Vanguard Natural Resources LLC is acquiring all of Denbury Resources Inc.'s interest in Dallas-based Encore Energy Partners LP (ENP) for $380 million, the parties said Wednesday. The "oil-focused" deal gives Vanguard more than 43 MMBoe of estimated proved reserves, about one-third natural gas.
Following the closing, Houston-based Vanguard will own ENP's general partner and 20,924,055 ENP common units, or about 46% of ENP's outstanding common units. The deal is expected to close by year-end. The properties and reserves being acquired are in the:
Denbury acquired the assets when it acquired Encore Acquisition Co. late last year (see Daily GPI, Nov. 3, 2009).
Based on its internal estimates using New York Mercantile Exchange pricing as of Nov. 12, ENP's estimated proved reserves as of Sept. 30 total about 43.4 MMBoe and are composed of 67% crude oil and natural gas liquids (NGL) and 33% natural gas, Vanguard said. "The proved reserves are characterized by long-lived, predictable production profiles with low decline rates. Vanguard expects that ENP's assets will require relatively low reinvestment to maintain production," Vanguard said.
"This acquisition furthers our plan to increase exposure to oil-focused assets and it does so in a manner which creates value for our unitholders," said Vanguard CEO Scott W. Smith. "Additionally, the acquisition accomplishes our strategic goal of increasing scale, enhancing our presence in the market, diversifying our reserves and geographical footprint and increasing the stability of our cash flows."
The deal is immediately accretive to its distributable cash flow, Vanguard said.
In the third quarter ENP production averaged 8,630 boe/d, according to Vanguard. The company said 91% of the estimated proved reserves are proved developed and 67% of estimated proved reserves consist of crude oil and NGLs. About 87% of expected crude oil production is hedged through 2014 and about 56% of expected natural gas production is hedged through 2013, Vanguard said.
Vanguard will continue to operate the entities independently, and the companies will continue to maintain separate boards of directors with independent representation on each, Vanguard said.
The deal is not subject to a financing contingency. Funding includes a $175 million acquisition term loan being led by BNP Paribas, RBC Capital Markets, Credit Agricole and Citi, borrowings under Vanguard's senior secured credit facility, and up to $80 million of Vanguard common units valued at $25.50 each (up to approximately 3.1 million common units), which may be issued, at Vanguard's option, to Denbury.
Denbury said it plans to use sale proceeds to repay bank debt and fund any shortfall between its cash flows from operations and capital spending during 2011.
Last month Denbury sold Haynesville Shale and East Texas gas assets for $217.5 million to an undisclosed private company (see Daily GPI, Oct. 13). That transaction was one of several intended to reduce the company's leverage following its acquisition of Encore Acquisition.
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