Oil and gas explorer Denbury Resources Inc. (DNR) and Encore Acquisition Co. (EAC), a developer of oil and natural gas reserves, on Sunday revealed a definitive merger agreement, whereby Denbury would acquire Encore in a $4.5 billion cash and stock deal. The transaction includes the assumption of debt and the value of the minority interest in Encore Energy Partners LP (ENP). Separately, Denbury said it is postponing the release of its third-quarter results by two days due to the transaction.
As per the agreement, Encore stockholders will receive $50.00 per share for each share of Encore common stock, comprised of $15.00 in cash and $35.00 in Denbury common stock, subject to both an election feature and a collar mechanism on the stock portion of the consideration.
In calculating the exchange ratio range for the collar mechanism, the Denbury common stock, which closed Friday's regular trade at $14.60, 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, Fort Worth, Texas-based Encore's 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. Denbury expects to issue between 115 million and 146 million shares of common stock to fund the equity portion of the merger consideration.
The transaction is expected to be accretive to Denbury on a cash flow basis, between 8% and 18%, depending on the number of Denbury shares issued.
Denbury is the largest oil and natural gas operator in Mississippi, and owns the largest reserves of CO2 used for tertiary oil recovery east of the Mississippi River, along with operating acreage in the Barnett Shale play near Fort Worth, Texas. The company also holds properties in Southeast Texas.
Denbury said the deal would enable it to become one of the largest crude oil-focused, independent North American exploration and production companies. The acquisition will also create one of the largest CO2 enhanced oil recovery, or EOR, platforms diversified across the Gulf Coast and Rocky Mountain regions. This includes 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.
Denbury said the addition of the Encore properties would more than double its current inventory of oil reserves recoverable with CO2, and expand its future growth potential with a second new core EOR area in the Rockies that has significant future expansion opportunities. The anticipated EOR production from the Encore properties provides production growth in 2015 and beyond, by which the company expects to near the production peak of its existing EOR field inventory.
Denbury noted that additionally the growth potential from Encore's Bakken shale oil play further enhances its value and provides short-term production growth and cash flow as it develops the longer term EOR program.
The combined companies will have over 500 MMBOE of additional potential barrels recoverable with CO2 tertiary operations. The companies noted that the longer lead-time of CO2 project development in the Rockies is matched with a strong growth profile from low-risk development of unconventional resource plays in the Bakken oil shale in North Dakota and the Haynesville shale in North Louisiana. Encore has one of the larger acreage positions in the prolific Bakken oil shale with over 300,000 net acres.
The combined company will continue to be known as Denbury Resources Inc., headquartered in Plano, Texas. The deal is expected to close in the first quarter of 2010 and Denbury's board and senior management will remain unchanged.
Denbury intends to finance the 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 about $180 million currently drawn and outstanding, and to pay other fees and expenses.
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. Proceeds from such sales are estimated to be at least $500 million.
Denbury will own the general partner interest of Encore Energy Partners and about 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, the companies added.
The Boards of Directors of both companies have unanimously approved the merger agreement. Post closing, it is anticipated that Denbury stockholders will own between 63% and 68% of the combined company and the Encore stockholders will own between 32% and 37% of the combined company.
According to Phil Rykhoek, Chief Executive Officer of Denbury, "Encore is an excellent fit with Denbury's CO2 EOR program...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.
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 company expects to announce the combined 2010 capital budget at its upcoming analyst meeting on November 12 and November 13.
J.P. Morgan Securities Inc. acted as exclusive financial advisor to Denbury and Barclay's Capital Inc. acted as exclusive financial advisor to Encore. Baker & Hostetler LLP gave legal counseling to Denbury and Baker Botts L.L.P. was the legal counsel to Encore.
Separately Denbury said Sunday that due to the merger agreement to acquire Encore, it is postponing its previously scheduled earnings release regarding third quarter 2009 results to November 5 from November 3. On average, 15 analysts polled by Thomson Reuters expect the company to earn $0.17 per share for the quarter, while revenues are estimated to be $233.34 million. Analysts' estimates typically exclude special items.
The company also announced limited third quarter information due to this delay. Denbury said production for the third quarter averaged 42,659 BOE/d, an 11% increase from last year's 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 also reduced 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 added that its 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 about 27,000 Bbls/d, a projected 12% increase over 2009 projected levels.
DNR closed Friday's regular trade at $14.60, down $0.78 or 5.07%, on 3.74 million shares.
EAC shares settled on Friday at $37.07, lower by $2.54 or 6.41% from the previous close, on 1.09 million shares.
ENP ended the regular trade on Friday at $18.00, down $0.33 or 1.80%, on 288,043 shares.
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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.