and vesting of restricted stock, net of treasury stock purchases			1,567				454				3,011
Proceeds from long-term debt, net of issuance costs			1,370,339				1,479,259				281,853
Payments on long-term debt			(1,172,500	)			(1,034,428	)			(294,000	)
Payment of commodity derivative contract premiums			(39,184	)			(26,195	)			(7,848	)
ENP cash distributions to noncontrolling interests			(27,545	)			(568	)			—
Change in cash overdrafts			(63	)			(1,193	)			(10,911	)
Net cash provided by financing activities			65,444				610,790				99,206
Increase (decrease) in cash and cash equivalents			335				941				(891	)
Cash and cash equivalents, beginning of period			1,704				763				1,654
Cash and cash equivalents, end of period		$	2,039			$	1,704			$	763

The accompanying notes are an integral part of these consolidated financial statements.

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of Business

     Encore Acquisition Company (together with its subsidiaries, “EAC”), a Delaware corporation, is engaged in the acquisition and development of oil and natural gas reserves from onshore fields in the United States. Since 1998, EAC has acquired producing properties with proven reserves and leasehold acreage and grown the production and proven reserves by drilling, exploring, and reengineering or expanding existing waterflood projects. EAC’s properties and oil and natural gas reserves are located in four core areas:

	•		the Cedar Creek Anticline (“CCA”) in the Williston Basin in Montana and North Dakota;
	•		the Permian Basin in West Texas and southeastern New Mexico;
	•		the Rockies, which includes non-CCA assets in the Williston, Big Horn, and Powder River Basins in Wyoming, Montana, and North Dakota, and the Paradox Basin in southeastern Utah; and
	•		the Mid-Continent area, which includes the Arkoma and Anadarko Basins in Oklahoma, the North Louisiana Salt Basin, the East Texas Basin, and the Mississippi Salt Basin.

Note 2. Summary of Significant Accounting Policies

     On January 1, 2009, EAC adopted new guidance issued by the Financial Accounting Standards Board (the “FASB”) on the accounting for noncontrolling interests and new guidance relating to the treatment of equity-based payment transactions in the calculation of earnings per share. The retrospective application of the new guidance on noncontrolling interests resulted in the reclassification of approximately $169.1 million and $122.5 million from “Minority interest in consolidated partnership” to “Noncontrolling interest” at December 31, 2008 and 2007, respectively, on the accompanying Consolidated Balance Sheets. The retrospective application of the new guidance on earnings per share reduced EAC’s basic earnings per common share by $0.14 and $0.03 for the years ended December 31, 2008 and 2006 and reduced EAC’s diluted earnings per share by $0.06, $0.01, and $0.01 for the years ended December 31, 2008, 2007, and 2006, respectively. The adoption of the revised guidance on earnings per share did not have an impact on EAC’s basic earnings per share for the year ended December 31, 2007.

     In August 2009, Encore Operating, L.P. (“Encore Operating”), a Texas limited partnership and indirect wholly owned guarantor subsidiary of EAC, sold certain oil and natural gas properties and related assets in the Big Horn Basin in Wyoming, the Permian Basin in West Texas and New Mexico, and the Williston Basin in Montana and North Dakota (the “Rockies and Permian Basin Assets”) to Encore Energy Partners LP (together with its subsidiaries, “ENP”), a publicly traded Delaware limited partnership, for approximately $186.8 million in cash. In June 2009, Encore Operating sold certain oil and natural gas producing properties and related assets in the Williston Basin in North Dakota and Montana (the “Williston Basin Assets”) to ENP for approximately $25.2 million in cash. In January 2009, Encore Operating sold certain oil and natural gas producing properties and related assets in the Arkoma Basin in Arkansas and royalty interest properties primarily in Oklahoma, as well as 10,300 unleased mineral acres (the “Arkoma Basin Assets”), to ENP for approximately $46.4 million in cash. Because these assets were sold to an affiliate, the dispositions were accounted for as transactions between entities under common control, similar to a pooling of interests, whereby ENP recorded the assets and liabilities of the acquired properties at Encore Operating’s carrying value and ENP’s historical financial information was recast to include the acquired properties for all periods presented. Accordingly, EAC’s segment information for ENP in these notes to consolidated financial statements reflect the historical results of ENP combined with those of the Arkoma Basin Assets, the Williston Basin Assets, and the Rockies and Permian Basin Assets for all periods presented.

     As a result of the above noted transactions, the consolidated financial statements, notes to consolidated financial statements (including Notes 2, 9, 11, 16, and 18), and unaudited supplementary information have been revised.

Principles of Consolidation

     EAC’s consolidated financial statements include the accounts of its wholly owned and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

     In February 2007, EAC formed ENP to acquire, exploit, and develop oil and natural gas properties and to acquire, own, and operate related assets. In September 2007, ENP completed its initial public offering (“IPO”). As of December 31, 2008 and 2007, EAC owned approximately 63 percent and 58 percent, respectively, of ENP’s common units, as well as all of the interests of Encore Energy Partners GP LLC (“GP LLC”), a Delaware limited liability company and ENP’s general partner, which is an indirect wholly owned non-guarantor subsidiary of EAC. Considering the presumption of control of GP LLC in accordance with Emerging Issues Task Force (“EITF”) Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” the financial position, results of operations,

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

and cash flows of ENP are consolidated with those of EAC. EAC elected to account for gains on ENP’s issuance of common units as capital transactions as permitted by Staff Accounting Bulletin (“SAB”) Topic 5H, “Accounting for Sales of Stock by a Subsidiary.” Please read “Note 10. Stockholders’ Equity” for additional discussion.

     As presented in the accompanying Consolidated Balance Sheets, “Noncontrolling interest” as of December 31, 2008 and 2007 of $169.1 million and $122.5 million, respectively, represents third-party ownership interests in ENP. As presented in the accompanying Consolidated Statements of Operations, “Net income attributable to noncontrolling interest” for 2008 of $54.3 million and “Net loss attributable to noncontrolling interest” for 2007 of $7.5 million represents ENP’s results of operations attributable to third-party owners.

     The following table summarizes the effects of changes in EAC’s partnership interest in ENP on EAC’s equity for the periods indicated:

		Year Ended December 31,
		2008				2007
		(in thousands)
Net income attributable to EAC stockholders		$	430,812			$	17,155
Transfer from (to) noncontrolling interest:
Increase in EAC’s paid-in capital for ENP’s issuance of 10,148,400 common units in public offering			—				77,626
Increase in EAC’s paid-in capital for ENP’s issuance of 283,700 common units in connection with acquisition of net profits interest in certain Crockett County properties			3,458				—
Net transfer from noncontrolling interest			3,458				77,626
Change from net income attributable to EAC stockholders and transfers from (to) noncontrolling interest		$	434,270			$	94,781

Use of Estimates

     Preparing financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make certain estimations and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the consolidated financial statements and the reported amounts of revenues and expenses. Actual results could differ materially from those estimates.

