Encore Stays The Course, Looks To Divest NonCore
After Encore Acquisition Co. went fishing for a big fish to bite at its unexpected “seeking strategic alternatives” exercise, apparently nobody wanted to pay the required premium to take the producer off the table. Instead of an outright sale, Encore will offer up its noncore assets.
Encore CEO and president Jon Brumley states, “We have been studying strategic alternatives at Encore that would bring the most value to our shareholders. The board and management have decided that a sale or merger of the company is not currently in the best interest of our shareholders. The energy and credit markets became very indecisive during the second quarter. Due to timely acquisitions, a put-based hedging strategy and our financial flexibility, Encore Acquisition Co. has always excelled in times of market indecisiveness.”
And, “The plan is to divest of non-core properties, drop down properties into Encore Energy Partners, and purchase puts struck at $110 per barrel for calendar year 2009. We expect the divestment of the non-core properties and the drop down will pay off most or all of our bank debt, and the puts will ensure that we have good cash flow in 2009. The main advantages of this strategy will be to situate Encore for a larger drilling program in 2009 and to increase our acquisition capabilities for long-life properties in our core areas.”
So here’s what’s core: “We will be focusing on increasing our drilling program in our 240,000-acre Bakken /Sanish play from two rigs currently to six rigs by the middle of 2009, exploiting the high rate of return development wells in our West Texas JV, and drilling our growing Haynesville, Lower Cotton Valley and Bossier potential in North Louisiana and East Texas.”
By omission, what does that leave? How about Midcontinent assets in the Anadarko Basin in western Oklahoma and the Arkoma Basin in eastern Oklahoma and Arkansas? No mention of Big Horn Basin and Powder River assets in Montana and Wyoming. Or goods in the Paradox Basin in Utah.
Be quick, before they drop down.
Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; stoon@hartenergy.com
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August 8th, 2008 at 9:06 pm
Tuscaloosa Marine Shale may be Encore’s next big news - no one is paying much attention to at the moment and Encore is very quiet about it - but their # 3 well in the TMS (4200 ft. lateral) should be put into production in about 45 days. This well could show a huge potential for this relatively unnoticed oil play. Encore is first-in with over 200,000 acres under lease. Oil is much more valuable than gas and new oil plays with potential like the TMS are hard to find. Barring something unexpected - the Tuscaloosa Marine Shale is the next big play in the USA.