S&P rates Encore notes B

Standard & Poor's said it assigned its B rating to Encore Acquisition Co.'s $150 million senior subordinated notes due 2014 and affirmed its BB- corporate credit and B subordinated debt ratings on the company.

The outlook is stable.

Proceeds from the proposed note offering will primarily be used to fund Encore's purchase of privately held Cortez Oil & Gas Inc. for $123 million, which was announced on March 3, 2004, as well as retire existing bank borrowings and other general corporate purposes.

S&P said the ratings on Encore reflect its small to midsize 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%.

These weaknesses are tempered, the agency said, by the company's high percentage of company-operated properties (86%) that require modest future development expenses and its high percentage of proved developed reserves (78%), which have a long reserve life of about 17 years and provide the company with meaningful operational and financial flexibility. In addition, Encore's rising production levels (9.6% during 2003) and strong reserve replacement (255% in 2003) primarily from organic growth, combined with its relatively competitive operating and finding costs, also help mitigate the risks inherent in the company's small reserve base and limited geographic diversification.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.