     Estimates made in preparing these consolidated financial statements include, among other things, estimates of the proved oil and natural gas reserve volumes used in calculating depletion, depreciation, and amortization (“DD&A”) expense; the estimated future cash flows and fair value of properties used in determining the need for any impairment write-down; operating costs accrued; volumes and prices for revenues accrued; estimates of the fair value of equity-based compensation awards; and the timing and amount of future abandonment costs used in calculating asset retirement obligations. Changes in the assumptions used could have a significant impact on reported results in future periods.

Cash and Cash Equivalents

     Cash and cash equivalents include cash in banks, money market accounts, and all highly liquid investments with an original maturity of three months or less. On a bank-by-bank basis and considering legal right of offset, cash accounts that are overdrawn are reclassified to current liabilities and any change in cash overdrafts is shown as “Change in cash overdrafts” in the “Financing activities” section of EAC’s Consolidated Statements of Cash Flows.

Supplemental Disclosures of Cash Flow Information

     The following table sets forth supplemental disclosures of cash flow information for the periods indicated:

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

		Year ended December 31,
		2008				2007				2006
		(In thousands)
Cash paid during the period for:
Interest		$	67,519			$	82,649			$	46,389
Income taxes			33,110				260				464
Non-cash investing and financing activities:
Deferred premiums on commodity derivative contracts			53,387				20,341				30,319
ENP’s issuance of common units in connection with acquisition of net profits interest in certain Crockett County properties			5,748				—				—

Accounts Receivable

     Trade accounts receivable, which are primarily from oil and natural gas sales, are recorded at the invoiced amount and do not bear interest with the exception of the current portion of balances due from ExxonMobil Corporation (“ExxonMobil”) in connection with EAC’s joint development agreement. Please read “Note 4. Commitments and Contingencies” for additional discussion of this agreement. EAC routinely reviews outstanding accounts receivable balances and assesses the financial strength of its customers and records a reserve for amounts not expected to be fully recovered. Actual balances are not applied against the reserve until substantially all collection efforts have been exhausted. The following table summarizes the changes in allowance for doubtful accounts for the periods indicated:

		Year Ended December 31,
		2008				2007
		(in thousands)
Allowance for doubtful accounts at January 1		$	6,045			$	2,329
Bad debt expense			1,984				5,816
Write off			(5	)			(2,100	)
Allowance for doubtful accounts at December 31		$	8,024			$	6,045

     Of the $8.0 million in allowance for doubtful accounts at December 31, 2008, $0.4 million is short-term and $7.6 million is long-term.

Inventory

     Inventory includes materials and supplies and oil in pipelines, which are stated at the lower of cost (determined on an average basis) or market. Oil produced at the lease which resides unsold in pipelines is carried at an amount equal to its operating costs to produce. Oil in pipelines purchased from third parties is carried at average purchase price. Inventory consisted of the following as of the dates indicated:

		December 31,
		2008				2007
		(in thousands)
Materials and supplies		$	15,933			$	11,030
Oil in pipelines			8,865				5,227
Total inventory		$	24,798			$	16,257

Properties and Equipment

     Oil and Natural Gas Properties. EAC uses the successful efforts method of accounting for its oil and natural gas properties under Statement of Financial Accounting Standards (“SFAS”) No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies” (“SFAS 19”). Under this method, all costs associated with productive and nonproductive development wells are capitalized. Exploration expenses, including geological and geophysical expenses and delay rentals, are charged to expense as incurred. Costs associated with drilling exploratory wells are initially capitalized pending determination of whether the well is economically productive or nonproductive.

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

     If an exploratory well does not find reserves or does not find reserves in a sufficient quantity as to make them economically producible, the previously capitalized costs would be expensed in EAC’s Consolidated Statements of Operations and shown as a non-cash adjustment to net income in the “Operating activities” section of EAC’s Consolidated Statements of Cash Flows in the period in which the determination was made. If an exploratory well finds reserves but they cannot be classified as proved, EAC continues to capitalize the associated cost as long as the well has found a sufficient quantity of reserves to justify its completion as a producing well and sufficient progress is being made in assessing the reserves and the operating viability of the project. If subsequently it is determined that these conditions do not continue to exist, all previously capitalized costs associated with the exploratory well would be expensed and shown as a non-cash adjustment to net income in the “Operating activities” section of EAC’s Consolidated Statements of Cash Flows in the period in which the determination is made. Re-drilling or directional drilling in a previously abandoned well is classified as development or exploratory based on whether it is in a proved or unproved reservoir. Costs for repairs and maintenance to sustain or increase production from the existing producing reservoir are charged to expense as incurred. Costs to recomplete a well in a different unproved reservoir are capitalized pending determination that economic reserves have been added. If the recompletion is not successful, the costs would be charged to expense. All capitalized costs associated with both development and exploratory wells are shown as “Development of oil and natural gas properties” in the “Investing activities” section of EAC’s Consolidated Statements of Cash Flows.

     Significant tangible equipment added or replaced that extends the useful or productive life of the property is capitalized. Costs to construct facilities or increase the productive capacity from existing reservoirs are capitalized. Internal costs directly associated with the development of proved properties are capitalized as a cost of the property and are classified accordingly in EAC’s consolidated financial statements. Capitalized costs are amortized on a unit-of-production basis over the remaining life of proved developed reserves or total proved reserves, as applicable. Natural gas volumes are converted to barrels of oil equivalent (“BOE”) at the rate of six thousand cubic feet (“Mcf”) of natural gas to one barrel (“Bbl”) of oil.

     The costs of retired, sold, or abandoned properties that constitute part of an amortization base are charged or credited, net of proceeds received, to accumulated DD&A.

     Miller and Lents, Ltd., EAC’s independent reserve engineer, estimates EAC’s reserves annually on December 31. This results in a new DD&A rate which EAC uses for the preceding fourth quarter after adjusting for fourth quarter production. EAC internally estimates reserve additions and reclassifications of reserves from proved undeveloped to proved developed at the end of the first, second, and third quarters for use in determining a DD&A rate for the respective quarter.

     In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), EAC assesses the need for an impairment of long-lived assets to be held and used, including proved oil and natural gas properties, whenever events and circumstances indicate that the carrying value of the asset may not be recoverable. If impairment is indicated based on a comparison of the asset’s carrying value to its undiscounted expected future net cash flows, then an impairment charge is recognized to the extent that the asset’s carrying value exceeds its fair value. Expected future net cash flows are based on existing proved reserves (and appropriately risk-adjusted probable reserves), forecasted production information, and management’s outlook of future commodity prices. Any impairment charge incurred is expensed and reduces the net basis in the asset. Management aggregates proved property for impairment testing the same way as for calculating DD&A. The price assumptions used to calculate undiscounted cash flows is based on judgment. EAC uses prices consistent with the prices used in bidding on acquisitions and/or assessing capital projects. These price assumptions are critical to the impairment analysis as lower prices could trigger impairment.

