Denbury Resources to acquire Encore for $ 4.5 bn

US oil and natural gas company Denbury Resources agreed to buy Encore Acquisition Company (Encore), an acquirer and developer of oil and gas reserves, for approximately $ 4.5 bn, aiming to position the company as one of the largest crude oil-focused, North American exploration and production companies.
The transaction value includes assumption of Encore's debt of approximately $ 1.3 bn and $ 400 mm worth minority interest in Encore Energy Partners.

Under the terms of the agreement, shareholders of Encore will get $ 50 for each share of Encore, comprising $ 15 in cash and $ 35 in Denbury common stock.
Texas-based Denbury is a growing oil and gas company and the largest operator in Mississippi. The company owns the largest reserves of carbon dioxide (CO2) used for tertiary oil recovery east of Mississippi river and holds interests in the Barnett Shale play in Texas and other properties.

Encore, which is also Texas-based, is engaged in the acquisition and development of oil and natural gas reserves from onshore fields in the US. Since 1998, Encore has acquired high-quality assets and grown through drilling, water flood, and tertiary projects. Encore's properties are located in the Rockies, the Mid-Continent, and the Permian Basin.
The acquisition will create one of the largest CO2 enhanced oil recovery (EOR) platforms diversified across the Gulf Coast and Rocky Mountain regions. The combined companies will have over 500 mm barrels of oil equivalents recoverable with CO2 tertiary operations.

Denbury chief executive officer Phil Rykhoek said: ''Encore is an excellent fit with Denbury's CO2 EOR program. 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.''
''With the addition of the Encore properties, we more than double our current inventory of oil reserves recoverable with CO2, and greatlyexpand our future growth potential with a second new core EOR area in the Rockies that has significant future expansion opportunities,'' Rykhoek added.

Encore chief executive officer Jonny Brumley said: ''The combined companies have a unique blend of large oil fields with huge upside potential. The large reserve and production base will increase the operational and financial flexibility allowing for more efficient development of the assets of both of our companies.''
He further said that Denbury had the experience and expertise to effectively capture the full value of Encore's EOR inventory and the combined entities would provide the necessary size and scale to develop and fully recognize that potential.

The deal which was unanimously approved by the boards of both the companies, is expected to close in the first quarter of 2010, subject to customary and regulatory approvals. Post closing, Denbury shareholders will hold 63-68 % of the merged company while Encore stockholders will own 32-37 %.
Denbury plans to fund the transaction through a combination of equity and debt. The merged entity will carry the name of Denbury Resources. It is expected that Denbury would announce the capital budget for 2010 of the merged company.

Analysts are of the opinion that the price tag is too high on proved basis. According to some estimates Denbury is paying around $ 3.78 per proved tcf equivalent, based on reserves at the end of 2008. Denbury said that further to the definitive merger agreement with Encore, the company has postponed its previously scheduled Q3 earnings release from 3 November to 5 November.
JP Morgan Securities acted as the financial advisor to Denbury while Barclay's Capital guided Encore on the deal.