ConocoPhillips is selling a package of properties in the Cedar Creek Anticline (CCA) of North Dakota and Montana to Denbury Resources Inc. for $1.05 billion cash.
The sale includes close to 86,000 net acres in southwestern North Dakota and eastern Montana, an area where Denbury already operates. Net production in 2012 averaged 13,000 boe/d through November, ConocoPhillips said. Not included in the sale are the producer's Bakken Shale properties, where ConocoPhillips owns 629,000 net acres including 207,000 net lease acres and 419,000 net mineral acres.
Denbury is funding the purchase with $1.3 billion it received from ExxonMobil Corp. late last year for some Bakken acreage and an asset exchange (see Shale Daily, Dec. 4, 2012). Denbury's expertise is in carbon dioxide (CO2) recovery, and it owns large reserves of CO2, which are used for tertiary oil recovery.
"This transaction, combined with the recently completed ExxonMobil transaction, results in the trade of our Bakken assets for three assets with significant oil production, proved reserves, cash flow and CO2 EOR [enhanced oil recovery] potential, along with additional CO2 reserves and a little bit of cash, all in a tax efficient manner," said Denbury CEO Phil Rykhoek. "Strategically, we are now purely focused on what we do best, CO2 enhanced oil recovery, which we believe offers one of the lowest risk and most compelling rates of return in the oil and gas industry today."
The proved conventional reserves associated with ConocoPhillips' CCA properties were about 42 million boe at the end of 2012, weighted 95% to oil and 91% proved developed producing, according to Denbury. Current average production from the properties is about 11,000 boe/d, nearly all oil and natural gas liquids. Assuming the transaction closes by the end of 1Q2013, Denbury's full-year 2013 average output is expected to increase by close to 7,700 boe/d.
The CCA is about 110 miles north of Denbury's Bell Creek Field, which the company plans to start flooding with CO2 in the first half of this year. The recently completed Greencore Pipeline initially would transport CO2 from Denbury's source in central Wyoming. Denbury plans to extend the Greencore pipe both north and southwest to deliver the CO2 necessary to flood the CCA fields.
CO2 flooding in the the newly acquired assets from ExxonMobil, which include the Harzog Draw and Webster fields, and the CCA properties "will allow us to recover a combined estimated 140-185 million bbl of otherwise stranded oil," said Rykhoek. "Also, these assets currently produce almost as much oil equivalent as our divested Bakken area assets, while generating substantially more free cash flow."
Denbury's stakes in the CCA "make up our largest oil property in the Rocky Mountain region and are a key strategic reason we acquired Encore [Acquisition Co.] in 2010 to expand our successful enhanced oil recovery strategy to a new region," the CEO said. Denbury first entered the Bakken in late 2009 in a $4.5 billion merger with Encore.
The CCA extends for about 126 miles in a northwest-southeast direction and ranges from two miles to six miles in width. The CCA "is a series of producing oil units, each of which could be considered a field by itself," Denbury said. "Commercial quantities of oil were first discovered in the South Pine Unit of CCA in the early 1950s. The original oil in place at all CCA fields, including those not owned by Denbury, is estimated at over 3 billion bbl of oil."
The anticline produces from several reservoirs, the primary one being the Red River formation, which is a series of carbonate reservoirs. The gross producing interval at CCA is about 2,000-feet thick, with depths of 7,000-9,000 feet. According to Denbury, the "reservoir characteristics of CCA are similar in many respects to oilfields successfully flooded with CO2 in the Permian Basin of West Texas and Weyburn Field in the Canadian Williston Basin."
Denbury has begun designing a CO2 development plan for its CCA assets acquired from ExxonMobil and plans to incorporate the ConocoPhillips properties. The company estimates that a CO2 flood of the to-be-acquired properties could recover 60080 million bbl. A CO2 flood of the entire CCA portfolio "could recover between 260 million to 280 million bbl."
The sale should net ConocoPhillips about $120 million after taxes. Including the Denbury transaction, the independent's announced total asset sales since the beginning of 2012 are about $12 billion.