     Unproved properties, the majority of which relate to the acquisition of leasehold interests, are assessed for impairment on a property-by-property basis for individually significant balances and on an aggregate basis for individually insignificant balances. If the assessment indicates an impairment, a loss is recognized by providing a valuation allowance at the level at which impairment was assessed. The impairment assessment is affected by economic factors such as the results of exploration activities, commodity price outlooks, remaining lease terms, and potential shifts in business strategy employed by management. In the case of individually insignificant balances, the amount of the impairment loss recognized is determined by amortizing the portion of these properties’ costs which EAC believes will not be transferred to proved properties over the remaining life of the lease.

     Amounts shown in the accompanying Consolidated Balance Sheets as “Proved properties, including wells and related equipment” consisted of the following as of the dates indicated:

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

		December 31,
		2008				2007
		(in thousands)
Proved leasehold costs		$	1,421,859			$	1,346,516
Wells and related equipment — Completed			1,943,275				1,408,512
Wells and related equipment — In process			173,325				90,748
Total proved properties		$	3,538,459			$	2,845,776

     Other Property and Equipment. Other property and equipment is carried at cost. Depreciation is recognized on a straight-line basis over estimated useful lives, which range from three to seven years. Leasehold improvements are capitalized and depreciated over the remaining term of the lease, which is through 2013 for EAC’s corporate headquarters. Gains or losses from the disposal of other property and equipment are recognized in the period realized and included in “Other operating expense” of EAC’s Consolidated Statements of Operations.

Goodwill and Other Intangible Assets

     EAC accounts for goodwill and other intangible assets under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in business combinations. Goodwill and other intangible assets with indefinite useful lives are tested for impairment annually on December 31 or whenever indicators of impairment exist. If indicators of impairment are determined to exist, an impairment charge would be recognized for the amount by which the carrying value of the asset exceeds its implied fair value. The goodwill test is performed at the reporting unit level. EAC has determined that it has two reporting units: EAC Standalone and ENP. ENP has been allocated $2.6 million of goodwill and the remainder has been allocated to the EAC Standalone segment.

     EAC utilizes both a market capitalization and an income approach to determine the fair value of its reporting units. The primary component of the income approach is the estimated discounted future net cash flows expected to be recovered from the reporting unit’s oil and natural gas properties. EAC’s analysis concluded that there was no impairment of goodwill as of December 31, 2008. Prices for oil and natural gas have deteriorated sharply in recent months and significant uncertainty remains on how prices for these commodities will behave in the future. Any additional decreases in the prices of oil and natural gas or any negative reserve adjustments from the December 31, 2008 assessment could change EAC’s estimates of the fair value of its reporting units and could result in an impairment charge.

     Intangible assets with definite useful lives are amortized over their estimated useful lives. In accordance with SFAS 144, EAC evaluates the recoverability of intangible assets with definite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be fully recoverable. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

     ENP is a party to a contract allowing it to purchase a certain amount of natural gas at a below market price for use as field fuel. The fair value of this contract, net of related amortization, is included in “Other noncurrent assets” on the accompanying Consolidated Balance Sheets. The gross carrying amount of this contract is $4.2 million and as of December 31, 2008 and 2007, accumulated amortization was $0.6 million and $0.3 million, respectively. During each of 2008 and 2007, ENP recorded $0.3 million of amortization expense related to this contract. The net carrying amount is being amortized on a straight-line basis through July 2019. ENP expects to recognize $0.3 million of amortization expense during each of the next five years related to this contract.

Asset Retirement Obligations

     In accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations,” EAC recognizes the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. For oil and natural gas properties, this is the period in which the property is acquired or a new well is drilled. An amount equal to and offsetting the liability is capitalized as part of the carrying amount of EAC’s oil and natural gas properties. The liability is recorded at its discounted fair value and then accreted each period until it is settled or the asset is sold, at which time the liability is reversed. Estimates are based on historical experience in plugging and abandoning wells and estimated remaining field life based on reserve estimates. EAC does not provide for a market risk premium associated with asset retirement obligations because a reliable estimate cannot be determined. Please read “Note 5. Asset Retirement Obligations” for additional information.

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

Equity-Based Compensation

     EAC accounts for equity-based compensation according to the provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which requires the recognition of compensation expense for equity-based awards over the requisite service period in an amount equal to the grant date fair value of the awards. EAC utilizes a standard option pricing model (i.e., Black-Scholes) to measure the fair value of employee stock options under SFAS 123R. Please read “Note 12. Employee Benefit Plans” for additional discussion of EAC’s employee benefit plans.

     SFAS 123R also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow. This requirement reduces net operating cash flows and increases net financing cash flows. EAC recognizes compensation costs related to awards with graded vesting on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. Compensation expense associated with awards to employees who are eligible for retirement is fully expensed on the date of grant.

Segment Reporting

     EAC operates in only one industry: the oil and natural gas exploration and production industry in the United States. However, EAC is organizationally structured along two reportable segments: EAC Standalone and ENP. EAC’s segments are components of its business for which separate financial information related to operating and development costs are available and regularly evaluated by the chief operating decision maker in deciding how to allocate capital resources to projects and in assessing performance. Please read “Note 18. Segment Information” for additional discussion. Prior to the fourth quarter of 2007, segment reporting was not applicable to EAC.

Major Customers/Concentration of Credit Risk

     The following purchasers accounted for 10 percent or greater of the sales of production for the period indicated:

		Percentage of Total Sales of
		Production for the Year Ended
		December 31,
		2008				2007				2006
Consolidated EAC
Eight-Eight Oil			14	%			14	%			(a	)
Tesoro Refining & Marketing Co			12	%			(a	)			(a	)
Shell Trading Company			(a	)			(a	)			15	%
ConocoPhillips			(a	)			(a	)			12	%
ENP
Marathon Oil Corporation			19	%			24	%			(a	)
ConocoPhillips			17	%			10	%			(a	)
Chevron Corporation			(a	)			(a	)			21	%
Sid Richardson Energy			(a	)			(a	)			13	%
Tesoro Refining & Marketing Co			15	%			17	%			(a	)
Trammo Petroleum, Inc.			(a	)			(a	)			14	%
Navajo Refining & Crude Marketing			(a	)			(a	)			16	%
EAC Standalone
Shell Trading Company			(a	)			(a	)			15	%
ConocoPhillips			(a	)			(a	)			10	%
Eight-Eight Oil			23	%			29	%			(a	)
Tesoro Refining & Marketing Co			13	%			(a	)			(a	)

Income Taxes

     Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are established when necessary to reduce net 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.

