Encore Energy Partners LP (NYSE: ENP) (the �Partnership� or
�ENP�) announced today that it has entered into an agreement with
an independent energy company to purchase natural gas producing
properties in the Vinegarone Field in Val Verde County, Texas for
$28 million in cash, subject to customary purchase price
adjustments and closing conditions. In addition, the Partnership
entered into an agreement with Encore Acquisition Company (NYSE:
EAC) (�EAC�) to purchase oil and natural gas producing properties
in the Williston Basin for $25.8 million in cash, subject to
customary purchase price adjustments and closing conditions. The
acquisitions will be effective April 1, 2009 and are expected to
close by June 1, 2009. The transaction will be immediately
accretive to ENP�s distributable cash flow per unit. Due to this
accretion, the Partnership expects that the annualized distribution
rate will increase from $2.00 per unit for the first quarter of
2009 to $2.05 per unit beginning with the distribution for the
second quarter of 2009.
Combined Acquisition Parameters
The combined acquisition parameters for the Vinegarone and
Williston Basin acquisitions are as follows:
Daily production � � � 926 BOE/D Total proved reserves 4.4 million
BOE Percentage proved developed 97% Percentage natural gas 64%
Reserves to production ratio 13 years Combined purchase price $53.8
million
Jon S. Brumley, Chief Executive Officer and President of Encore
Energy Partners GP LLC, stated, �Due to the Vinegarone�s less than
7% production decline, this asset is perfect for our MLP. It is an
ideal bolt on to our current Val Verde Basin assets, and its low
lifting costs of only $0.18 per Mcf allow this property to generate
a high margin. The Williston Basin assets are also an ideal
complement to the Vinegarone purchase and our MLP. The Williston
properties are long-life and oily, giving the combined transaction
a 50% oil-weighted product mix by revenue. Because the Williston
assets are in 13 different fields, it greatly increases ENP�s
footprint in the Williston. This will allow the partnership to take
advantage of yet to be discovered zones and future technological
enhancements. The transactions show that even in this tough market
Encore Energy Partners is able to implement the plan that was laid
out to investors in our IPO. Having high-margin, long-life
properties and a large parent makes us unique and has created a
resilient MLP that is able to take advantage of this uncertain
market. We are fortunate to have this relationship with EAC.�
Distributions
As a result of the Partnership�s expanded property base and
increased cash flow, the Partnership expects to increase the 2009
annualized distribution rate to $2.05 per unit (or $0.5125 per
quarter), beginning with the second quarter of 2009. The
acquisitions are expected to be 5 to 8 percent accretive to the
distribution per unit at a 1.1 times coverage ratio for 2010 and
beyond.
Property Details
The Vinegarone properties include shallow-declining mature
assets that produce from the Strawn formation of the Permian Basin.
The properties have estimated proved developed reserves of
approximately 2.4 million barrels of oil equivalent (�BOE�), 100
percent of which are proved developed producing and 100 percent of
which are natural gas. The properties currently produce
approximately 3.0 million cubic feet of natural gas per day, or 507
BOE per day, and such properties are estimated to have a total
reserves-to-production ratio of 13.0 years. The high-margin
properties have lifting costs of approximately $1.08 per BOE with a
decline rate of less than 7 percent. These properties will be 99
percent operated by the Partnership.
The Williston Basin properties produce from 13 different fields
in Montana and North Dakota and include over 100 producing wells.
The properties have estimated total proved reserves of
approximately 2.0 million BOE, 93 percent of which are proved
developed producing and 80 percent of which are oil. The properties
currently produce approximately 419 BOE per day.
Hedging
In connection with the acquisitions, the Partnership entered
into derivative contracts on a portion of the acquisitions� proved
developed producing volumes. The Partnership�s updated hedging
positions are shown below.
