Encore Acquisition Snaps Up Mid-Continent, East Texas Producing Properties
Encore has entered into definitive agreements with EXCO Resources, Inc. and an affiliate, EXCO Operating Company, LP to acquire oil and natural gas properties in the Mid-Continent and East Texas for $375 million in cash, subject to customary purchase price adjustments and closing conditions.
The Mid-Continent properties are comprised of oil and natural gas assets primarily located in the Norge Marchand Unit in Grady County, Oklahoma. The Norge Marchand Unit is a waterflood that produces from the Marchand Sandstone and has estimated original oil in place of 200 million barrels. Encore's internal engineers have forecasted production from this large field as of the anticipated closing date.
Forecasted production is 1,955 barrels of oil equivalent ("BOE") per day, and the field is 100 percent operated. The acquired properties also include assets in the Texas Panhandle, southwestern Kansas, and western Oklahoma. The Mid-Continent package has estimated proved developed reserves of approximately 12.8 million BOE, 50 percent of which are oil and natural gas liquids and 100 percent of which are proved developed producing. The Norge Marchand reserves represent approximately 63 percent of the Mid-Continent package.
The East Texas properties include long-life assets mainly in the Gladewater field. This field produces primarily from the Cotton Valley Sands. The East Texas properties include 495 gross wells with forecasted production of approximately 17.3 million cubic feet equivalent of natural gas per day. Gladewater's estimated proved developed reserves are approximately 10.3 million BOE, 95 percent of which are natural gas. All of the reserves are proved developed producing.
Jon S. Brumley, Encore's Chief Executive Officer and President, stated, "This acquisition is vintage Encore. Purchasing long-life properties at a time when prices are below long-term marginal costs has been a tried and true strategy Encore has been practicing for the past 11 years. Acquisition opportunities like this do not happen very often, so when they become available you must be ready. The Norge Marchand Unit is a huge old field with over 200 million barrels of original oil in place and the Gladewater field is a predictable but active area in the Cotton Valley. The industry is in a state of underinvestment and with unconventional horizontal plays becoming a larger percentage of lower 48 gas production, we believe that the market will be ripe for prices to increase in 2010. This acquisition has a production profile that in today's poor price environment is much safer and more desirable than a drilling program."
Mr. Brumley went on to state, "Encore Acquisition Company and Encore Energy Partners are making a great team. I am enthusiastic about the way both companies complement and aid each other. Having this relationship has made each company much more valuable."
Encore's internal engineers have estimated that the proved developed properties will contribute approximately $40 million in cash flow (revenues less direct operating expenses) to the Company in 2009 and $65 million in cash flow in 2010, including hedges entered into in conjunction with the acquisition.
The acquisition is expected to close in August 2009 and will be effective as of April 1, 2009.
Financing and Liquidity Update
Encore intends to finance the acquisition through proceeds from the sale of certain properties in the Rockies and Permian Basin to Encore Energy Partners LP ("ENP") for $190 million in cash and borrowings under its revolving credit facility for the remaining amount.
Encore estimates that at June 30, 2009, the Company's long-term debt, net of discount, will be approximately $1.2 billion, including $150 million of 6.25% senior subordinated notes due April 15, 2014, $300 million of 6.0% senior subordinated notes due July 15, 2015, $225 million of 9.5% senior subordinated notes due May 1, 2016, $150 million of 7.25% senior subordinated notes due December 1, 2017, and approximately $175 million and $195 million of outstanding borrowings under Encore's and ENP's revolving credit facilities, respectively. The estimated borrowings under Encore's revolving credit facility at June 30, 2009 include the $37.5 million deposit related to the Mid-Continent and East Texas acquisition. At June 30, 2009, Encore estimates that it will have approximately $650 million of borrowing capacity under its revolving credit facility.
Encore's borrowing base is currently $825 million. The Company will not request a borrowing base redetermination as a result of this acquisition. The next borrowing base redetermination for Encore is scheduled for October 2009.
The Company's acquisition of the Mid-Continent and East Texas properties and the sale of properties to ENP are intended to qualify as a like-kind exchange under the Internal Revenue Code, and as such, the gain on the sale of properties to ENP is not expected to be taxable.
In connection with the acquisition, Encore entered into derivative contracts on over 90 percent of the acquisition's proved developed producing volumes for 2010 through 2012. The Company purchased oil puts for 625 barrels per day ("Bbls/D") at a strike price of $67 per barrel ("Bbl") for 2010 and $65 per Bbl for 2011 and 2012. Additionally, the Company entered into oil swap contracts for 625 Bbls/D at an average price of $76.21 per Bbl for 2010, $79.18 per Bbl for 2011, and $81.04 per Bbl for 2012. With respect to natural gas, the Company entered into swap contracts with an average NYMEX equivalent price of $6.99 per thousand cubic feet ("Mcf") for 20,000 Mcf per day for 2010 through 2012.
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- Encore Acquisition Snaps Up Mid-Continent, East Texas Producing Properties (Jun 29)
Company: EXCO Resources, Inc. more info
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