Oil and Natural Gas Revenue Recognition

     Oil and natural gas revenues are recognized as oil and natural gas is produced and sold, net of royalties and net profits interests. Royalties, net profits interests, and severance taxes are incurred based upon the actual price received from the sales. To the extent actual quantities and values of oil and natural gas are unavailable for a given reporting period because of timing or information not received from third parties, the expected sales volumes and prices for those properties are estimated and recorded as “Accounts receivable, net” in the accompanying Consolidated Balance Sheets. Natural gas revenues are reduced by any processing and other fees incurred except for transportation costs paid to third parties, which are recorded in “Other operating expense” in the accompanying Consolidated Statements of Operations. Natural gas revenues are recorded using the sales method of accounting whereby revenue is recognized based on actual sales of natural gas rather than EAC’s proportionate share of natural gas production. If EAC’s overproduced imbalance position (i.e., EAC has cumulatively been over-allocated production) is greater than EAC’s share of remaining reserves, a liability is recorded for the excess at period-end prices unless a different price is specified in the contract in which case that price is used. Revenue is not recognized for the production in tanks, oil marketed on behalf of joint owners in EAC’s properties, or oil in pipelines that has not been delivered to the purchaser.

     EAC’s net oil inventories in pipelines were 173,119 Bbls and 124,410 Bbls at December 31, 2008 and 2007, respectively. Natural gas imbalances at December 31, 2008 and 2007, were 28,717 million British thermal units (“MMBtu”) and 128,856 MMBtu under-delivered to EAC, respectively.

Marketing Revenues and Expenses

     Marketing revenues include the sales of natural gas purchased from third parties as well as pipeline tariffs charged for transportation volumes through EAC’s pipelines. Marketing revenues derived from sales of oil and natural gas purchased from third parties are recognized when persuasive evidence of a sales arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. Marketing expenses include the cost of oil and natural gas volumes purchased from third parties, pipeline tariffs, storage, truck facility fees, and tank bottom costs used to support the sale of oil production. As EAC takes title to the oil and natural gas and has risks and rewards of ownership, these transactions are presented gross in the Consolidated Statements of Operations, unless they meet the criteria for netting as outlined in EITF Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty.”

Shipping Costs

     Shipping costs in the form of pipeline fees and trucking costs paid to third parties are incurred to transport oil and natural gas production from certain properties to a different market location for ultimate sale. These costs are included in “Other operating expense” and “Marketing expense,” as applicable, in the accompanying Consolidated Statements of Operations.

Derivatives

     EAC uses various financial instruments for non-trading purposes to manage and reduce price volatility and other market risks associated with its oil and natural gas production. These arrangements are structured to reduce EAC’s exposure to commodity price decreases, but they can also limit the benefit EAC might otherwise receive from commodity price increases. EAC’s risk management activity is generally accomplished through over-the-counter forward derivative or option contracts with large financial institutions. EAC also uses derivative instruments in the form of interest rate swaps, which hedge risk related to interest rate fluctuation.

     EAC applies the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and its amendments, which requires each derivative instrument to be recorded in the balance sheet at fair value. If a derivative does not qualify for hedge accounting, it must be adjusted to fair value through earnings. However, if a derivative qualifies for hedge accounting, depending on the nature of the hedge, changes in fair value can be recognized in accumulated other comprehensive income until such time as the hedged item is recognized in earnings.

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

     To qualify for cash flow hedge accounting, the cash flows from the hedging instrument must be highly effective in offsetting changes in cash flows of the hedged item. In addition, all hedging relationships must be designated, documented, and reassessed periodically. Cash flow hedges are marked to market through accumulated other comprehensive income each period.

     EAC has elected to designate its current interest rate swaps as cash flow hedges. The effective portion of the mark-to-market gain or loss on these derivative instruments is recorded in “Accumulated other comprehensive income” on the accompanying Consolidated Balance Sheets and reclassified into earnings in the same period in which the hedged transaction affects earnings. Any ineffective portion of the mark-to-market gain or loss is recognized in earnings immediately as “Derivative fair value loss (gain)” in the Consolidated Statements of Operations.

     EAC has elected to not designate its current portfolio of commodity derivative contracts as hedges and therefore, changes in fair value of these instruments are recognized in earnings as “Derivative fair value loss (gain)” in the accompanying Consolidated Statements of Operations.

Comprehensive Income

     EAC has elected to show comprehensive income as part of its Consolidated Statements of Stockholders’ Equity and Comprehensive Income rather than in its Consolidated Statements of Operations.

Reclassifications

     Certain amounts in prior periods have been reclassified to conform to the current period presentation. In particular, “Income taxes receivable” has been presented separately on the accompanying Consolidated Balance Sheets.

New Accounting Pronouncements

SFAS No. 157, “Fair Value Measurements” (“SFAS 157”)

     In September 2006, the FASB issued SFAS 157, which: (1) standardizes the definition of fair value; (2) establishes a framework for measuring fair value in GAAP; and (3) expands disclosures related to the use of fair value measures in financial statements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, but does not require any new fair value measurements. SFAS 157 was prospectively effective for financial assets and liabilities for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), which delayed the effective date of SFAS 157 for one year for nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). EAC elected a partial deferral of SFAS 157 for all instruments within the scope of FSP FAS 157-2, including, but not limited to, its asset retirement obligations and indefinite lived assets. EAC will continue to evaluate the impact of SFAS 157 on these instruments during the deferral period. The adoption of SFAS 157 on January 1, 2008, as it relates to financial assets and liabilities, did not have a material impact on EAC’s results of operations or financial condition. EAC does not expect the adoption of SFAS 157 on January 1, 2009, as it relates to all instruments within the scope of FSP FAS 157-2, to have a material impact on its results of operations or financial condition. Please read “Note 14. Fair Value Measurements” for additional discussion.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115” (“SFAS 159”)

     In February 2007, the FASB issued SFAS 159, which permits entities to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. SFAS 159 also allows entities an irrevocable option to measure eligible items at fair value at specified election dates, with resulting changes in fair value reported in earnings. SFAS 159 was effective for fiscal years beginning after November 15, 2007. EAC did not elect the fair value option for eligible instruments and therefore, the adoption of SFAS 159 on January 1, 2008 did not impact EAC’s results of operations or financial condition. EAC will assess the impact of electing the fair value option for any eligible instruments acquired in the future. Electing the fair value option for such instruments could have a material impact on EAC’s future results of operations or financial condition.

FSP on FASB Interpretation (“FIN”) 39-1, “Amendment of FASB Interpretation No. 39” (“FSP FIN 39-1”)

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

     In April 2007, the FASB issued FSP FIN 39-1, which amends FIN No. 39, “Offsetting of Amounts Related to Certain Contracts” (“FIN 39”), to permit a reporting entity that is party to a master netting arrangement to offset the fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangement in accordance with FIN 39. FSP FIN 39-1 was effective for fiscal years beginning after November 15, 2007. The adoption of FSP FIN 39-1 on January 1, 2008 did not impact EAC’s results of operations or financial condition.

SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”)

     In December 2007, the FASB issued SFAS 141R, which replaces SFAS No. 141, “Business Combinations.” SFAS 141R establishes principles and requirements for the reporting entity in a business combination, including: (1) recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognition and measurement of goodwill acquired in the business combination or a gain from a bargain purchase; and (3) determination of the information to be disclosed to enable financial statement users to evaluate the nature and financial effects of the business combination. SFAS 141R is prospectively effective for business combinations consummated in fiscal years beginning on or after December 15, 2008, with early application prohibited. EAC currently does not have any pending acquisitions that would fall within the scope of SFAS 141R. Future acquisitions could impact EAC’s results of operations and financial condition and the reporting in the consolidated financial statements.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51” (“SFAS 160”)

     In December 2007, the FASB issued SFAS 160, which amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 was effective for financial statements issued for fiscal years beginning on or after December 15, 2008, except for the presentation and disclosure requirements which were retrospectively effective. SFAS 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and the disclosure of consolidated net income attributable to the parent and to the noncontrolling interest on the face of the consolidated statement of operations and gains and losses on a subsidiaries’ issuance of equity to be accounted for as capital transactions. The adoption of SFAS 160 on January 1, 2009 did not have a material impact on EAC’s results of operations and financial condition. As previously discussed, the retrospective application of SFAS 160 resulted in the reclassification of approximately $169.1 million and $122.5 million from “Minority interest in consolidated partnership” to “Noncontrolling interest” at December 31, 2008 and 2007, respectively, on the accompanying Consolidated Balance Sheets.

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”)

     In March 2008, the FASB issued SFAS 161, which amends SFAS 133, to require enhanced disclosures about: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning on or after November 15, 2008, with early application encouraged. The adoption of SFAS 161 will require additional disclosures regarding EAC’s derivative instruments; however, it will not impact EAC’s results of operations or financial condition.

SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”)

     In May 2008, the FASB issued SFAS 162, which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS 162 was effective November 15, 2008. The adoption of SFAS 162 did not impact EAC’s results of operations or financial condition.

FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”)

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

     In June 2008, the FASB issued FSP EITF 03-6-1, which addresses whether instruments granted in equity-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation for computing basic earnings per share (“EPS”) under the two-class method described by SFAS No. 128, “Earnings per Share” (“SFAS 128”). FSP EITF 03-6-1 was retroactively effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The adoption of FSP EITF 03-6-1 on January 1, 2009 did not have a material impact on EAC’s results of operations or financial condition. All periods presented in the accompanying Consolidated Financial Statements have been restated to reflect the adoption of FSP EITF 03-6-1. As previously discussed, the retrospective application of FSP EITF 03-6-1 reduced EAC’s basic earnings per common share by $0.14 and $0.03 for the years ended December 31, 2008 and 2006 and reduced EAC’s diluted earnings per share by $0.06, $0.01, and $0.01 for the years ended December 31, 2008, 2007, and 2006, respectively. The adoption of FSP EITF 03-6-1 did not have an impact on EAC’s basic earnings per share for the year ended December 31, 2007. Please read “Note 11. EPS” for additional discussion.

Note 3. Acquisitions and Dispositions

Acquisitions

     In January 2007, EAC entered into a purchase and sale agreement with certain subsidiaries of Anadarko Petroleum Corporation (“Anadarko”) to acquire oil and natural gas properties and related assets in the Williston Basin of Montana and North Dakota. The closing of the Williston Basin acquisition occurred in April 2007. The Williston Basin acquisition was treated as a reverse like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as amended, (the “Code”) and I.R.S. Revenue Procedure 2000-37 with the Mid-Continent disposition discussed below. The total purchase price for the Williston Basin assets was approximately $392.1 million, including transaction costs of approximately $1.3 million.

     Also in January 2007, EAC entered into a purchase and sale agreement with certain subsidiaries of Anadarko to acquire oil and natural gas properties and related assets in the Big Horn Basin of Wyoming and Montana, which included oil and natural gas properties and related assets in or near the Elk Basin field in Park County, Wyoming and Carbon County, Montana and oil and natural gas properties and related assets in the Gooseberry field in Park County, Wyoming. Prior to closing, EAC assigned the rights and duties under the purchase and sale agreement relating to the Elk Basin assets to Encore Energy Partners Operating LLC (“OLLC”), a Delaware limited liability company and wholly owned subsidiary of ENP, and the rights and duties under the purchase and sale agreement relating to the Gooseberry assets to Encore Operating. The closing of the Big Horn Basin acquisition occurred in March 2007. The total purchase price for the Big Horn Basin assets was approximately $393.6 million, including transaction costs of approximately $1.3 million.

     EAC financed the acquisitions of the Gooseberry assets and Williston Basin assets through borrowings under its revolving credit facility. ENP financed the acquisition of the Elk Basin assets through a $93.7 million contribution from EAC, $120 million of borrowings under a subordinated credit agreement with EAP Operating, LLC, a Delaware limited liability company and direct wholly owned guarantor subsidiary of EAC, and borrowings under OLLC’s revolving credit facility. Please read “Note 8. Long-Term Debt” for additional discussion of EAC’s long-term debt.

Dispositions

     In June 2007, EAC completed the sale of certain oil and natural gas properties in the Mid-Continent area, and in July 2007, additional Mid-Continent properties that were subject to preferential rights were sold. EAC received total net proceeds of approximately $294.8 million, after deducting transaction costs of approximately $3.6 million, and recorded a loss on sale of approximately $7.4 million. The disposed properties included certain properties in the Anadarko and Arkoma Basins of Oklahoma. EAC retained material oil and natural gas interests in other properties in these basins and remains active in those areas. Proceeds from the Mid-Continent asset disposition were used to reduce outstanding borrowings under EAC’s revolving credit facility.

Pro Formas

     The following unaudited pro forma condensed financial data was derived from the historical financial statements of EAC and from the accounting records of Anadarko to give effect to the Big Horn Basin and Williston Basin asset acquisitions and the Mid-Continent asset disposition as if they had each occurred on January 1, 2006. The unaudited pro forma condensed financial information has been included for comparative purposes only and is not necessarily indicative of the results that might have occurred had the Big

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

Horn Basin and Williston Basin asset acquisitions and the Mid-Continent asset disposition taken place on January 1, 2006 and is not intended to be a projection of future results.

		Year Ended December 31,
		2007				2006
		(in thousands, except per share amounts)
Pro forma total revenues		$	749,659			$	785,281
Pro forma net income attributable to EAC stockholders		$	20,685			$	100,702
Pro forma net income per common share:
Basic		$	0.38			$	1.91
Diluted		$	0.38			$	1.89

Note 4. Commitments and Contingencies

Litigation

     EAC is a party to ongoing legal proceedings in the ordinary course of business. Management does not believe the result of these proceedings will have a material adverse effect on EAC’s business, financial position, results of operations, or liquidity.

Leases

     EAC leases office space and equipment that have remaining non-cancelable lease terms in excess of one year. The following table summarizes by year the remaining non-cancelable future payments under these operating leases as of December 31, 2008 (in thousands):

2009		$	3,603
2010			3,609
2011			3,598
2012			3,358
2013			2,607
Thereafter			—
		$	16,775

     EAC’s operating lease rental expense was approximately $5.8 million, $5.5 million, and $4.6 million in 2008, 2007, and 2006, respectively.

