S&P affirms Encore Acquisition

Standard & Poor's said it affirmed its BB- corporate credit rating on independent oil and gas company Encore Acquisition Co. following the announcement that Encore plans to purchase privately held Cortez Oil & Gas Inc. for $123 million.

The outlook is stable.

The debt-financed acquisition of Cortez's estimated reserves of about 15 million barrels of oil equivalent will be financed either through bank borrowings or a potential future note offering. Encore had about $180 million of debt outstanding as of Dec. 31.

S&P said the ratings affirmation reflects the fact that even with the increased debt Encore will take on to fund this transaction, financial measures will remain appropriate for the current ratings. Furthermore, the acquisition is consistent with Encore's business growth strategy of acquiring relatively low-risk drilling, long-lived reserves (reserve/production ratio of 14 years), complementary to Encore's operations.

The ratings on Encore reflect its small to mid-size reserve base (156 million barrels of oil equivalent, pro forma for the acquisition), limited geographic diversification, and an aggressive growth strategy. Pro forma for the acquisition, Encore will be moderately leveraged with total debt to total capital at 45%.

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