DALLAS (AP) -- Oil and gas developer Denbury Resources ( DNR) said Sunday it will pay $2.64 billion in cash and stock to purchase Encore Acquisition ( EAC), in a move to become one of the largest independent oil exploration and production companies in North America.

Encore shareholders will receive $50 for each share held, including $15 in cash and $35 in stock. The purchase price represents a 35% premium to the stock's closing price Friday.

Based on Encore's 52.8 million common shares outstanding at July 31, the acquisition is valued at about $2.64 billion. Denbury also plans to assume more than $1 billion in Encore debt and will take over Encore's minority stake in Fort Worth, Texas-based Encore Energy Partners LP, valued at nearly a half billion dollars. In total, the companies are estimating the deal is worth $4.5 billion.

Denbury operates mainly in Mississippi, and holds interests in the Barnett Shale region near Fort Worth, Texas, and properties onshore in Louisiana, Alabama and Southeast Texas. It owns hefty reserves of carbon dioxide, which Denbury injects into older oil wells to boost oil production, a method known as tertiary production. Fort Worth, Texas-based Encore buys and develops oil and natural gas reserves from onshore fields in the United States.

The combined company will continue to be known as Denbury Resources Inc. and remain headquartered in Plano, Texas.

"Encore has built an enviable asset portfolio in the Rockies, anchored by mature legacy crude oil assets, and our combined size and scale of operations will allow us to undertake significantly larger CO2 projects in the Gulf Coast and the Rockies," said Denbury CEO Phil Rykhoek, in a statement.

Denbury said it will finance the deal with a combination of equity and debt. It said J.P. Morgan has committed to providing a new $1.6 billion bank revolving credit facility and a $1.25 billion in debt financing. The latter will be used to fund the cash portion of the purchase price, and replace $825 million worth of outstanding subordinated notes as well as replace a bank credit line which has about $180 million outstanding.

Denbury expects to issue between 115 million and 146 million shares of common stock to fund the equity portion of the deal, which would boost its total shares outstanding to between 364.4 million and 395.4 million.

Denbury said it will sell off the companies' non-core oil and gas properties next year and use the estimated $500 million in proceeds to pay down its debt. The combined company may choose to sell some of the properties to Encore Energy Partners.

The boards of both Denbury and Encore have approved the deal, which is expected to close in the first quarter of 2010, subject to shareholders' approval. After the acquisition is complete, Denbury stockholders will own between 63% and 68% of the new company and Encore stockholders will own between 32% and 37%.

Denbury's board and senior management will remain unchanged.

J.P. Morgan Securities acted as financial adviser to Denbury and Barclay's Capital Inc. advised Encore. Baker & Hostetler LLP acted as legal counsel to Denbury and Baker Botts LLP as legal counsel to Encore.

Denbury in August reported sliding to a second-quarter loss of $87.2 million from a year-earlier profit, hurt by lower oil and gas prices and a write-down on the fair value of commodity contracts. Revenue dropped 48% to $217.4 million as the company's realized price of oil and gas tumbled 42%.

As previously announced, the company lowered its 2009 production outlook after it sold 60% of its Barnett Shale natural-gas assets to privately held Talon Oil & Gas LLC. The sale will result in lost output, prompting Denbury to slash its production outlook by 3,500 barrels of oil equivalent per day (BOE/d) to an adjusted average of 47,500 BOE/d.

The company has said selling the properties would allow it to focus on its core oil operations, which are more profitable and carry lower risk.

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