ExxonMobil

     In March 2006, EAC entered into a joint development agreement with ExxonMobil to develop legacy natural gas fields in West Texas. Under the terms of the agreement, EAC has the opportunity to develop approximately 100,000 gross acres and earns 30 percent of ExxonMobil’s working interest and 22.5 percent of ExxonMobil’s net revenue interest in each well drilled. EAC operates each well during the drilling and completion phase, after which ExxonMobil assumes operational control of the well.

     In July 2008, EAC earned the right to participate in all fields by drilling the final well of the 24-well commitment program and is entitled to a 30 percent working interest in future drilling locations. EAC has the right to propose and drill wells for as long as it is engaged in continuous drilling operations.

     During 2008 and 2007, EAC advanced $38.0 million and $37.7 million, respectively, to ExxonMobil for its portion of costs incurred drilling wells under the joint development agreement. At December 31, 2008, EAC had a net receivable from ExxonMobil of $79.0 million, of which $11.2 million was included in “Accounts receivable, net” and $67.8 million was included in “Long-term receivables” on the accompanying Consolidated Balance Sheet based on when EAC expects repayment. At December 31, 2007, EAC

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

had a net receivable from ExxonMobil of $51.7 million, of which $12.3 million was included in “Accounts receivable, net” and $39.4 million was included in “Long-term receivables, net” on the accompanying Consolidated Balance Sheet.

Note 5. Asset Retirement Obligations

     Asset retirement obligations relate to future plugging and abandonment expenses on oil and natural gas properties and related facilities disposal. As of December 31, 2008 and 2007, EAC had $9.2 million and $6.7 million, respectively, held in escrow from which funds are released only for reimbursement of plugging and abandonment expenses on its Bell Creek properties, which is included in other long-term assets in the accompanying Consolidated Balance Sheets. The following table summarizes the changes in EAC’s asset retirement obligations for the periods indicated:

		Year Ended December 31,
		2008				2007
		(in thousands)
Future abandonment liability at January 1		$	28,079			$	19,841
Wells drilled			498				145
Acquisition of properties			111				8,251
Disposition of properties			—				(959	)
Accretion of discount			1,361				1,145
Plugging and abandonment costs incurred			(1,756	)			(1,655	)
Revision of previous estimates			21,276				1,311
Future abandonment liability at December 31		$	49,569			$	28,079

     As of December 31, 2008, $48.1 million of EAC’s asset retirement obligations were long-term and recorded in “Future abandonment cost, net of current portion” and $1.5 million were current and included in “Other current liabilities” on the accompanying Consolidated Balance Sheets. Approximately $4.4 million of the future abandonment liability as of December 31, 2008 represents the estimated cost for decommissioning ENP’s Elk Basin natural gas processing plant. ENP expects to continue reserving additional amounts based on the estimated timing to cease operations of the natural gas processing plant.

Note 6. Capitalization of Exploratory Well Costs

     EAC follows FSP No. 19-1 “Accounting for Suspended Well Costs” (“FSP 19-1”), which permits the continued capitalization of exploratory well costs if the well found a sufficient quantity of reserves to justify its completion as a producing well and the entity is making sufficient progress towards assessing the reserves and the economic and operating viability of the project. The following table reflects the net changes in capitalized exploratory well costs during the periods indicated, and does not include amounts that were capitalized and subsequently expensed in the same period.

		Year Ended December 31,
		2008				2007				2006
		(in thousands)
Beginning balance at January 1		$	19,479			$	13,048			$	6,560
Additions to capitalized exploratory well costs pending the determination of proved reserves			28,757				19,479				13,048
Reclassification to proved property and equipment based on the determination of proved reserves			(19,229	)			(9,390	)			(1,457	)
Capitalized exploratory well costs charged to expense			(250	)			(3,658	)			(5,103	)
Total		$	28,757			$	19,479			$	13,048

     All capitalized exploratory well costs have been capitalized for less than one year.

Note 7. Other Current Liabilities

     Other current liabilities consisted of the following as of the dates indicated:

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

		December 31,
		2008				2007
		(in thousands)
Net profits interests payable		$	995			$	3,996
Income taxes payable			940				2,789
Accrued compensation			16,216				8,431
Current portion of future abandonment liability			1,511				708
Other			3,430				5,219
Total		$	23,092			$	21,143

Note 8. Long-Term Debt

     Long-term debt consisted of the following as of the dates indicated:

		Maturity				December 31,
		Date				2008				2007
						(in thousands)
Revolving credit facilities			3/7/2012			$	725,000			$	526,000
6.25% Senior Subordinated Notes			4/15/2014				150,000				150,000
6.0% Senior Subordinated Notes, net of unamortized discount of $3,960 and $4,440, respectively			7/15/2015				296,040				295,560
7.25% Senior Subordinated Notes, net of unamortized discount of $1,229 and $1,324, respectively			12/1/2017				148,771				148,676
Total						$	1,319,811			$	1,120,236

Senior Subordinated Notes

     As of December 31, 2008 certain of EAC’s subsidiaries were subsidiary guarantors of EAC’s senior subordinated notes. The subsidiary guarantors may without restriction transfer funds to EAC in the form of cash dividends, loans, and advances. Please read “Note 16. Financial Statements of Subsidiary Guarantors” for additional discussion.

     The indentures governing EAC’s senior subordinated notes contain certain affirmative, negative, and financial covenants, which include:

	•		limitations on incurrence of additional debt, restrictions on asset dispositions, and restricted payments;
	•		a requirement that EAC maintain a current ratio (as defined in the indentures) of not less than 1.0 to 1.0; and
	•		a requirement that EAC maintain a ratio of consolidated EBITDA (as defined in the indentures) to consolidated interest expense of not less than 2.5 to 1.0.

As of December 31, 2008, EAC was in compliance with all covenants of its senior subordinated notes.

     If EAC experiences a change of control (as defined in the indentures), subject to certain conditions, it must give holders of its senior subordinated notes the opportunity to sell them to EAC at 101 percent of the principal amount, plus accrued and unpaid interest.

Revolving Credit Facilities

     Encore Acquisition Company Senior Secured Credit Agreement

     In March 2007, EAC entered into a five-year amended and restated credit agreement (as amended, the “EAC Credit Agreement”) with a bank syndicate including Bank of America, N.A. and other lenders. The EAC Credit Agreement matures on March 7, 2012. Effective February 7, 2008, EAC amended the EAC Credit Agreement to, among other things, provide that certain negative covenants in the EAC Credit Agreement restricting hedge transactions do not apply to any oil and natural gas hedge transaction that is a floor or put transaction not requiring any future payments or delivery by EAC or any of its restricted subsidiaries. Effective May 22, 2008, EAC amended the EAC Credit Agreement to, among other things, increase interest rate margins applicable to loans made under the EAC Credit Agreement, as set forth in the table below, and increase the borrowing base to $1.1 billion. The EAC Credit Agreement

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

provides for revolving credit loans to be made to EAC from time to time and letters of credit to be issued from time to time for the account of EAC or the account of any of its restricted subsidiaries.

