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Encore Acquisition Company (EAC) |
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WIKI ANALYSIS
Encore Acquisition Company (NYSE: EAC) is an independent oil & gas company that operates in the famed Bakken Shale - rumored to have up to 400 billion bbls of recoverable petroleum.[1]
To stay strong against competition, Encore has been exploiting many of the projects that it discovered in 2006, including the Bakken Shale in North Dakota and Montana. As the United States tries to lessen its foreign energy dependence, the Bakken has enormous potential, which Encore is in a position to exploit.
Company Overview
Business & Financial Metrics[2]
In 2009, EAC incurred a net loss of $97.9 million on revenues of $685.4 million. This represents a turnaround from 2008, when the company generated a net income of $485.1 million on $1.14 billion in revenue.
Business Segments[3]
EAC has only one reportable business segment. The company operates in the following geographical areas:
- The Cedar Creek Anticline is Encore's most valuable region in terms of proved reserves. Located by the border of Montana and North Dakota, it contained approximately 3.3Bbbl[4] of oil when discovered. Average daily production was 12,640BOE/D.[5]
- The Permian Basin includes properties in West Texas and New Mexico. In West Texas, Encore invested over $120M and drilled 66 gross wells to develop its properties. [6]
- The Rockies encompasses Montana, North Dakota, Wyoming, and Utah. Most notable in this region is the Bakken Shale formation, a relatively new oil field in Montana and North Dakota that is estimated to have upwards of 400BBbl[1]of recoverable oil. Significant acreage acquisitions in this area have led to an increase in average daily production from 978BOE/d to 6363BOE/d.[7]
- The Mid-Continent includes properties in Oklahoma, Arkansas, East Texas, Kansas, and North Louisiana. Encore sold properties in the Anadarko and Arkoma fields in 2007 which contributed to a decrease in production from 30,430Mcfe/d to 8,555Mcfe/d.[8]
Trends and Forces
Alternative Energy and High Oil Prices Lower Demand
While high oil prices have driven record revenues for Encore, it is potentially a double-edged sword for oil companies. Despite increased demand in developing countries such as India, the United States demand for oil has declined due to decreased affordability for consumers.
High prices in conjunction with concerns over the environment have driven the alternative energy industry that is attempting to alleviate dependence on oil. Solar panels, wind turbines, nuclear reactors, biofuels, and other sources of energy are threatening the long term sustainability of the oil industry. More and more economically conscious consumers are purchasing cars that rely on energy besides oil and decreasing their energy consumption.
This is also tied to the concept of peak oil; since oil is a finite resource, there is a point in time where production will peak and then decline until there is no more oil left. Once the peak has been surpassed, oil prices will skyrocket because of less production and greater demand due to the natural increase in global population. This will only further increase the need for alternative energy sources. Estimates for peak oil range from 2000 to 2025. [9]
The Bakken Shale Formation is Booming and Encore is a Player
Encore has put emphasis on acquiring properties in the Bakken and owns 178,000 acres[10] there; the U.S. Geological Survey estimates there are upwards of 400 billion barrels[1]of recoverable oil in the Bakken- an amount that is sufficient to meet US oil needs for 20 years.[11] Stretching across parts of North Dakota, Montana, and Southern Saskatchewan[11], better technology and techniques such as horizontal drilling are giving way to the development of the full Bakken Formation; higher oil prices also make drilling there more economical.
Drilling in the Bakken has been successful for Encore thus far and has spurred an acceleration in the drilling of wells to increase production[12]. Surpassing original plans to have three rigs in the Bakken by January of 2009, Encore will have four rigs in place by that time.
Competition
Encore competes with several other companies in many of the same fields and regions to produce and acquire gas and oil. Main competitors include:
- Whiting Petroleum (WLL) operates in the Permian Basin, Rockies, Mid-Continent, Gulf Coast, and Michigan [13] and has 78% of its 250.8MMBOE[14] total proved reserves in oil. Whiting is a player in the Bakken formation with 96,500 net acres [10]
- Continental Resources (CLR) has properties in the Rockies, Mid-Continent, and the Gulf Coast. [15] 77% of its 134.6MMBOE[15] of proved reserves is crude oil. Continental competes with Whiting in the Bakken with 271,667 net acres[16] in the North Dakota Bakken as well as 64,536 acres[16] in the Montana Bakken, all undeveloped.
- XTO Energy (XTO) has properties in the Eastern, North Texas, San Juan, Permian & South Texas, Mid-Continent, and Rocky Mountain regions. In May of 2008, XTO purchased 352,000 net acres in the Bakken for $1.85B. [10]
- Denbury Resources, Inc. (Holding Company) (DNR) owns properties in Eastern and Western Mississippi, Texas, Alabama, and Louisiana. 69%[17] of its reserves is oil.
References
- ↑ 1.0 1.1 1.2 Bloomberg Special Report: Dakota Oil Fields of Saudi-Sized Reserves Make Farmers Drillers
- ↑ EAC 2009 10-K pg. 37
- ↑ EAC 2009 10-K pg. 2
- ↑ Forbes: Down and Dirty
- ↑
- ↑ EAC 10-K 2007, "Properties", Page 19
- ↑ EAC 10-K 2007, "Properties", Page 21
- ↑ EAC 10-K 2007, "Properties", Page 20
- ↑ Peak Oil
- ↑ 10.0 10.1 10.2 Investopedia: The Bakken Shale Story
- ↑ 11.0 11.1 Wealthy Daily: The Bakken Oil Field
- ↑
- ↑ WLL 10-K 2007, "Summary of Oil and Gas Properties and Projects", Pages 27-31
- ↑ Whiting Petroleum 2007 Annual Report
- ↑ 15.0 15.1 CLR 10-K 2007, "General", Page 1
- ↑ 16.0 16.1 CLR 10-K 2007, "Bakken Field", Page 8
- ↑ DNR 10-K 2007, "Selected Financial Data", Page 29
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