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Denbury Completes Encore Sale - Analyst Blog


Plano, Texas-based Denbury Resources (DNR) announced that it has completed the sale of its stake in Encore Energy Partners LP (ENP) to Vanguard Natural Resources, LLC (VNR) for $393 million. The deal was announced in mid-November 2010.

Out of the total consideration, $300 million was paid in cash, which was funded from borrowings under Vanguard's senior secured credit facility and an acquisition term loan, worth $175 million. The remaining $93 million was paid in 3.14 million Vanguard common units. Encore's bank debt of $234 million, outstanding on December 31, 2010 remained with the company in the sale.

With the completion of the deal, Vanguard acquired a 46% interest (approximately 20.9 million shares) in Encore and has become the company's general partner.

As of September 30, 2010, Encore's proved reserves totaled approximately 43.4 million barrels of oil equivalent. The reserves were 91% proved developed and comprised about 67% crude oil and natural gas liquids and 33% natural gas. 

This disposition provided Denbury with greater liquidity and flexibility to emphasize on core tertiary oil operations and the acquired Bakken assets. Additionally, it will also help the company to counterbalance the $2.53 billion (at the end of third quarter of 2010) debt level. 

We believe that Denbury is on track to perform impressively in the coming quarters based on its relatively low-risk business model. As the company's production is fairly oil-weighted, we also view strong earnings and cash flow visibility in the future.

However, we remain concerned about the industry-wide oilfield cost inflation and commodity price risks. We are maintaining our long-term Neutral recommendation on the stock. Denbury currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

DENBURY RES INC (DNR): Free Stock Analysis Report
ENCORE EGY PTNR (ENP): Free Stock Analysis Report
VANGUARD NATURL (VNR): Free Stock Analysis Report
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