Summary of Derivative Positions as of May 18, 2009:
Oil Derivative Contracts (a), (b)
�
Daily �
Average �
Daily �
Average �
Daily �
Average Floor Floor Cap
Cap Swap Swap Period
Volume Price
Volume Price
Volume Price (Bbls)
(per Bbl) (Bbls) (per Bbl) (Bbls)
(per Bbl) � May - Dec. 2009 3,130 $ 110.00 440 $ 97.75 1,000
$ 68.70 � 2010 880 80.00 440 93.80 250 65.95 2,000 75.00 1,000
77.23 - - � 2011 1,880 80.00 1,440 95.41 250 69.65 1,000 70.00 - -
- - � 2012 - - - - 250 71.40 �
Natural Gas Derivative Contracts (a)
�
Average �
Weighted �
Average �
Weighted �
Average �
Weighted Daily
Average Daily Average Daily
Average Floor Floor Cap Cap
Swap Swap Period
Volume Price
Volume Price
Volume Price (Mcf)
(per Mcf) (Mcf) (per Mcf) (Mcf) (per
Mcf) � May - Dec. 2009 3,800 $ 8.20 3,800 $ 9.83 - $ - 5,600
7.06 - - - - � 2010 3,800 8.20 3,800 9.58 902 6.30 4,698 7.26 - -
3,000 6.15 � 2011 898 6.76 - - 902 6.70 - - - - 3,000 6.15 � 2012
898 6.76 - - 902 6.66 - - - - 3,000 6.15 �
(a) Oil prices represent NYMEX WTI monthly average prices, while
natural gas prices represent various price points.
(b) In order to partially finance the cost of premiums on
certain purchased floors, the Partnership may sell floors with a
strike price below the strike price of the purchased floor, thereby
entering into a floor spread. In the above table, the purchased
floor component of these floor spreads are shown net and included
with the Partnership�s other floor contracts. In addition to the
floor contracts shown for 2009, the Partnership has a floor
contract for 1,000 barrels per day at $63.00 per barrel and a short
floor contract for 1,000 barrels per day at $65.00 per barrel.
The Board of Directors of the Partnership�s general partner
approved the transaction with EAC based on a recommendation from
its Conflicts Committee, which consists entirely of independent
directors. Simmons & Company International and Griffis &
Associates, LLC acted as financial advisors to ENP�s Conflicts
Committee, and Simmons & Company International delivered a
fairness opinion in connection with the transaction. Barclays
Capital acted as financial advisor and rendered a fairness opinion
to EAC�s Board of Directors in connection with the transaction.
About the Partnership
Encore Energy Partners LP was formed by Encore Acquisition
Company to acquire, exploit, and develop oil and natural gas
properties and to acquire, own, and operate related assets. ENP's
assets consist primarily of producing and non-producing oil and
natural gas properties in the Big Horn Basin in Wyoming and
Montana, the Williston Basin in North Dakota, the Permian Basin in
West Texas, and the Arkoma Basin in Arkansas.
Cautionary Statement
This press release includes forward-looking statements, which
give ENP's current expectations or forecasts of future events based
on currently available information. Forward-looking statements in
this press release relate to, among other things, estimated
reserves and production, estimated reserve-to-production ratio,
decline rates, expected accretion to distributable cash flow per
unit, expected distributions, expected margins, expected benefits
from derivative contracts, expected risks related to the
acquisitions, the expected closing of the transactions and the
anticipated benefits therefrom, and any other statements that are
not historical facts. The assumptions of management and the future
performance of ENP are subject to a wide range of business risks
and uncertainties and there is no assurance that these statements
and projections will be met. Factors that could affect ENP's
business include, but are not limited to: the risks associated with
drilling of oil and natural gas wells; ENP's ability to find,
acquire, market, develop, and produce new properties; the risk of
drilling dry holes; oil and natural gas price volatility;
derivative transactions (including the costs associated therewith
and the ability of counterparties to perform thereunder);
uncertainties in the estimation of proved, probable, and possible
reserves and in the projection of future rates of production and
reserve growth; inaccuracies in ENP's assumptions regarding items
of income and expense and the level of capital expenditures;
uncertainties in the timing of exploitation expenditures; operating
hazards attendant to the oil and natural gas business; drilling and
completion losses that are generally not recoverable from third
parties or insurance; potential mechanical failure or
underperformance of significant wells; climatic conditions;
availability and cost of material and equipment; the risks
associated with operating in a limited number of geographic areas;
actions or inactions of third-party operators of ENP's properties;
diversion of management's attention from existing operations while
pursuing acquisitions; availability of capital; the ability of
lenders and derivative counterparties to fulfill their commitments;
the strength and financial resources of ENP's competitors;
regulatory developments; environmental risks; uncertainties in the
capital markets; general economic and business conditions
(including the effects of the worldwide economic recession);
industry trends; and other factors detailed in ENP�s most recent
Form 10-K and other filings with the Securities and Exchange
Commission. If one or more of these risks or uncertainties
materialize (or the consequences of such a development changes), or
should underlying assumptions prove incorrect, actual outcomes may
vary materially from those forecasted or expected. ENP undertakes
no obligation to publicly update or revise any forward-looking
statements.
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