Denbury buys Cimarex gas plant interest near Big Piney
Texas company pays $191 million to own 100% interest in methane-helium plant south of Big Piney
by Pinedale Online!
July 4, 2011
On Tuesday, June 28, 2011, Cimarex Energy. (NYSE: XEC) announced that it has entered into an agreement to sell for $191 million its 57.5% operated working interest in the Riley Ridge Federal Unit and methane and helium plant under construction south of Big Piney in southwestern Wyoming. Also included in the deal are some adjoining mineral interests.
"The sale does not impact Cimarex's expected 2011 production estimates, as the plant was not expected to come online until late this year. Year-end 2010 proven undeveloped reserves included 210 billion cubic feet (Bcf) of gas from Riley Ridge," Cimarex said in their media release.
Cimarex said they expect to re-invest proceeds from the divestiture in this year's capital program of approximately $1.5 billion, including leasing and infrastructure build out in the Permian Basin and Mid-Continent regions.
Denbury, based out of Plano, Texas, already owned a 42.5 percent interest in the gas plant facility. They purchased their initial stake from Wold Oil Property for $115 million in 2010. The gas plant is expected to come online in the summer or fall of 2011. The deal with Denver-based Cimarex means Denbury will own and operate the entire plant, which will produce carbon dioxide, natural gas and helium and carbon dioxide (CO2).
The acquisition includes a 57.5% working interest in the 9,700+ acre Riley Ridge Federal Unit and an approximate 33% working interest in an additional +/- 28,000 acres of mineral leases adjoining the Riley Ridge Unit. Denbury will become the operator of both projects.
The companies are part of an industry tapping into hydrocarbon fuel resources in the Upper Green River Valley and Wyoming Range mountains. The Riley Ridge project site is in the LaBarge Field, an area already producing natural gas, helium and CO2.
The carbon dioxide is pumped underground to force out oil that is otherwise too costly to gather — a process known as enhanced oil recovery (EOR).
Denbury will use the methane gas and helium sales to pay for ongoing development of the project, including the cost of extracting and compressing the CO2 for transport to the oil fields.
The transaction is expected to close late July. The first production of natural gas and helium from the Cimarex well site is expected to occur by the end of this year.
Below are the media releases from the two companies on this transaction.
Cimarex Announces Divestiture
DENVER, June 28, 2011 /PRNewswire via COMTEX/ --
Cimarex Energy Co. (NYSE: XEC) announced today that it has entered into an agreement to sell for $191 million its 57.5% operated working interest in the Riley Ridge Federal Unit and gas plant located in southwestern Wyoming. The sale is expected to close in July and is subject to satisfactory completion of customary due diligence.
The sale does not impact Cimarex's expected 2011 production estimates, as the plant was not expected to come online until late this year. Year-end 2010 proven undeveloped reserves included 210 billion cubic feet (Bcf) of gas from Riley Ridge.
Proceeds from the divestiture are expected to be largely re-invested in this year's capital program. At the present time we expect 2011 capital expenditures of approximately $1.5 billion, including leasing and infrastructure build out in the Permian Basin and Mid-Continent regions.
Cimarex Energy, Co. (NYSE, XEC) is a Denver-based independent oil and gas exploration and production company with principal operations in the Mid-Continent, Permian Basin and Gulf Coast areas of the U.S. Our business approach is centered on increasing shareholder value through consistent profitable growth in proved reserves and production through our drilling program and optimizing production rates. Year-end 2010 proved reserves totaled 1.88 trillion cubic feet equivalent (67% natural gas and 77% developed).
Our approach is focused on drill-bit driven growth in production and reserves utilizing risked rate of return economics to evaluate projects. We rely heavily on our organization of geoscientists to generate our drilling prospects. We have decentralized exploration teams who are experts in their regions. A cornerstone to our approach is detailed evaluation of each drilling decision based on its risk-adjusted discounted cash flow rate of return on investment. Our analysis includes estimates and assessments of potential reserve size, geologic and mechanical risks, expected costs and future production profiles.