     The aggregate amount of the commitments of the lenders under the EAC Credit Agreement is $1.25 billion. Availability under the EAC Credit Agreement is subject to a borrowing base, which is redetermined semi-annually on April 1 and October 1 and upon requested special redeterminations. On December 5, 2008, the borrowing base under the EAC Credit Agreement was redetermined with no change. As of December 31, 2008, the borrowing base was $1.1 billion.

     EAC’s obligations under the EAC Credit Agreement are secured by a first-priority security interest in EAC’s restricted subsidiaries’ proved oil and natural gas reserves and in EAC’s equity interests in its restricted subsidiaries. In addition, EAC’s obligations under the EAC Credit Agreement are guaranteed by its restricted subsidiaries.

     Loans under the EAC Credit Agreement are subject to varying rates of interest based on (1) the total outstanding borrowings in relation to the borrowing base and (2) whether the loan is a Eurodollar loan or a base rate loan. Eurodollar loans bear interest at the Eurodollar rate plus the applicable margin indicated in the following table, and base rate loans bear interest at the base rate plus the applicable margin indicated in the following table:

		Applicable Margin for				Applicable Margin for
Ratio of Total Outstanding Borrowings to Borrowing Base		Eurodollar Loans				Base Rate Loans
Less than .50 to 1			1.250	%			0.000	%
Greater than or equal to .50 to 1 but less than .75 to 1			1.500	%			0.250	%
Greater than or equal to .75 to 1 but less than .90 to 1			1.750	%			0.500	%
Greater than or equal to .90 to 1			2.000	%			0.750	%

     The “Eurodollar rate” for any interest period (either one, two, three, or six months, as selected by EAC) is the rate per year equal to LIBOR, as published by Reuters or another source designated by Bank of America, N.A., for deposits in dollars for a similar interest period. The “base rate” is calculated as the higher of (1) the annual rate of interest announced by Bank of America, N.A. as its “prime rate” and (2) the federal funds effective rate plus 0.5 percent.

     Any outstanding letters of credit reduce the availability under the EAC Credit Agreement. Borrowings under the EAC Credit Agreement may be repaid from time to time without penalty.

     The EAC Credit Agreement contains covenants that include, among others:

	•		a prohibition against incurring debt, subject to permitted exceptions;
	•		a prohibition against paying dividends or making distributions, purchasing or redeeming capital stock, or prepaying indebtedness, subject to permitted exceptions;
	•		a restriction on creating liens on EAC’s and its restricted subsidiaries’ assets, subject to permitted exceptions;
	•		restrictions on merging and selling assets outside the ordinary course of business;
	•		restrictions on use of proceeds, investments, transactions with affiliates, or change of principal business;
	•		a provision limiting oil and natural gas hedging transactions (other than puts) to a volume not exceeding 75 percent of anticipated production from proved producing reserves;
	•		a requirement that we maintain a ratio of consolidated current assets (as defined in the EAC Credit Agreement) to consolidated current liabilities (as defined in the EAC Credit Agreement) of not less than 1.0 to 1.0; and
	•		a requirement that we maintain a ratio of consolidated EBITDA (as defined in the EAC Credit Agreement) to the sum of consolidated net interest expense plus letter of credit fees of not less than 2.5 to 1.0.

     The EAC Credit Agreement contains customary events of default. If an event of default occurs and is continuing, lenders with a majority of the aggregate commitments may require Bank of America, N.A. to declare all amounts outstanding under the EAC Credit Agreement to be immediately due and payable.

     EAC incurs a commitment fee on the unused portion of the EAC Credit Agreement determined based on the ratio of amounts outstanding under the EAC Credit Agreement to the borrowing base in effect on such date. The following table summarizes the calculation of the commitment fee under the EAC Credit Agreement:

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

		Commitment
Ratio of Total Outstanding Borrowings to Borrowing Base		Fee Percentage
Less than .50 to 1			0.250	%
Greater than or equal to .50 to 1 but less than .75 to 1			0.300	%
Greater than or equal to .75 to 1			0.375	%

     On December 31, 2008, there were $575 million of outstanding borrowings and $525 million of borrowing capacity under the EAC Credit Agreement. As of December 31, 2008, EAC was in compliance with all covenants of the EAC Credit Agreement.

     Encore Energy Partners Operating LLC Credit Agreement

     OLLC is a party to a five-year credit agreement dated March 7, 2007 (as amended, the “OLLC Credit Agreement”) with a bank syndicate including Bank of America, N.A. and other lenders. The OLLC Credit Agreement matures on March 7, 2012. On August 22, 2007, OLLC amended its credit agreement to revise certain financial covenants. The OLLC Credit Agreement provides for revolving credit loans to be made to OLLC from time to time and letters of credit to be issued from time to time for the account of OLLC or any of its restricted subsidiaries.

     The aggregate amount of the commitments of the lenders under the OLLC Credit Agreement is $300 million. Availability under the OLLC Credit Agreement is subject to a borrowing base, which is redetermined semi-annually on April 1 and October 1 and upon requested special redeterminations. On December 5, 2008, the borrowing base under the OLLC Credit Agreement was redetermined with no change. As of December 31, 2008, the borrowing base was $240 million.

     OLLC’s obligations under the OLLC Credit Agreement are secured by a first-priority security interest in OLLC’s proved oil and natural gas reserves and in the equity interests in OLLC and its restricted subsidiaries. In addition, OLLC’s obligations under the OLLC Credit Agreement are guaranteed by ENP and OLLC’s restricted subsidiaries. EAC consolidates the debt of ENP with that of its own; however, obligations under the OLLC Credit Agreement are non-recourse to EAC and its restricted subsidiaries.

     Loans under the OLLC Credit Agreement are subject to varying rates of interest based on (1) the total outstanding borrowings in relation to the borrowing base and (2) whether the loan is a Eurodollar loan or a base rate loan. Eurodollar loans bear interest at the Eurodollar rate plus the applicable margin indicated in the following table, and base rate loans bear interest at the base rate plus the applicable margin indicated in the following table:

		Applicable Margin for				Applicable Margin for
Ratio of Total Outstanding Borrowings to Borrowing Base		Eurodollar Loans				Base Rate Loans
Less than .50 to 1			1.000	%			0.000	%
Greater than or equal to .50 to 1 but less than .75 to 1			1.250	%			0.000	%
Greater than or equal to .75 to 1 but less than .90 to 1			1.500	%			0.250	%
Greater than or equal to .90 to 1			1.750	%			0.500	%

     The “Eurodollar rate” for any interest period (either one, two, three, or six months, as selected by ENP) is the rate per year equal to LIBOR, as published by Reuters or another source designated by Bank of America, N.A., for deposits in dollars for a similar interest period. The “base rate” is calculated as the higher of (1) the annual rate of interest announced by Bank of America, N.A. as its “prime rate” and (2) the federal funds effective rate plus 0.5 percent.

