Denbury Resources Inc. has entered into an agreement to
acquire oil properties located in Mississippi and Alabama for $250
million. The acquisition is expected to close in late January 2006 and
is subject to satisfactory completion of the Company's examination of
the environmental condition of the properties and its title
- The acquisition includes purchase of controlling interests in
three fields: Tinsley Field approximately 40 miles northwest
of Jackson, Mississippi; Citronelle Field in Southwest
Alabama; and the smaller South Cypress Creek Field near the
Company's Eucutta Field in Eastern Mississippi.
- All three fields are potential carbon dioxide ("CO2") tertiary
flood candidates. The Company initially has estimated that
these fields have aggregate reserve potential from CO2
tertiary floods of approximately 60 to 75 million barrels of
oil equivalent ("MMBOE") net to the interest to be acquired.
This reserve potential increases to approximately 70 to 85
MMBOE by including the Company's existing interest in Tinsley
- The Company has recently acquired interests at Tinsley Field
from other third parties and is continuing to seek additional
interests in this field. The Company has initially estimated
that this field has aggregate reserve potential from CO2
tertiary floods of approximately 30 to 40 MMBOE net to the
interest to be acquired. This reserve potential increases to
approximately 40 to 50 MMBOE by including the Company's
existing interest in the field.
- The acquisition includes an eight inch pipeline (currently
being used for natural gas storage) from the Company's Jackson
Dome area to Tinsley Field. The Company plans to initially use
this pipeline to transport CO2 to this field. The Company
anticipates commencing an initial tertiary development project
at Tinsley Field in 2006 at a preliminarily estimated cost of
$19 million, with more extensive development planned for 2007.
- In order to transport CO2 to Citronelle Field in Alabama, a 60
to 70 mile extension will need to be added to the Company's
Free State CO2 pipeline which is currently being constructed
between Jackson Dome and the Company's Eastern Mississippi
Eucutta Field. The Company is still reviewing the Citronelle
Field and has not yet determined a definitive timetable for
tertiary development of Citronelle. Denbury has initially
estimated that this field has aggregate reserve potential from
CO2 tertiary floods of approximately 20 to 30 MMBOE, net to
the interest to be acquired.
- South Cypress Creek is a small field in Eastern Mississippi
and will likely be developed after initial development of the
Tinsley and Citronelle fields as an additional project for the
Company's Eastern Mississippi Phase II CO2 project.
- Based on initial Company estimates, these properties have
estimated conventional (non-CO2) proved reserves of 14.3
MMBOE, almost all of which are proved developed producing oil
reserves, approximately two-thirds of which are attributable
to the Citronelle Field.
- These three fields are currently producing approximately 2,200
BOE/d, increasing the Company's preliminary 2006 production
forecast to 37,000 BOE/d, a 24% increase over 2005's estimated
- Denbury will operate all three fields and own the majority of
the working interest.
The Company is still reviewing its financing options, which are
likely to include use of the Company's bank credit line, and possibly
could include additional subordinated debt or equity. Even if the
acquisition is financed with debt, the Company believes that its
debt-to-cash-flow and debt-to-total-capitalization ratios will remain
strong, even in a somewhat lower commodity price environment,
principally because of the Company's low leverage prior to the
acquisition. If the Company desires to do so, it believes it can fund
the acquisition with bank debt by increasing its virtually unused $200
million existing line of credit.
Gareth Roberts, CEO of Denbury, commented on the transaction,
saying: "This acquisition, coupled with the recently announced
additional CO2 well we have drilled in Jackson Dome, provides us with
70 to 85 MMBOE of additional oil reserve potential from our
continually expanding tertiary operations. Tinsley Field, with over
660 MMBbls of original oil in place, was the first oil field in
Mississippi, discovered in 1939, and is one of the state's largest
fields. At this point, we anticipate making Tinsley Field a new phase
(Phase III) of our CO2 program. Tinsley will require an estimated 705
Bcf of additional CO2 from Jackson Dome for the flood, but it appears
that our latest well there has found more than enough CO2 reserves for
this purpose. Detailed engineering work is underway on the Tinsley
Field and a full development plan should be completed after the first
of the year. Our tertiary operations are providing Denbury a unique
opportunity for growth for years into the future."