Encore stock soars in response to proposed acquisition by Plano company

Denbury stock (ticker: DNR) fell 10.3 percent, however, and Moody's Investors Service placed its credit ratings for the energy firm under review for possible downgrade. Moody's cited the added debt the company would take on in making the acquisition, which still requires shareholder approval. The deal isn't expected to be closed until late in the first quarter of 2010.

Encore (EAC) closed at $44.67, up $7.60, on a trading volume of 9.9 million shares. Denbury closed at $13.09, down $1.51, on a volume of 15.9 million shares. An Encore affiliate that would be part of the deal, Encore Energy Partners LP (ticker: ENP) closed at $17.98, down 2 cents.

The deal would create one of the largest independent energy producers in North America that is primarily focused on oil rather than natural gas. Encore and Denbury have been focused on oil production, rather than natural gas, in contrast to many U.S. independent exploration and production firms.

The acquisition was challenged Monday in a statement by Harwood Feffer LLP, a law firm with a New York City office.

It specializes in litigation involving securities and shareholder issues. Feffer said Encore "may not have adequately shopped itself around before entering into this transaction" and Denbury "may be underpaying for Encore...thus unlawfully harming" shareholders of the Fort Worth company.

Encore did not reply to a request for a response to the law firm's comments.

In a conference call with investment analysts Monday, Denbury CEO Phil Rykhoek said, "We're obviously excited about this deal for many reasons."

He said Encore's extensive lease holdings in the Rocky Mountains and the Bakken Shale of western North Dakota and eastern Montana are particularly attractive. The acquisition will buttress Denbury's emphasis on injecting carbon dioxide into geological formations in old oilfields to enhance oil recovery, he said.

Rykhoek indicated that most Encore employees would have a chance to work for Denbury, although many probably would be eventually shifted to Denbury's Plano headquarters.

Encore, which has about 425 employees, including about 225 in Fort Worth, is headquartered in Carter Burgess Plaza downtown.

Encore CEO Jonny Brumley said, "This deal makes a lot of sense. aEURe.aEURe.aEURe. We're really proud to be part of it." Brumley said Encore already was transitioning to a greater focus on enhanced oil recovery.

The Denbury and Encore boards have approved the deal. If the transaction is completed, Denbury stockholders would own about two-thirds of the company and Encore shareholders about one-third.

The company would retain Denbury's name and Plano headquarters.

Under the deal, Encore shareholders would receive $50 for each share held: $15 in cash and $35 in stock. The $50 purchase price is nearly 35 percent higher than the stock's closing price of $37.07 on Friday.

Based on Encore Acquisition's 52.8 million common shares outstanding on July 31, Denbury's acquisition is valued at about $2.64 billion.

But Denbury also plans to assume more than $1 billion in Encore debt and would take over Encore's minority stake in Encore Energy Partners, a master limited partnership valued at nearly a half-billion dollars. In total, the companies estimate that the deal is worth $4.5 billion.

Encore Chairman Jon Brumley, in a telephone interview Sunday night, said he expects that "nearly all" Encore employees will have the opportunity to go with Denbury.

Denbury, which has some interests in the Barnett Shale gas field in North Texas, "will keep an office here [in Fort Worth] for a while, but I don't know for how long," Brumley said.

Brumley said the merger, in addition to offering Encore shareholders an attractive price for their stock, should become an "extremely successful" union of two companies that have focused heavily on oil.

Brumley's son, Jonny Brumley, is Encore's CEO.

The father son-team made the cover of Forbes magazine several years ago when they were honored as entrepreneurs of the year for their launch of Encore, which has substantial operations in the Rocky Mountains, North Dakota, Texas and elsewhere.

Denbury holds properties in Mississippi, Louisiana, Alabama and Southeast Texas. It owns large reserves of carbon dioxide, which it injects into older oil wells to boost oil production, a method known as tertiary production. Its board and senior management will remain unchanged.

"Encore has built an enviable asset portfolio in the Rockies...and our combined size and scale of operations will allow us to undertake significantly larger CO{-2} projects in the Gulf Coast and the Rockies," Rykhoek said.

Denbury said it will finance the deal with equity and debt. It said J.P. Morgan has committed to providing a new $1.6 billion bank revolving loan and $1.25 billion in debt financing. Denbury expects to issue 115 million to 146 million shares of common stock to fund the equity portion of the deal.

Denbury said it will sell off the companies' noncore oil and gas properties next year and use the estimated $500 million in proceeds to pay down its debt. The combined company may sell some of the properties to Encore Energy Partners.

"The combined companies have a unique blend of large oilfields with huge upside potential," Jonny Brumley said.

In August, Denbury reported sliding to a second-quarter loss of $87.2 million from its year-earlier profit, hurt by lower oil and gas prices and a write-down on the fair value of commodity contracts. Revenue dropped 48 percent to $217.4 million as the company's realized price of oil and gas tumbled 42 percent.

This report includes material from The Associated Press.

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