ExxonMobil Corp. has increased its hold in the Bakken Shale to nearly 600,000 net acres after agreeing to acquire Denbury Resources Inc.’s entire portfolio in the play, 196,000 net acres. The North Dakota and Montana properties had average production in the first six months of this year of about 15,400 boe/d, 88% weighted to oil and liquids.
The Bakken assets held an estimated 96 million boe of proved reserves at the end of 2011, weighted 84% to oil and natural gas liquids, and 26% proved developed producing.
In exchange for selling the Bakken leasehold, Denbury would receive $1.6 billion in cash and acquire ExxonMobil’s stakes in the Hartzog Draw in Wyoming and the Webster field in Texas, which together now produce about 3,600 boe/d net.
“This agreement provides a strategic addition to ExxonMobil’s North American unconventional resource base,” said ExxonMobil Senior Vice President Andrew P. Swiger. The leasehold is to be operated by subsidiary XTO Energy Inc.
ExxonMobil now is the No. 1 natural gas producer in North America. However, the company has stepped up its oil and liquids development in the onshore and from April through June the company “moved into a development phase” in the Bakken leasehold, investor relations chief David Rosenthal said in late July (see Shale Daily, July 30).
The company’s Bakken output reached about 32,000 boe/d in 2Q2012, which was 60% higher than a year earlier and double the amount the company was producing just three years ago. “In the first half of 2012 we turned 40 wells to sales, nearly double the pace of 2011,” Rosenthal said.
ExxonMobil had eight operated rigs running in the Bakken at the end of April (see Shale Daily, April 27). At the end of July the rig count was up to 10.
The Hartzog and Webster properties are considered “ideal candidates” for carbon dioxide (CO2) flooding and are close to existing or planned CO2 pipelines, said Denbury, an enhanced oil recovery (EOR) specialist. Denbury acquired the Bakken leasehold in late 2009 in a $4.5 billion merger with Encore Acquisition Co.
With the Webster field, which is producing 1,000 boe/d net, Denbury gains a 100% working interest (WI) in a field that is northeast of its Hastings CO2 flood project and the Green Pipeline, which transports CO2 from Denbury’s source in Mississippi.
The Hartzog Draw, in the Powder River Basin of northeastern Wyoming, is now producing 2,600 boe/d net, weighted 52% to oil. Denbury would gain an 83% WI in the oil-prone Shannon Sandstone zone, as well as a 67% WI in the natural gas-producing Big George coal zone. Hartzog is about 12 miles from Denbury’s Greencore Pipeline, which is scheduled to be completed later this year to transport CO2 from facilities near Lost Cabin, WY, to the Bell Creek field in Montana.
Denbury also agreed to purchase an interest in or buy outright CO2 from ExxonMobil’s LaBarge Field in southwestern Wyoming. Based on the current capacity of the LaBarge plant and availability, “either option would allow for the delivery of up to 115 MMcf/d of CO2, Denbury said. The CO2 initially would be used to flood Denbury’s Bell Creek Field and the Hartzog Draw being acquired.
“This trade allows us to realize that value and leverage our Bakken position to acquire two of the top oilfields in our core operating regions that are candidates for CO2 flooding, while also adding incremental CO2 resources in the Rocky Mountain region and increasing liquidity by over $1 billion,” said CEO Phil Rykhoek. “We can now focus on what Denbury does best, CO2 enhanced oil recovery, which we believe offers one of the most compelling rates of return in the oil and gas industry today.”
Webster would be the fifth Texas oilfield acquired since Denbury began its expansion in the state; the Hartzog Draw “marks our first significant oilfield acquisition in the Rocky Mountain region since we entered the area with our 2010 acquisition of Encore,” said the CEO.
“This trade illustrates our CO2 EOR strategy wherein we start with a large anchor oilfield, acquire or build the necessary CO2 supply and transportation infrastructure, and then acquire other oilfields in the expansion area that we can flood with CO2,” said Rykhoek. “This concept works particularly well for the incremental acquisitions, which generally have better economics since the significant infrastructure dollars are already invested and only minor CO2 pipeline expansions are required.”
The transactions are set to close by the end of this year. Denbury plans to use the $1.1 billion in estimated net proceeds to purchase more oilfields in the Gulf Coast or Rocky Mountain regions “that are suited for CO2 flooding,” as well as to fund capital expenditures and pay down debt. Additionally, Denbury said it would resume its stock repurchase program, which it began a year ago.
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