Encore Acquisition may draw many suitors: analysts

By Anna Driver

HOUSTON (Reuters) - Encore Acquisition Co (EAC.N), an oil and gas exploration company which put itself up for sale this week, is likely to draw interest from both big and small suitors whose coffers are full of cash, thanks to record crude prices, analysts said.

Encore, which owns oil and gas properties in the Permian Basin in west Texas, the Haynesville shale in northern Louisiana and the U.S. Rockies, said on Wednesday it was exploring strategic options because the market is undervaluing its shares.

"A number of exploration and production companies could pull off this acquisition," Pavel Molchanov, analyst with Raymond James said, noting that Encore's market capitalization is a modest $3 billion.

"Even if oil prices were well below where we are today the acquisition of Encore would be significantly accretive to any purchasers, given that incredible strength in oil and gas prices," he said.

On Thursday, crude oil futures climbed to a record intraday high above $135 per barrel.

Companies with complementary oil and gas assets that may be interested in acquiring Encore include Occidental Petroleum Corp (OXY.N), Noble Energy Inc (NBL.N) and Anadarko Petroleum Corp (APC.N), Raymond James' Molchanov, said.

For example, Occidental has operations in the Permian basin and the U.S. Rocky Mountains, while Noble and Anadarko both have properties in the Rockies.

Another energy company that may be interested in some of Encore's assets rather than the entire company is Chesapeake Energy Corp (CHK.N), Phil Weiss, analyst at Argus Research, said.

"If they were to split up the assets and the price were reasonable, I could see Chesapeake being interested in the Haynesville part," Weiss said.

In March, Chesapeake Chief Executive Aubrey McClendon said Haynesville may be the company's most significant find and it was looking to lease half a million acres in the area.

GOOD VALUE?

The announcement surprised some investors because the company's stock is up more than 90 percent so far this year, not a typical performance for an unvalued stock. Still, some analysts said they see room for upside.

"With Encore's discounted valuation versus its peers and upside to net asset value, we believe this announcement will yield continued outperformance," investment bank Simmons & Co told clients on Thursday.

For example, Encore has about 21 percent upside to Simmons' net asset value of $81 per share, it said.

And if buyers for Encore do emerge, then the odds of oil-driven deal frenzy go up, David Heikkinen, head of exploration and production research at Tudor, Pickering Holt & Co Securities, said.