2009-08-04-2009-06-29-2009-08-11

Purchased properties in the Permian Basin in TX & NM, the Big Horn Basin in WY, & the Williston Basin in MT & ND, gaining 12.4 MMBOE proved, 2,129 BOE/d.

The MLP Encore Energy Partners LP, Fort Worth, (NYSE: ENP) has acquired producing properties in the Rockies and the Permian Basin in a drop down from parent company Encore Acquisition Co. (NYSE: EAC) for $190 million in cash. Encore Acquisition acquired Midcontinent and East Texas properties from Exco Resources Inc., Dallas, (NYSE: XCO) for $375 million in cash and simultaneously sold certain of those assets to Encore Energy. The properties involve shallow-declining mature assets in the Big Horn Basin in Wyoming, the Permian Basin in West Texas and New Mexico and the Williston Basin in Montana and North Dakota. Estimated total proved reserves are approximately 12.4 million barrels of oil equivalent (93% proved developed producing; 84% oil). Currently production is approximately 2,129 barrels of oil per day. The reserve-to-production ratio is approximately 16 years. Encore properties are 96% operated. For the Big Horn Basin package, proved reserves are 4.3 million barrels equivalent (100% proved developed producing; 100% oil) with production of 729 barrels per day. The Permian package involves 5.5 million barrels equivalent proved (91% PDP; 69% oil) with production of 885 barrels equivalent. The Williston package involves 2.5 million barrels equivalent proved (85% PDP; 90% oil) with production of 515 barrels equivalent per day. Jon S. Brumley, Encore Energy Partners GP LLC chief executive, says, "While other upstream MLPs are struggling to find their footing in this marketplace, Encore Energy Partners has been able to make two significant acquisitions in 2009. These Rocky Mountain and Permian Basin oil properties are a perfect fit for ENP. They are high margin and predictable. We expect this drop down to be 8% to 11% accretive to 2010 distributable cash flow and to enhance an already healthy partnership. We are excited about increasing our oil exposure to the upside, but with our savvy hedging program we were able to protect the downside risk while retaining half of the upside exposure." In connection with the acquisition, Encore Energy has hedged some 90% of the acquisition's proved developed producing volumes for 2010 through 2012. The partnership purchased oil puts for 760 barrels per day at a strike price of $67 per barrel for 2010 and $65 per barrel for 2011 and 2012. Additionally, the partnership entered into oil swap contracts for 760 barrels per day at an average price of $75.43 per barrel for 2010, $78.46 per barrel for 2011, and $80.30 per barrel for 2012. Encore Energy entered into swap contracts with an average price of $7.99 per Mcf for 2,100 Mcf per day for 2010 through 2012. Additionally, Encore Energy expects its annualized distribution rate to increase from an estimated $2.05 per unit for second-quarter 2009 to $2.15 per unit beginning with the distribution for third-quarter 2009. Encore Energy issued 8.2 million common units to fund the deal. Mitchell Wurschmidt, vice president of KeyBanc Capital Markets Inc., calculates EAC is receiving $15.32 per barrel equivalent proved, and $89,244 per flowing barrel. "All in all, we view this as a continuation of EAC's strategy to drop down assets to its MLP and believe EAC received a fair price, considering the current credit and commodity environment."