Encore Energy Partners LP is to become a wholly owned subsidiary of Vanguard Natural Resources LLC's operating company, Vanguard Natural Gas LLC, through a unit-for-unit exchange that would give Vanguard the rest of Encore it doesn't already own, the companies said Monday.
Encore's public unitholders are to receive 0.75 Vanguard common units in exchange for each Encore common unit they own at closing, representing a premium of 4.4% based on closing prices on March 24, the last trading day prior to Vanguard's announcement that it intended to acquire the units (see Daily GPI, March 28).
The ratio represents a 51% premium over the Dec. 31 price paid to Denbury Resources Inc. for 45.6% of the Encore common units (see Daily GPI, Nov. 18, 2010).
The deal "would simplify our commercial activities and organizational structure as well as lower our overall cost of capital," said Vanguard CEO Scott W. Smith.
The transaction would result in about 18.4 million additional common units being issued by Vanguard.
Vanguard operates oil and gas properties in the southern portion of the Appalachian Basin, as well as in the Permian Basin, South Texas and Mississippi.
Encore has drilling under way in the Big Horn Basin of Wyoming and Montana, as well as in the Williston Basin in North Dakota, the Permian Basin of Texas and New Mexico, and the Arkoma Basin in Arkansas and Oklahoma.
The deal would streamline Vanguard's organizational structure; create an enterprise "of significantly increased size and scale;" and expand its geographic reach and diversification from an operational and employee perspective, the company said.
For Encore the deal would eliminate an administrative services agreement, which currently requires Encore to pay an annual fee of approximately $6.5 million to its general partner and provide Encore unitholders with "ownership in a much larger and more diverse entity with an enterprise value of approximately $2 billion."
Completion of the merger is subject to approval by a majority of the outstanding Encore common units. Vanguard Natural Gas already owns Encore's general partner and approximately 45.6% of the Encore outstanding common units and has also executed the definitive agreement between Vanguard and Encore.
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