Denbury Resources Completes Majority of Its Barnett Shale Sale
Denbury Resources announced that on June 30, 2009 it closed the sale of approximately three-quarters of its previously announced $270 million sale of 60% of its Barnett Shale natural gas assets, with net proceeds (after closing adjustments, but including the $10 million deposit) of approximately $197.5 million. Closing on the remaining assets to be sold will occur upon receipt of third party consents to the sale. The Company initially used the proceeds to repay most of its outstanding bank debt, which prior to closing was $220 million, but ultimately plans to re-invest the sale proceeds in its tertiary operations during 2010.
Production attributable to the interest in the properties being sold (including that portion not yet closed) 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. As a result of the sale, the Company is lowering its 2009 production guidance by 3,500 BOE/d to an adjusted average of 47,500 BOE/d. Also as a result of the sale, including that portion not yet closed, the Company's bank borrowing base was reduced from $1.0 billion to $900 million, but the bank commitment amount remained unchanged at $750 million.
As part of the transaction, the purchaser acquired a portion of the Company's natural gas swaps. The Company plans to transfer 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 net deficit market value of approximately $8.1 million relating to these swaps was deducted from the sales price. Approximately 83% of these contracts were transferred in the initial closing.
Phil Rykhoek, 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. At current oil prices our tertiary investments provide a better rate-of-return than the Barnett Shale, and we are more optimistic about near-term oil prices than natural gas prices. This has prompted us to further concentrate our focus on our core tertiary oil assets.
"The proceeds from this sale allow us to accelerate our tertiary program, and we anticipate production and reserve growth to follow. Additionally, this gives us both greater liquidity and flexibility in case of further decreases in commodity prices, and an unused bank credit line if attractive acquisition opportunities become available."
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