Encore’s $4.5 billion sale to Denbury solidifies their oil focus
About a year and a half after the Fort Worth oil and gas producer announced plans to seek a buyer, then scrapped them, Encore Acquisition Co. announced it would sell to Plano-based Denbury Resources Inc. in a $4.5 billion deal that results in a merged operation with heavy interests in crude oil production.
Denbury Resources, which sold about 60 percent of its Barnett Shale assets for $270 million in May, increasingly has focused on CO2-injected, tertiary oil recovery reserves, with assets in Mississippi. Meanwhile, Encore Acquisition has sought to step away from natural gas assets and increase its oil production, which always has been the stronger focus. The company also was focusing on a CO2 project in the Bell Creek Field of Montana.
The Denbury-Encore transaction, announced Nov. 1, provides each company complementary assets in the Gulf Coast, Midwest and Rockies, and also includes for Denbury a minority interest in Encore Energy Partners.
Encore Acquisition stock is valued at $50 per share in the deal, a 35 percent gain from its previous close of about $37 per share.
In a statement, Denbury Resources CEO Phil Rykhoek called Encore “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,” Rykhoek said. “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.”
He added that Encore’s addition more than doubles Denbury Resources’ current inventory of oil reserves recoverable with CO2. Production growth is expected from 2015 beyond.
“In addition, the growth potential from Encore’s Bakken shale oil play further enhances its value and provides short-term production growth and cash flow as we develop the longer term EOR program,” Rykhoek said.
Encore Acquisition was founded by I. Jon Brumley in 1998, after he left another company he co-founded: Cross Timbers Oil Co., which later would become XTO Energy Inc. The elder Brumley’s son, Jon S. “Jonny” Brumley, eventually took the reins.
“The combined companies have a unique blend of large oil fields with huge upside potential,” said Jonny Brumley, Encore Acquisition CEO, in a statement. “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. We have been impressed by the amount of progress Denbury has made in building a world-class enhanced oil recovery business.”
Encore Acquisition originally announced in May 2008 that its board of directors had approved a measure that could have put the company on the auction block or poise the company for a merger. Brumley said at the time that the company’s share price (then more than $60) was not reflective of its operating results and ability to fund projects, and that a sale was a good route to improve shareholder value. The company abandoned those plans in August 2008.
jtronche@bizpress.net
