Denbury Increases Gulf Presence with Matrix Deal

Independent Denbury Resources Inc. said last week it would acquire Covington, LA-based Matrix Oil & Gas, in a deal worth $163 million in cash and stock, including debt. The acquisition, expected to close in July, would boost Dallas-based Denbury's daily production this year almost 49% over last year, with most of the increase in natural gas. The deal also would increase its presence in the Gulf of Mexico, both onshore and offshore.

Matrix, founded in 1992, primarily focuses on the offshore Gulf of Mexico, holding an interest in 19 offshore blocks and two onshore fields. On April 1, Matrix had an estimated proved reserve base of 78.7 Bcfe, 91% of which was natural gas and 70% of which was proved developed. Matrix produced 40 MMcfe/d in the first quarter of 2001, 94% of, which was natural gas.

Matrix operates about 96% of its proved reserves and 88% of its current net production. Its estimated finding and development costs through Dec. 31, 2000 were approximately $0.82/Mcfe ($1.35/Mcfe including future development and abandonment cost).

Following the acquisition, the adjusted 2001 average daily production for Denbury would be approximately 31,900 boe/d, a 49% increase over 2000's record level. Pro forma combined reserves would be more than 100 MMboe, with 29% in natural gas. In addition to Matrix's 78.7 Bcfe of estimated proved reserves, Denbury said "significant" reserves have been identified.

The merger also would give Denbury a total proved reserve base of 85% onshore and 15% offshore, 29% of which would be natural gas. For the second half of 2001, Denbury's pro forma production would be 75% onshore and 25% offshore, 50% of which would be natural gas. The acquisition, which would be accounted for as a purchase, is expected to close in July.

Speaking about the similarities between the two companies, Denbury CEO Gareth Roberts called the merger "an excellent example of combining two like-minded companies for the benefit of shareholders. Matrix's strategic Gulf of Mexico properties fit perfectly into Denbury's and greatly expand our efforts there. The Matrix properties are predominantly older large fields with development potential similar to that of Denbury's existing fields."

Matrix's Covington office would become a Denbury district office, and would handle all the company's offshore Gulf of Mexico operations.

Under the agreement, Matrix's common shareholders would receive approximately $92.7 million, composed of 5.6 million Denbury common shares and $30.4 million in cash. The number of Denbury shares may be adjusted, depending on the average closing price for Denbury in the 20 days before closing. Denbury's stock is ranging between $11 and $13 currently. Denbury also will redeem Matrix's preferred stock at a cost of about $32.4 million, redeem outstanding stock options worth $7.3 million, and retire $25 million of Matrix's bank debt.

Denbury is the largest oil and natural gas operator in Mississippi, and it holds operating acreage onshore Louisiana, with a growing presence offshore. Matrix was founded by current CEO Robert Mingo, who said Tuesday his company looked forward to becoming part of Denbury's "current and future success."

EnCap Investments LLC, a private equity company, is Matrix's largest shareholder, and is also a wholly owned subsidiary of El Paso Corp. Denbury plans to add an EnCap executive to its board of directors following the acquisition.

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