Sunday, Denbury Resources Inc. (DNR) an oil exploration and production company and Encore Acquisition Company (EAC) reported that they have entered into a definitive merger agreement following which Denbury will acquire Encore for approximately $4.5 billion including the assumption of debt and the value of the minority interest in Encore Energy Partners LP (ENP). The combined company will continue to be known as Denbury Resources Inc. and will be headquartered in Plano, Texas.
According to the companies, the transaction is expected to close in the first quarter of 2010 and Denbury's board and senior management will remain unchanged. The acquisition is subject to the approval of both Denbury and Encore stockholders, regulatory approvals and other customary conditions.
Post closing, it is anticipated that Denbury stockholders will own between 63% and 68% of the combined company and Encore stockholders will own between 32% and 37% of the combined company.
Denbury said that it intends to finance this transaction with a combination of equity and debt. In connection with the transaction, Denbury has received a commitment letter for an underwritten financing from J.P. Morgan for a new $1.6 billion bank revolving credit facility and a $1.25 billion bridge financing to subordinated debt facility.
The new debt financing will be used to fund the cash portion of the consideration, potentially retire and replace $825 million of Encore's outstanding subordinated notes, all of which have a change of control put option at 101%, replace Encore's existing bank facility which has approximately $180 million currently drawn and outstanding, and to pay other fees and expenses.
According to the report, the transaction positions Denbury as one of the largest crude oil-focused, independent North American exploration and production companies besides creating one of the largest CO2 enhanced oil recovery or EOR platforms diversified 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 with anthropogenic sources in the Gulf Coast, Midwest and Rockies.
The combined companies will have over 500 MMBOE of additional potential barrels recoverable with CO2 tertiary operations.
According to Phil Rykhoek, chief executive officer of Denbury, the combined size and scale of operations will allow the new company to undertake significantly larger CO2 projects in the Gulf Coast and the Rockies, which has significant future expansion opportunities. With the addition of the Encore properties, Denbury will more than double its current inventory of oil reserves recoverable with CO2, and greatly expand its growth potential with a second new core EOR area in the Rockies.
Rykhoek added that the transaction is expected to be meaningfully accretive to Denbury on a cash flow basis, between 8% and 18% depending on the ultimate number of Denbury shares issued, and the combined size, scale and access to capital will benefit both groups of stockholders.
Jonny Brumley, chief executive officer of Encore, stated, "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. Denbury has the experience and expertise to effectively capture the full value of Encore's EOR inventory and the combined entities will provide the necessary size and scale to develop and fully recognize that potential."
Denbury is currently in the process of setting its 2010 capital budget. The budget will be focused on high-grading the combined company's best projects, while at the same time maintaining the Company's strong financial and liquidity positions. Denbury anticipates announcing the combined 2010 capital budget at its upcoming analyst meeting on November 12th and November 13th.
Denbury said that it expects to issue between 115 million and 146 million shares of common stock to fund the equity portion of the merger consideration. During 2010, Denbury intends to sell non-core 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.
In calculating the exchange ratio range for the collar mechanism, the Denbury common stock was initially valued at $15.10 per share. The collar mechanism is limited to a 12% upward or downward movement in the Denbury share price. 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.
Based on this mechanism, if Denbury stock trades between $13.29 and $16.91, the Encore stockholders will receive between 2.0698 and 2.6336 shares of Denbury common stock for each of their shares of Encore common stock, but not higher or lower than these share amounts if Denbury common stock trades outside this range.
Encore stockholders will also have an option to receive all stock or all cash, subject to a proration feature such that the overall mix of consideration is 70% Denbury common stock and 30% cash.
The report said that Denbury will own the general partner interest of Encore Energy Partners and approximately 21 million limited partner units. The company may decide to sell certain properties to Encore Energy Partners as a means to reduce its debt. The new combined company will have a vast inventory of long-life oil fields that could be excellent candidates for asset drop-downs.
J.P. Morgan Securities Inc. acted as exclusive financial advisor to Denbury and Barclay's Capital Inc. acted as exclusive financial advisor to Encore.
In addition, Denbury said that due to the merger agreement to acquire Encore, it is postponing its previously scheduled earnings release regarding third quarter 2009 results from Tuesday, November 3rd to Thursday, November 5th, 2009.
The company also said that due to the delay, it is announcing limited third quarter information. Denbury said that production for the third quarter of 2009 averaged 42,659 BOE/d, an 11% increase from third quarter 2008 production after adjusting for the 2009 sale of 60% of its Barnett Shale natural gas assets. During the third quarter of 2009, the company's tertiary production averaged 24,347 Bbls/d, a 23% increase from third quarter 2008 production.
Denbury said that as a result of the sale of 60% of the company's Barnett Shale properties, it lowered its 2009 production guidance to an adjusted full year 2009 average of 47,500 BOE/d, and the Company is reaffirming this annual target. As a result of a combination of minor factors, the company is reducing its 2009 tertiary production guidance by 1%, from 24,500 Bbls/d to 24,200 Bbls/d, which represents a 25% increase over its 2008 average tertiary production level. The company's tertiary production has continued to increase early in the fourth quarter and has averaged between 25,500 and 26,000 Bbls/d during the last two weeks of October 2009, on track to meet its revised annual target of 24,200 Bbls/d. Denbury anticipates that its average 2010 tertiary production will be approximately 27,000 Bbls/d, a projected 12% increase over 2009 projected levels.
DNR is currently trading on the New York Stock Exchange at $14.60, down $0.78 or 5.07%.
EAC is currently trading on the New York Stock Exchange at $37.07, down $2.54 or 6.41%.
ENP is currently trading on the New York Stock Exchange at $18.00, down $0.33 or 1.80%.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.