Denbury to Get Riley Ridge Unit - Analyst Blog
June 29 2011 - 12:14PM
Zacks
Denbury Resources Inc. (DNR) has entered into
an agreement to acquire working interests in Riley Ridge Federal
Unit located in southwestern Wyoming as well as mineral leases
adjoining the Unit from Cimarex Energy Co. (XEC).
The total consideration of the transaction, which is expected to
close in July, is $191 million.
Per the agreement, Denbury plans to take hold of 57.5% working
interest in Riley Ridge Federal Unit as well as approximately 33%
working interest in 28,000 acres of mineral leases adjoining it.
The company plans to fund the deal through borrowings on its
existing bank credit facility. Notably, $176 million will be paid
at closing and the remaining $15 million when the gas processing
facility becomes operational and meets certain performance
targets.
Located in the prolific LaBarge Field, the unit has proved
reserves of 1.4 trillion cubic feet (Tcf) of carbon dioxide, 250
billion cubic feet (Bcf) of natural gas and 8.9 Bcf of helium. The
additional 28,000 acres are estimated to hold probable reserves in
the range of 250–300 Bcf of natural gas, 9.5–11.5 Bcf of helium and
1.0–1.2 Tcf of carbon dioxide.
Plano-based Denbury will act as the operator of the Riley Ridge
plant, which is under construction, and mineral leases. The company
expects natural gas and helium production to commence during the
fourth quarter of 2011 and has already initiated engineering and
design of the carbon dioxide capture facility. It also aims to plan
development of the bordering acreage around the same time.
The Riley Ridge unit is expected to capture up to 130 million
cubic feet (MMcf) of carbon dioxide on a daily basis. The adjoining
acreage will likely add 450 to 500 MMcf per day of carbon dioxide
upon being fully operational.
Denbury Resources Inc. is a leading carbon dioxide ‘Enhanced Oil
Recovery’ focused company targeting a large attractive market. With
its unique profile, compelling economics and an unmatched
infrastructure, Denbury is nicely positioned to deliver sustainable
growth over the long term.
Denbury has a significant competitive advantage in acquiring and
exploiting mature oil reservoirs. Carbon dioxide is more effective
in extracting oil using tertiary recovery techniques from mature
reservoirs.
Hence, we believe the latest agreement will provide the company
an added advantage in oil recovery. However, we are concerned about
the growing cost pressures in the company’s operations. The deal is
expected to tag approximately $50 million to the company’s 2011
capital spending.
We maintain our long-term Neutral recommendation for Denbury,
which competes with Pioneer Natural Resources Co.
(PXD) and Newfield Exploration Co. (NFX). The
company currently retains a Zacks #3 Rank that is equivalent to a
short-term Hold rating.
DENBURY RES INC (DNR): Free Stock Analysis Report
NEWFIELD EXPL (NFX): Free Stock Analysis Report
PIONEER NAT RES (PXD): Free Stock Analysis Report
CIMAREX ENERGY (XEC): Free Stock Analysis Report
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