Denbury Resources Inc., which has been building its tertiary oil recovery business in the Southeast, on Friday agreed to sell its Louisiana natural gas assets for $180 million to an undisclosed private company. The properties accounted for about 4% of Denbury’s total proved reserves at year-end 2006.
The properties to be sold produced at a rate of about 28.8 MMcfe/d (85% gas) in 2Q2007, or 11% of Denbury’s total quarterly output. Denbury said it would reduce its debt with the sale proceeds. The producer also swapped 60 MMcf/d of its 2008 natural gas production at a weighted average price of $7.91/MMBtu. Based on preliminary forecasts after the Louisiana sale, these derivative contracts are expected to be 70-80% of Denbury’s gas production.
“This sale further enables us to concentrate our investment and management focus on our tertiary operations where we have lower risk, greater predictability, virtually no competition in our areas of operation and higher profitability,” said CEO Gareth Roberts. “These funds, combined with the anticipated capital from planned ‘dropdowns’ of CO2 [carbon dioxide] pipeline assets over the next 12 months to Genesis Energy LP are expected to fund the shortfall between our anticipated cash flow from operations and our capital budgets in 2007 and 2008.”
Denbury is the largest oil and natural gas operator in Mississippi and owns the largest reserves of CO2 used for tertiary oil recovery east of the Mississippi River. It also holds operating acreage in the Barnett Shale play and properties in Southeast Texas.
With the sale, Roberts said Denbury would adjust its production guidance for 2007 and set its 2008 guidance within the next few weeks.
“We continue to forecast strong organic growth in both 2007 and 2008, even after reducing our production volumes related to this sale. Our CO2 program is working and we remain enthusiastic about our future.”
The Plano, TX-based independent will unveil its 3Q2007 results on Nov. 1.
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