     Any outstanding letters of credit reduce the availability under the OLLC Credit Agreement. Borrowings under the OLLC Credit Agreement may be repaid from time to time without penalty.

     The OLLC Credit Agreement contains covenants that include, among others:

	•		a prohibition against incurring debt, subject to permitted exceptions;
	•		a prohibition against purchasing or redeeming capital stock, or prepaying indebtedness, subject to permitted exceptions;
	•		a restriction on creating liens on the assets of ENP, OLLC and its restricted subsidiaries, subject to permitted exceptions;
	•		restrictions on merging and selling assets outside the ordinary course of business;
	•		restrictions on use of proceeds, investments, transactions with affiliates, or change of principal business;

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

	•		a provision limiting oil and natural gas hedging transactions (other than puts) to a volume not exceeding 75 percent of anticipated production from proved producing reserves;
	•		a requirement that ENP and OLLC maintain a ratio of consolidated current assets (as defined in the OLLC Credit Agreement) to consolidated current liabilities (as defined in the OLLC Credit Agreement) of not less than 1.0 to 1.0;
	•		a requirement that ENP and OLLC maintain a ratio of consolidated EBITDA (as defined in the OLLC Credit Agreement) to the sum of consolidated net interest expense plus letter of credit fees of not less than 1.5 to 1.0;
	•		a requirement that ENP and OLLC maintain a ratio of consolidated EBITDA (as defined in the OLLC Credit Agreement) to consolidated senior interest expense of not less than 2.5 to 1.0; and
	•		a requirement that ENP and OLLC maintain a ratio of consolidated funded debt (excluding certain related party debt) to consolidated adjusted EBITDA (as defined in the OLLC Credit Agreement) of not more than 3.5 to 1.0.

     The OLLC Credit Agreement contains customary events of default. If an event of default occurs and is continuing, lenders with a majority of the aggregate commitments may require Bank of America, N.A. to declare all amounts outstanding under the OLLC Credit Agreement to be immediately due and payable.

     ENP incurs a commitment fee on the unused portion of the OLLC Credit Agreement determined based on the ratio of amounts outstanding under the OLLC Credit Agreement to the borrowing base in effect on such date. The following table summarizes the calculation of the commitment fee under the OLLC Credit Agreement:

		Commitment
Ratio of Total Outstanding Borrowings to Borrowing Base		Fee Percentage
Less than .50 to 1			0.250	%
Greater than or equal to .50 to 1 but less than .75 to 1			0.300	%
Greater than or equal to .75 to 1			0.375	%

     On December 31, 2008, there were $150 million of outstanding borrowings and $90 million of borrowing capacity under the OLLC Credit Agreement. As of December 31, 2008, OLLC was in compliance with all covenants of the OLLC Credit Agreement.

Long-Term Debt Maturities

     The following table illustrates EAC’s long-term debt maturities as of December 31, 2008:

		Payments Due by Period
		Total				2009				2010				2011				2012				2013				Thereafter
		(in thousands)
6.25% Notes		$	150,000			$	—			$	—			$	—			$	—			$	—			$	150,000
6.0% Notes			300,000				—				—				—				—				—				300,000
7.25% Notes			150,000				—				—				—				—				—				150,000
Revolving credit facilities			725,000				—				—				—				725,000				—				—
Total		$	1,325,000			$	—			$	—			$	—			$	725,000			$	—			$	600,000

     During 2008, 2007, and 2006, the weighted average interest rate for total indebtedness was 5.6 percent, 6.9 percent, and 6.1 percent, respectively.

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

Note 9. Taxes

Income Taxes

     The components of income tax provision were as follows for the periods indicated:

		Year Ended December 31,
		2008				2007				2006
		(in thousands)
Federal:
Current		$	(7,626	)		$	(1,888	)		$	(3,785	)
Deferred			(222,651	)			(11,229	)			(48,327	)
Total federal			(230,277	)			(13,117	)			(52,112	)
State, net of federal benefit:
Current			(1,381	)			—				(401	)
Deferred			(9,963	)			(1,359	)			(2,893	)
Total state			(11,344	)			(1,359	)			(3,294	)
Income tax provision (a)		$	(241,621	)		$	(14,476	)		$	(55,406	)

     The following table reconciles income tax provision with income tax at the Federal statutory rate for the periods indicated:

		Year Ended December 31,
		2008				2007				2006
		(in thousands)
Income before income taxes		$	726,685			$	24,153			$	147,804
Income taxes at the Federal statutory rate		$	(254,340	)		$	(8,454	)		$	(51,731	)
State income taxes, net of federal benefit			(12,861	)			(716	)			(3,440	)
Enactment of the Texas margin tax			—				—				(1,062	)
Change in estimated future state tax rate			2,113				(495	)			1,208
Nondeductible deferred compensation expense			(1,124	)			(1,963	)			—
Tax on income attributable to noncontrolling interest			18,988				(2,617	)			—
Permanent and other			5,603				(231	)			(381	)
Income tax provision		$	(241,621	)		$	(14,476	)		$	(55,406	)

     A Texas franchise tax reform measure signed into law in May 2006 caused the Texas franchise tax to be applicable to numerous types of entities that previously were not subject to the tax, including several of EAC’s subsidiaries. EAC adjusted its net deferred tax balances using the new higher marginal tax rate it expects to be effective when those deferred taxes reverse resulting in a charge of $1.1 million during 2006.

     The major components of net current deferred taxes and net long-term deferred taxes were as follows as of the dates indicated:

ENCORE ACQUISITION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

		December 31,
		2008				2007
		(in thousands)
Current:
Assets:
Unrealized hedge loss in accumulated other comprehensive loss		$	222			$	1,071
Derivative fair value loss			—				15,442
Other			2,422				3,907
Total current deferred tax assets			2,644				20,420
Liabilities:
Derivative fair value gain			(108,412	)			—
Total current deferred tax liabilities			(108,412	)			—
Net current deferred tax asset (liability)		$	(105,768	)		$	20,420
Long-term:
Assets:
Alternative minimum tax credits		$	2,300			$	2,676
Unrealized hedge loss in accumulated other comprehensive loss			735				—
Derivative fair value loss			—				10,775
Section 43 credits			8,889				13,227
Net operating loss carryforward			1,439				23,806
Change in accounting method			5,583				—
Asset retirement obligations			17,842				11,266
Deferred equity-based compensation			6,757				6,599
Other			1,556				—
Total long-term deferred tax assets			45,101				68,349
Liabilities:
Derivative fair value gain			(2,711	)			—
Other			—				(11,076	)
Book basis of oil and natural gas properties in excess of tax basis			(459,305	)			(370,187	)
Total current deferred tax liabilities			(462,016	)			(381,263	)
Net long-term deferred tax liability		$	(416,915	)		$	(312,914	)