Tuesday, June 28, 2011
Denbury Resources Inc.
Denbury has entered into an agreement to acquire the 57.5% working interest it does not already own in the Riley Ridge Federal Unit located in southwestern Wyoming, and an approximate 33% working interest in an additional +/-28,000 acres of mineral leases adjoining the Riley Ridge Unit. The total purchase price is estimated at $191 million assuming full payout of purchase price contingencies, plus capital incurred between April 1, 2011, the effective date of the purchase, and closing. The acquisition is expected to close in late July and is subject to satisfactory completion of customary due diligence review.
Transaction Highlights
- The acquisition includes a 57.5% working interest in the 9,700+ acre Riley Ridge Federal Unit and an approximate 33% working interest in an additional +/- 28,000 acres of mineral leases adjoining the Riley Ridge Unit. Denbury will become the operator of both projects. The Company currently estimates that the Riley Ridge Federal Unit contains proved reserves of 250 billion cubic feet (Bcf) of natural gas, 8.9 Bcf of helium (He) and approximately 1.4 trillion cubic feet (Tcf) of carbon dioxide (CO2), net to the interest to be acquired. The additional +/- 28,000 acres is estimated to contain additional probable reserves of 250 to 300 Bcf of natural gas, 9.5 to 11.5 Bcf of helium and 1.0 to 1.2 Tcf of CO2, net to the interest to be acquired.
- Total proved plus probable CO2 reserves in the Riley Ridge Unit and adjoining acreage in which the Company has an interest is estimated at approximately 6.1 Tcf (100% working interest), of which the Company's interest is estimated at approximately 4.5 Tcf after completion of this acquisition.
- The Riley Ridge Unit and the adjoining acreage is located in the prolific LaBarge Field, from which natural gas, helium and CO2 are currently being produced and sold, which is also the same reservoir from which the Riley Ridge Unit will produce.
- First production of natural gas and helium is expected to occur during the 4th quarter of 2011.
- The development costs associated with the incremental interest in the Riley Ridge Unit are expected to add approximately $50 million to the Company's 2011 capital spending, depending upon how much capital is spent between the April 1 effective date and closing.
- Current operations include the completion of the producing wells and completion of the construction of the natural gas and helium processing facilities that will separate the natural gas and helium from the full well stream, which consists of approximately 65% CO2, 19% natural gas, 5% hydrogen sulfide (H2S), 0.6% He, and the remainder other gases. Initially the operational plans include the re-injection of the CO2 and H2S into the producing formation until a planned CO2 pipeline can be built to the field.
- This acquisition results in Denbury becoming the operator of the project and owning 100% of the working interest in the Riley Ridge Unit. In addition to owning and operating the Riley Ridge Unit, the Company is also acquiring operations and working interests in an adjoining 28,000 acres of which the Company previously only acquired CO2 rights. The Company has initiated the engineering and design of the CO2 capture facility for the Riley Ridge Unit, which is estimated to initially capture up to 130 MMcf/d of CO2. In addition to designing the CO2 capture facility for Riley Ridge the Company expects to begin preparing the development plan for the adjoining acreage, which when fully developed is expected to add an additional 450 to 500 MMcf/d of CO2 (100% working interest), or an estimated total CO2 production from this asset of 580 to 630 MMcf/d (100% working interest). The development plan to achieve these rates may take up to 10 years.
- The purchase price of $191 million consist of a $176 million payment at closing and a $15 million contingent payment to be paid at the time the gas processing facility is operational and meeting specific performance conditions. The existing operator is committed to maintaining and committing the existing development and construction teams to the project until such time as the specific performance conditions are met in order to provide continuity through start-up of the gas processing facility.
- Over the past 15 months, Denbury has been actively securing new sources of CO2 volumes and, with its new acquisition of Riley Ridge and the adjoining acreage, currently believes it has more CO2 than it needs to develop its existing CO2 enhanced oil recovery assets in the Rocky Mountains. These estimated CO2 volumes consist of the following:
- Riley Ridge ultimate planned capacity - 580 to 630 MMcf/d (Own and Operate)
- Lost Cabin – 50 MMcf/d (under contract from ConocoPhillips)
- LaBarge – 50 MMcf/d (under contract from ExxonMobil)
- Proposed DKRW facility - 200 MMcf/d (under contract from DKRW)
- The Company plans to fund the acquisition through borrowings on its existing bank credit facility.
Phil Rykhoek, CEO of Denbury, commented, "This acquisition combined with our contracts for CO2 from third parties, provides us with the necessary volumes of CO2 to develop our current Rocky Mountain CO2 EOR projects, plus additional volumes which can be used for future projects. With this acquisition, we will control this strategic asset, our 'Jackson Dome' of the Rockies. In one sense, Riley Ridge is even better than Jackson Dome as the projected methane and helium sales should pay for its development and the cost to extract and compress the CO2. We are about to begin construction on our first CO2 pipeline in this area, the Greencore line from Lost Cabin to Bell Creek. We should have our first tertiary oil production from this region in the next couple of years, most likely first from the recently acquired Grieve Field joint venture, followed soon thereafter by Bell Creek. We have come a long way in the Rockies in the last fifteen months and look forward to continued success in this region."
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