We also believe it is important to maintain a strong financial position and conservative capital structure in order to maintain drilling activity through all price cycles. We believe that this approach will create shareholder value through growth in per-share earnings, cash flow, reserves and production.
Denbury Enters into Agreement to Acquire Operatorship and Remaining Working Interest in the Riley Ridge Project
PLANO, Texas, Jun 28, 2011 (BUSINESS WIRE) --
Denbury Resources Inc. (NYSE: DNR) ("Denbury" or the "Company") today announced that it has entered into an agreement to acquire the 57.5% working interest it does not already own in the Riley Ridge Federal Unit located in southwestern Wyoming, and an approximate 33% working interest in an additional +/-28,000 acres of mineral leases adjoining the Riley Ridge Unit. The total purchase price is estimated at $191 million assuming full payout of purchase price contingencies, plus capital incurred between April 1, 2011, the effective date of the purchase, and closing. The acquisition is expected to close in late July and is subject to satisfactory completion of customary due diligence review.
The acquisition includes a 57.5% working interest in the 9,700+ acre Riley Ridge Federal Unit and an approximate 33% working interest in an additional +/- 28,000 acres of mineral leases adjoining the Riley Ridge Unit. Denbury will become the operator of both projects. The Company currently estimates that the Riley Ridge Federal Unit contains proved reserves of 250 billion cubic feet ("Bcf") of natural gas, 8.9 Bcf of helium ("He") and approximately 1.4 trillion cubic feet ("Tcf") of carbon dioxide ("CO2"), net to the interest to be acquired. The additional +/- 28,000 acres is estimated to contain additional probable reserves of 250 to 300 Bcf of natural gas, 9.5 to 11.5 Bcf of helium and 1.0 to 1.2 Tcf of CO2, net to the interest to be acquired.
Total proved plus probable CO2 reserves in the Riley Ridge Unit and adjoining acreage in which the Company has an interest is estimated at approximately 6.1 Tcf (100% working interest), of which the Company's interest is estimated at approximately 4.5 Tcf after completion of this acquisition.
The Riley Ridge Unit and the adjoining acreage is located in the prolific LaBarge Field, from which natural gas, helium and CO2 are currently being produced and sold, which is also the same reservoir from which the Riley Ridge Unit will produce.
First production of natural gas and helium is expected to occur during the 4th quarter of 2011.
The development costs associated with the incremental interest in the Riley Ridge Unit are expected to add approximately $50 million to the Company's 2011 capital spending, depending upon how much capital is spent between the April 1 effective date and closing.
Current operations include the completion of the producing wells and completion of the construction of the natural gas and helium processing facilities that will separate the natural gas and helium from the full well stream, which consists of approximately 65% CO2, 19% natural gas, 5% hydrogen sulfide ("H2S"), 0.6% He, and the remainder other gases. Initially the operational plans include the re-injection of the CO2 and H2S into the producing formation until a planned CO2 pipeline can be built to the field.
This acquisition results in Denbury becoming the operator of the project and owning 100% of the working interest in the Riley Ridge Unit. In addition to owning and operating the Riley Ridge Unit, the Company is also acquiring operations and working interests in an adjoining 28,000 acres of which the Company previously only acquired CO2 rights. The Company has initiated the engineering and design of the CO2 capture facility for the Riley Ridge Unit, which is estimated to initially capture up to 130 MMcf/d of CO2. In addition to designing the CO2 capture facility for Riley Ridge the Company expects to begin preparing the development plan for the adjoining acreage, which when fully developed is expected to add an additional 450 to 500 MMcf/d of CO2 (100% working interest), or an estimated total CO2 production from this asset of 580 to 630 MMcf/d (100% working interest). The development plan to achieve these rates may take up to 10 years.
