Denbury to Buy Oil Developer Encore for $2.64B

Oil and gas developer Denbury Resources Inc. said Sunday it will pay $2.64 billion in cash and stock to purchase Encore Acquisition Co., in a move to become one of the largest independent oil exploration and production companies in North America.

Encore shareholders will receive $50 for each share held, including $15 in cash and $35 in stock. The purchase price represents a 35 percent premium to the stock's closing price Friday.

Based on Encore's 52.8 million common shares outstanding at July 31, the acquisition is valued at about $2.64 billion. Denbury also plans to assume more than $1 billion in Encore debt and will take over Encore's minority stake in Fort Worth, Texas-based Encore Energy Partners LP, valued at nearly a half billion dollars. In total, the companies are estimating the deal is worth $4.5 billion.

Denbury operates mainly in Mississippi, and holds interests in the Barnett Shale region near Fort Worth, Texas, and properties onshore in Louisiana, Alabama and Southeast Texas. It owns hefty reserves of carbon dioxide, which Denbury injects into older oil wells to boost oil production, a method known as tertiary production. Fort Worth, Texas-based Encore buys and develops oil and natural gas reserves from onshore fields in the United States.

The combined company will continue to be known as Denbury Resources Inc. and remain headquartered in Plano, Texas.

"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," said Denbury CEO Phil Rykhoek, in a statement.

Denbury said it will finance the deal with a combination of equity and debt. It said J.P. Morgan has committed to providing a new $1.6 billion bank revolving credit facility and a $1.25 billion in debt financing. The latter will be used to fund the cash portion of the purchase price, and replace $825 million worth of outstanding subordinated notes as well as replace a bank credit line which has about $180 million outstanding.