Denbury Resources Inc. (DNR) will divest its stake in Encore Energy Partners LP (ENP) to Vanguard Natural Resources LLC for $380 million. The consideration includes $300 million in cash and $80 million in Vanguard common units. The deal is expected to complete around December 31.
On completion of the deal, Vanguard will own Encore’s general partner and a 46% stake in the company, or about 20.9 million units of Encore.
Encore Energy Partners LP was formed by Encore Acquisition Company (“EAC”) to acquire, exploit, and develop oil and natural gas properties and to acquire, own, and operate related assets.
In March 2010, Denbury acquired EAC for $4.5 billion. Since then, Denbury has offloaded EAC’s several non-core oil and gas properties for more than $1 billion. The most notable include assets sold to Houston-based Quantum Resources Management LLC for $900 million shortly following the acquisition.
Although Denbury has been actively engaged in divesting non-core acquired properties, its third quarter production jumped substantially on the back of contribution from Encore assets.
Net proceeds from these transactions will allow Denbury greater liquidity and flexibility to refocus on its core tertiary oil operations and the acquired Bakken assets. Additionally, it could also help the company in containment of the $2.53 billion (at the end of third quarter of 2010) debt level.
We like the company’s oil-centric niche business model and comfortable financial position, which will help maintain its growth profile in the long run. Our Neutral recommendation for Denbury shares remains unchanged with the Zacks #3 Rank (Hold).
DENBURY RES INC (DNR): Free Stock Analysis Report
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