When Encore Acquisition Co. announced it was seeking strategic alternatives including the possible sale or merger of the company with juicy assets in the Bakken, Haynesville, Williston and Arkoma plays, not all analysts believed they were acting from point zero in the acquisitions game. One believes there is a 50% chance the company already has a bid on the table and is looking to maximize the offer. Tudor Pickering Holt & Co. reported the announcement was a "big surprise" given the company's 92% rise in value year to date. "Typically this type of announcement comes when the stock is underperforming. If buyer's emerge, then odds of an oil-driven frenzy go way up." Analyst Joseph Allman with JPMorgan Securities Inc. also deems the move "surprising," "odd" and "out of nowhere...given the outperformance of the stock both this year and last year," and that the move could be a response to an offer. Says Allman, there is an "equal chance of the review being internally or externally generated. EAC could have generated the review idea itself out of frustration over what the company thinks is an undervalued stock price or to take advantage of an oil futures curve now in contango. "On the other hand, something external like an unsolicited offer to buy EAC could have prompted this process. Given how well the stock has done this year and last, the management's success in executing and telling the story, the suddenness of this announcement and recent moves in the crude futures curve, it appears equally likely that EAC wants to sell into a strong crude market or it received an unsolicited offer and wants to test the market." Encore holds 231 MMBOE proved in the Williston, Permian, Big Horn, Powder River, Paradox, Arkoma, Anadarko, North Louisiana Salt and East Texas Basins, including 10,000 acres overlaying the Haynesville discovery. Steve Toon, Editor, A&D Watch; Contributing Editor, Oil and Gas Investor; www.OilandGasInvestor.com; firstname.lastname@example.org
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