History
Encore Acquisition grew through debt-funded oil property purchases and an MLP spin-off, then agreed in 2009 to be bought by Denbury Resources for about $4.5 billion.
2004-2006: Buying growth with borrowed money
The record opens in April 2004, when Encore paid $122.6 million in cash for Cortez Oil & Gas. The deal added about 15 million barrels of proved reserves across the Permian Basin, Mid-Continent, Barnett Shale and Cedar Creek Anticline, and was funded from a new $150 million issue of senior subordinated notes. In June 2004 it closed a $77 million purchase of natural gas properties in Overton Field, Texas, next to its existing Elm Grove Field acreage, paid for with a June 2004 stock sale and credit-facility borrowings.
In August 2004 Encore replaced its $300 million credit facility with a five-year facility led by Bank of America, with an initial $400 million borrowing base (the amount lenders will lend against its reserves). The base rose to $500 million in May 2005. Shareholders that month also approved more than doubling the authorised common shares, from 60 million to 144 million.
The company then reworked its debt. In July 2005 it closed a $300 million issue of 6.0% notes due 2015 to refinance its 8.375% notes due 2012, expecting a pre-tax charge of roughly $18-26 million to retire the old notes early. In November 2005 it closed a further $150 million of 7.25% notes due 2017. Its chief financial officer, Roy W. Jageman, left effective October 31, 2005 with $590,000 in cash; L. Ben Nivens succeeded him on a $215,000 base salary. In January 2006 the credit agreement was extended to 2010 and the borrowing base raised to $550 million. In March 2006 Encore sold 4 million new common shares and used the proceeds to pay down its revolving credit facility.
2007-2008: A portfolio swap and an MLP
Early 2007 was the biggest period in the record. In January Encore agreed to buy Big Horn Basin properties in Wyoming and Montana from Anadarko-related sellers for $400 million, and nine days later a Williston Basin package from the same sellers for $410 million. The Big Horn deal closed in March for about $392.4 million, funded by a new $1.25 billion credit facility. The Williston deal closed in April for about $392.5 million, pushing outstanding debt to $866.9 million.
To pay that debt down, Encore agreed in May to sell its Mid-Continent properties to Crow Creek Energy for $300 million. The sale closed in July, swapping older Oklahoma and Anadarko-basin gas acreage for the new oil properties.
In August 2007 the minimum cash-flow-to-interest ratio required by the credit agreement of its subsidiary Encore Energy Partners Operating LLC was cut from 2.5x to 1.5x. In September Encore floated part of that business as Encore Energy Partners LP on the New York Stock Exchange, selling 9 million public units, about 37.4% of the partnership. Encore kept a 61% limited-partner stake plus the 2% general-partner interest. In February 2008 it sold Permian and Williston Basin producing properties to the partnership for $250.4 million ($125.4 million cash plus 6.9 million units), a related-party deal reviewed by the partnership's independent conflicts committee. That lifted Encore's stake in the common units to about 67%.
2009: Tighter credit
The record is quiet through most of 2008 apart from a November exchange certification for listing. Credit then became harder and costlier. In March 2009 lenders raised interest margins and commitment fees and set the borrowing base at $900 million. In May 2009 Encore raised $225 million of notes due 2016 at 9.50%, far above the 6.0% and 7.25% coupons of its 2005 issues.
2009-2010: The sale to Denbury
On November 2, 2009 Encore agreed to be acquired by Denbury Resources for about $4.5 billion including debt. The terms were $50.00 per Encore share in cash and stock, set as $15.00 in cash plus $35.00 of Denbury stock, with a collar on the number of Denbury shares. Elections were prorated to an overall mix of 70% stock and 30% cash. Closing depended on both companies' shareholder votes, antitrust clearance and Denbury's financing.
On February 8, 2010 Encore filed its definitive joint proxy statement. Holders could choose cash, Denbury stock or a mix, and would own about 30% to 36% of the combined company. Both boards recommended the merger, which needed a majority of Encore's outstanding shares. Meetings were set for March 9, 2010.
In March 2010 the exchange filed to remove a class of Encore's securities from listing (March 10), and on March 15 Encore terminated the registration of a class of securities, ending its reporting obligation for them. The beats do not record the vote result, but they show the company's listing and reporting ending within days of the meeting date.
Written from the 29 story beats below (2004 to 15 Mar 2010), which come from the company's own announcements and filings.