Denbury Resources Provides Operational Update
Denbury Resources Inc. reported reserve additions as a result of third quarter drilling activity at West Cameron 639 Field in the offshore Gulf of Mexico, Thornwell Field in southwestern Louisiana and South Chauvin Field in southeastern Louisiana.
Based on preliminary Company estimates, these three wells are expected to add at least 16 Bcfe net to Denbury's proved reserves. As a result of these successes, during the next 12 months the Company plans to drill two additional wells at West Cameron 639, three wells at Thornwell and one additional well at South Chauvin.
As a result of the recent decline in natural gas prices, the Company plans to reduce its fourth quarter offshore Gulf of Mexico development and exploration ("CAPEX") budget by $2.5 to $5.0 million, a 1.4% to 2.8% reduction from the Company's previously announced 2001 CAPEX budget of $180 million. Although approximately 90% of the Company's existing natural gas production is protected with price floors, any new or incremental natural gas production would be sold at current prices. The Company believes it is in the interest of its shareholders to unlock the value of its assets when industry-economics are warranted. The Company's existing natural gas price floors have an average price of approximately $3.50 per MMBtu. The Company anticipates that its 2002 CAPEX budget will be approximately $150 million in keeping with its goal to spend less than cash flow from operations on development and exploration activities. More details will be announced regarding 2002 in the coming weeks, after completion of the budget.
As a result of the successes at West Cameron that require further drilling, Tropical Storm Barry and other weather conditions that temporarily shut-in production in the Gulf of Mexico and delayed the commencement of other operations, and other unanticipated delays, the Company expects that its third quarter 2001 production volumes will be approximately 4% less than previous estimates, or approximately 34,500 BOE/d. Based on Denbury's current forecast, it appears that the exit rate for the third quarter will be approximately 36,000 BOE/d. Depending on the timing of production from new wells offshore, Denbury estimates fourth quarter average daily production will be between 35,500 and 36,500 BOE/d. Even with the lower production levels, the Company expects to meet or exceed the current consensus earnings per share forecast for the third quarter of $0.20 per share, excluding any potential effect of fair value hedging adjustments.
The revised third quarter 2001 production estimate is still expected to result in an approximate 24% increase in average daily production over production in the second quarter of 2001, and fourth quarter 2001 production is expected to be a minimum of 3% higher than third quarter 2001 production.