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Denbury, Encore to Combine in $4.5B Deal

Denbury Resources Inc., an oil recovery specialist, and Encore Acquisition Co. have agreed to merge in a transaction initially valued at $4.5 billion, including debt. According to Denbury, the merger could result in the sale next year of noncore assets, including Encore's natural gas-weighted properties.

The combined company, which is to carry the Denbury Resources name, would be headquartered in Plano, TX, where Denbury is now based.

The transaction, announced on Nov. 1, would position Denbury as one of the largest independent oil-focused producers in North America, the company said. The acquisition also would create one of the largest carbon dioxide (CO2) enhanced oil recovery (EOR) platforms across the Gulf Coast and Rocky Mountain regions, complemented by ownership and control of the Jackson Dome CO2 source in Mississippi and CO2 sequestration contracts secured in the Gulf Coast, Midwest and Rockies.

What Encore brings to the merger, among other things, is 300,000 net acres in the emerging Bakken Shale. However, Encore also has a solid set of onshore domestic gas assets with projects ongoing in the Haynesville Shale, and Eastern New Mexico, the Permian Basin, and Anadarko and Arkoma basins. Just a few months ago Encore paid $375 million for some EXCO Resources Inc. assets, which included a stake in the Gladewater Field in the Cotton Valley Sands of East Texas (see NGI, July 6).

"Encore has built an enviable asset portfolio in the Rockies, anchored by mature legacy crude oil assets, and our combined size and scale of operations will allow us to undertake significantly larger CO2 projects in the Gulf Coast and the Rockies," said Denbury CEO Phil Rykhoek. "This combination will also further enhance Denbury's position as the natural buyer and owner of mature oil properties in our core regions and the partner of choice for CO2 emitters looking to reduce their carbon footprint..."

Encore stockholders tentatively are to receive $50 for each share of Encore common stock, comprised of $15/share in cash and $35/share in Denbury common stock. The final number of Denbury shares to be issued will be adjusted based on the volume-weighted average price of Denbury common stock for a 20-day trading period ending on the second day prior to closing. Encore stockholders also have an option to receive all stock or all cash.

"During 2010 Denbury intends to sell noncore oil and gas properties of the combined companies in order to reduce its overall debt levels incurred as part of the acquisition, with targeted sales proceeds of at least $500 million," Denbury stated. It also would own the general partner interest of Encore Energy Partners and 21 million limited partner units. The company may decide to sell certain properties to Encore Energy Partners to reduce debt.

The transaction is expected to close by the end of March 2010, and Denbury's board and senior management are expected to remain.

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