DENBURY BUYS NEW OILFIELDS IN ROCKIES FOR $1.05 BILLION

Oil and Gas Company Hopes to Extend Greencore Pipeline to Units for CO2 Flooding

Tamar Hallerman
GHG Monitor
1/18/13

Weeks after finishing construction of its nearly $300 million Greencore CO2 Pipeline, Denbury Resources has announced its purchase of nearby oilfields in the Rockies that could be flooded with CO2 from the transport network as soon as 2017. The Plano, Texas-based company said Jan. 15 that it acquired 86,000 net acres of new producing property interests in the Cedar Creek Anticline (CCA) in eastern Montana and western North Dakota. Denbury purchased the units from a subsidiary of ConocoPhillips for $1.05 billion in cash, the company said. “Strategically, we are now purely focused on what we do best, CO2 enhanced oil recovery, which we believe offers one of the lowest risk, and most compelling rates of return in the oil and gas industry today,” Denbury President and CEO Phil Rykhoek said in a statement announcing the deal. The oil and gas company owns other fields in the same anticline.

The newly acquired oilfields are located about 110 miles northeast of Denbury’s Bell Creek field, which will start being flooded with CO2 from the Greencore Pipeline within the next few months. Denbury already had plans in place to extend the Greencore in 2015 and 2016 to flood its preexisting CCA units with CO2 in 2017, and the acquisition of the new fields in the area will not impact that timeline, company spokesman Ernesto Alegria said. In order to flood all of the CCA fields, though, Denbury will need to extend its pipeline to other sources of CO2. The Greencore will this year begin carrying roughly 50 million cubic feet a day of CO2 from ConocoPhillips’ Lost Cabin natural gas processing facility in central Wyoming, but the pipeline has the capacity for up to 725 MMcf/d of CO2. Denbury will need to extend the pipeline to its newly-acquired CO2 source at Exxon’s LaBarge gas field in southwest Wyoming, Alegria said, which is expected to contribute 115 MMcf/d of CO2 to the pipeline. Denbury will also pipe in CO2 from its Riley Ridge source in western Wyoming, Alegria said.

Most of the CCA fields acquired in the deal began producing oil in the early 1950s and production is declining at most units by about 7 to 9 percent annually. Ramping up EOR operations, though, should reverse that decline and produce an additional 60 million to 80 million barrels of oil, according to Alegria. “The acquisition of additional assets in CCA should allow us to benefit from economies of scale and to leverage our technical knowledge and planned CO2 transportation infrastructure,” Rykhoek said. The purchase still needs to go through title and environmental due diligence, but Denbury said it expects the deal to close near the end of the first quarter of 2013.

Denbury Purchased Fields with Money from Exxon Deal

Denbury said it purchased the fields with a portion of the approximately $1.6 billion in cash it acquired in a deal with Exxon Mobil in September. At the time, Denbury sold nearly 200,000 acres in oil assets in the Bakken shale play in exchange for the cash and Exxon’s interests in two oilfields ripe for EOR—one in Wyoming’s Powder River Basin and another in the Gulf Coast—as well as an interest in one-third of the naturally-occurring CO2 produced from Exxon’s LaBarge field.

Despite Denbury’s recent flurry of activity in the Region over the last six months, Alegria said the company expects to slow down new acquisitions for now. “We’ve built quite an inventory at this point. Since we’re not going to flood the [CCA] fields until 2017, we’ve got a backlog of properties to put into our schematic,” he said. “So at this point unless a stellar deal comes up, you’re not going to see us purchasing incremental fields up there.”