Wednesday, August 6, 2008

Encore Acquisition (EAC) Pulls Itself off the Market

Just revisiting a name we owned in the natural gas play that has earnings out today, Encore Acquisition (EAC). One of the reasons we jumped in was the potential for a buyout offer as the company clearly stated [Jun 18: Will Encore Acquisition be Bought Out?]
  • Onshore oil and natural gas exploration company Encore Acquisition Co (EAC) said on Wednesday it was exploring strategic alternatives, including a possible sale.
  • The Fort Worth company, which has acreage in the Bakken, Haynesville and Tuscaloosa Marine shale plays, said Lehman Brothers Inc has been hired as adviser.
  • "It is our belief that Encore's current share price is not reflective of our record operating results and our ability to efficiently fund these projects through our upstream master limited partnership, Encore Energy Partners," Encore Chief Executive Jon Brumley said in a statement
Buried in their earnings today was this update - and shareholders are not taking too kindly to it. I understand because that was part of our thesis for beginning a stake.

Jon S. Brumley, Encore's Chief Executive Officer and President, stated, We have been studying strategic alternatives at Encore that would bring the most value to our shareholders. The Board and Management have decided that a sale or merger of the Company is not currently in the best interest of our shareholders. The energy and credit markets became very indecisive during the second quarter.

I understand the reasoning because the stock price has plummeted so if the executives believe in the long term in natural gas they would see no reason to sell at a 20-30% type of premium to today's prices because the stock was trading organically at those prices just weeks ago.

Luckily we capitulated as the stock first began breaking support below the 50 day moving average and exited just under $61 [Jul 25: Bookkeeping: Closing EOG Resources (EOG) and Encore Acquisition (EAC)] 10 days later? The stock fell to its 200 day moving average (and below) briefly in the mid $40s before "bouncing" to $49 and now it is down "only" 9% for the day.

Somewhere in here these stocks are good buys on valuation... but valuation means very little to this market. So I have no idea when value matters again. HAL 9000 continues to sell off these stocks. Playing with this fire is only suitable for quick traders jumping in and out by the hour(s).

No position

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