Moody's may downgrade Encore

Moody's Investors Service said it placed Encore Acquisition Co.'s ratings, including the Ba3 corporate family rating, on review for downgrade following its announced $400 million acquisition of Anadarko Petroleum Corp.'s Big Horn Basin assets. Until Encore launches a planned initial public offering of a planned master limited partnership, it will fund the acquisition 100% with secured bank revolver debt.

The agency said the review for downgrade reflects the pending major increase in leverage to fund the acquisition, even accounting for the potential deleveraging through the planned IPO later in 2007, as well as Moody's perception that Encore may be adopting a sustained shift in financial policy to a more leveraged attempt to rejuvenate operating trends and diversify asset portfolio risk. These actions also follow a year in which Encore incurred downhole restraints that reduced air injection volumes and largely caused its missed production targets at its Cedar Creek Anticline high-pressure air injection tertiary recovery program.

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