Encore: Change Partners and Dance (EAC, ENP)

By Douglas A. McIntyre Updated Apr 3, 12:59PM EDT · Published Dec 10, 10:23AM EST

Yesterday, we reported on a deal involving a master limited partnership buying a property from the owner of its general partner. Last night, Encore Energy Partners (NYSE:ENP) announced that it bought about 1,800 producing and royalty interest properties from Encore Acquistion Company (NYSE:EAC) for $49 million. The properties currently produce about 500 barrels of oil equivalent daily, most of which is natural gas. The properties are expected to produce for another 15 years or so.

Encore Energy’s CEO and president said that these properties are "agood match" for a master limited partnership because they offer "highmargins, predictable production profiles, and shallow declines." Thecompany is using its revolving credit to fund the purchase. About $3million of the purchase price was used to hedge production for the nextfour years at an average price of $7.51/thousand cubic feet of naturalgas.

Encore Acquistion owns two-thirds of the common shares of Encore Energyand all the interests of Encore Energy’s general partner. At the end ofSeptember, Encore Energy reported long-term debt of $164.7 million, andEncore Acquistion reported long-term debt of $1.2 billion.

Encore Energy had $34 million in operating cash flow in the thirdquarter, and paid out about $23 million in distributions. This latestpurchase will allow the company to increase its operating cash flow,and juice its payouts a bit for the current quarter. And that’s whatMLPs are all about: increasing distributions.

Paul Ausick
December 10, 2008

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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

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A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.