Denbury Divests 60% of Barnett Shale Assets to Talon Oil & Gas
Denbury Resources has entered into an agreement to sell 60% of its Barnett Shale natural gas assets for $270 million (before closing adjustments), to Talon Oil & Gas LLC, a privately held company. The sale is expected to close in late June and is subject to satisfactory completion of customary due diligence and closing conditions. The agreement contemplates an effective date of June 1, 2009, and consequently operating net revenues after June 1, net of capital expenditures, along with any other purchase price adjustments, will be accounted for as an adjustment to the ultimate sales price. The purchaser will operate the properties after a transition period following closing.
Production attributable to the interest in the properties being sold averaged approximately 45.7 MMcfe/d (77% natural gas) during 2008, representing approximately 16% of Denbury's 2008 production and approximately 18% of its total proved reserves as of December 31, 2008. The Company plans to adjust its 2009 production guidance upon completion of the sale. The proceeds from the sale will initially be used to repay the Company's outstanding bank debt. The Company's $1.0 billion bank borrowing base will need to be redetermined by the Company's lenders as a result of the sale and will likely decrease, but the bank commitment amount is expected to remain unchanged at $750 million.
As part of the transaction, the purchaser is acquiring a portion of the Company’s natural gas swaps. The Company will be transferring to the purchaser natural gas swaps for 2010 totaling 16 MMcf/d at an average price of approximately $5.65 per MMBtu and natural gas swaps for 2011 totaling 13 MMcf/d at an average price of approximately $6.16 per MMBtu. The purchaser will pay the Company at closing for the agreed upon market value of these derivative contracts on the date of the sales agreement, or if such amount is negative, the purchaser will be reimbursed by the Company.
Gareth Roberts, President and Chief Executive Officer, stated, "This sale further enables us to concentrate our investment and management focus on our tertiary operations where we have lower risk, virtually no competition in our areas of operation and higher profitability. We plan to use these funds to increase our 2010 tertiary related spending beyond what we could accomplish using only cash flow. We believe we can make a good rate of return in our tertiary program at current oil prices and we are more optimistic about near-term oil prices than natural gas prices, prompting us to direct our focus on our core tertiary oil assets. In addition to the benefits derived from accelerating our tertiary program and the anticipated production growth that we expect to follow, these proceeds will give us both greater liquidity and flexibility in case of further decreases in commodity prices and an unused bank credit line if an attractive acquisition opportunity becomes available. We remain enthusiastic about our future."
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