In North America, the big focus for independent exploration and production firms is on natural gas. Yet, there is still a good amount of oil to be tapped (assuming prices remain relatively high). So this week, Denbury Resources (NYSE: DNR) capitalized on the opportunity by shelling out $3.2 billion for Encore Acquisition (NYSE: EAC). It's not cheap, coming at a 35% premium. Yet, the deal will create a powerhouse in oil exploration and production in North America.
interestingly enough, in a sign that credit markets are loosening up, JPMorgan (NYSE: JPM) has agreed to provide a revolver of $1.25 billion to bridge the deal.
Basically, Denbury uses sophisticated technology -- which relies on carbon dioxide -- to extract oil from mature fields (known as "enhanced oil recovery"). And, with the deal for Encore, the reserves will double to more than 500 million barrels. In other words, this will be a nice boost to growth.
Although, Wall Street is bit concerned about the dilution of the deal. In today's trading, the shares of Denbury are down 7% to $13.59.
Tom Taulli is the author of various books, including The Complete M&A Handbook
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