The purchase price of $191 million consist of a $176 million payment at closing and a $15 million contingent payment to be paid at the time the gas processing facility is operational and meeting specific performance conditions. The existing operator is committed to maintaining and committing the existing development and construction teams to the project until such time as the specific performance conditions are met in order to provide continuity through start-up of the gas processing facility.
Over the past 15 months, Denbury has been actively securing new sources of CO2 volumes and, with its new acquisition of Riley Ridge and the adjoining acreage, currently believes it has more CO2 than it needs to develop its existing CO2 enhanced oil recovery assets in the Rocky Mountains. These estimated CO2 volumes consist of the following:
Riley Ridge ultimate planned capacity - 580 to 630 MMcf/d (Own and Operate)
Lost Cabin - 50 MMcf/d (under contract from ConocoPhillips)
LaBarge - 50 MMcf/d (under contract from ExxonMobil)
Proposed DKRW facility - 200 MMcf/d (under contract from DKRW)
The Company plans to fund the acquisition through borrowings on its existing bank credit facility.
Phil Rykhoek, CEO of Denbury, commented on the transaction, saying: "This acquisition combined with our contracts for CO2 from third parties, provides us with the necessary volumes of CO2 to develop our current Rocky Mountain CO2 EOR projects, plus additional volumes which can be used for future projects. With this acquisition, we will control this strategic asset, our 'Jackson Dome' of the Rockies. In one sense, Riley Ridge is even better than Jackson Dome as the projected methane and helium sales should pay for its development and the cost to extract and compress the CO2. We are about to begin construction on our first CO2 pipeline in this area, the Greencore line from Lost Cabin to Bell Creek. We should have our first tertiary oil production from this region in the next couple of years, most likely first from the recently acquired Grieve Field joint venture, followed soon thereafter by Bell Creek. We have come a long way in the Rockies in the last fifteen months and look forward to continued success in this region."
Denbury Resources Inc. (www.denbury.com) is a growing independent oil and natural gas company. The Company is the largest oil and natural gas operator in both Mississippi and Montana, owns the largest reserves of CO2 used for tertiary oil recovery east of the Mississippi River, and holds significant operating acreage in the Rockies and Gulf Coast regions. The Company's goal is to increase the value of acquired properties through a combination of exploitation, drilling and proven engineering extraction practices, with its most significant emphasis relating to tertiary recovery operations.
This press release contains forward-looking statements that involve risks and uncertainties including estimated reserve potential for natural gas, Helium and CO2 in the acquired assets and potential daily production of volumes of CO2, and other risks and uncertainties detailed in the Company's filings with the Securities and Exchange Commission, including Denbury's most recent reports on Form 10-K and Form 10-Q. These risks and uncertainties are incorporated by this reference as though fully set forth herein. These statements are based on engineering, geological, financial and operating assumptions that management believes are reasonable based on currently available information; however, management's assumptions and the Company's future performance are both subject to a wide range of business risks, and there is no assurance that these goals and projections can or will be met.
Actual results may vary materially. The estimates of potential reserves in this press release, which is comprised of proved and probable reserves based on the most recent drilling and technical data available to the Company, are more speculative than estimates of proved reserves and are subject to greater uncertainties, and accordingly the likelihood of recovering these reserves is subject to substantially greater risk.
Denbury Resources Inc. (NYSE: DNR) is a growing independent oil and gas company. The Company is the largest oil and natural gas producer in both Mississippi and Montana, owns the largest reserves of carbon dioxide (CO2) used for tertiary oil recovery east of the Mississippi River, and holds significant operating acreage in the Rocky Mountain and Gulf Coast regions. The Company's goal is to increase the value of acquired properties through a combination of exploitation, drilling and proven engineering extraction practices, with its most significant emphasis on CO2 tertiary recovery operations.
Denbury's corporate headquarters are in Plano, Texas (a suburb of Dallas). At December 31, 2010, the Company had 1,195 employees, 660 of whom were employed in field operations or at field offices.
SOURCE: Denbury Resources Inc. http://www.denbury.com/