S&P: Encore Acquisition unaffected

Standard & Poor's said that Encore Acquisition Co.'s (BB-/stable/--) announcement that it has entered into an agreement with Kerr-McGee Corp. (BB+/negative/B) to buy oil and gas properties for about $104 million has no immediate effect on the rating or outlook on Encore.

The properties have estimated total proved reserves of about 6.2 million barrels of oil equivalent (boe), with 94% oil and 69% proved, and are located in the Permian Basin in West Texas and the Anadarko Basin in Oklahoma. Encore plans to finance this acquisition, which is expected to close in November, by drawing down on its bank facility and with internally generated cash flow.

Although S&P notes Encore's relatively high price paid for the properties (about $16.77 per proved boe), the acquisition is consistent with Encore's business growth strategy, which includes low-risk drilling, long-lived reserves and fields with potential tertiary recovery reserves. Moreover, the financing of the transaction with bank borrowings and internal cash flow should maintain credit measures that are consistent with S&P's expectations for the current ratings.

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