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Denbury Resources Inc. Message Board

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  • rrb1981 rrb1981 Sep 5, 2004 7:21 PM Flag

    Pipeline comparable

    As far as getting into trouble, I haven't seen enough "corrupt" folks doing the perp walk to believe that they would do anything to DNR folks for trying to build value at GEL level which will eventually return the value many times over to DNR.

    Again, I will state, that I firmly believe that DNR will eventually drop the pipelines (at least the new ones to be built) down into GEL. Obviously others believe otherwise, its no different than the first CO2 VPP, or the one they are contemplating now, when I said DNR would take units(and we all saw how DNR stepped up and took cash AND units). DNR cannot afford to let GEL fail, as GEL controls some of the lines they need to get oil out cheaply.....the alternative is to build GEL into a vehicle that when it reaches critical mass, can bear the burden of building out all of the infrastructure leaving DNR to focus on tertiary. As far as them selling the original pipeline and Jackson Dome, doubt well see the dome get sold as that is the goose that laid the golden egg and they aren't taking any chances with losing control of it but who knows about the original line, might need to know more about the contracts with outside users etc. All the points you raise about GEL not being able to pay distributions w/o the aid of the gravy CO2 VPP contracts are correct, but it only strengthens my argument that Denbury is looking to push GEL to the next level. GEL needs to get to the size and stability that it can go to the market and float units to pay for acquisitions and build outs. The logic of using the hurdle rate for Denbury is somewhat flawed, by that token, any project with a 6% return would qualify as a good one. Anyways, its just a wait and see game, I have sold all of my Denbury(at much lower rates :-( and own no GEL either, although I would have bought it when it dipped into $9.00 range had I had alot of cash lying around (always seems to be a shortage of cash).....anyways, I think that the release by Denbury more than confirmed that they are going to let someone else carry the costs. The problem lies with the fact that the pipeline is going to cost $140 million and maybe more and GEL has a line of credit good for maybe $65 million, again, this is where GEL buying it for cash and units from Denbury comes into play. It allows them to over-equitize the purchase(i.e. more than the typical 50/50 financing in MLP land) and leaves them with yet another solid cash generator and leaves DNR with a controlling stake in GEL in terms of LP units as well as the GP. I must admit that this has been an interesting topic, very few boards are worth going to, but the DNR board has always had 5-10 excellent, knowledgeable and polite posters(yourself included Peter). As to how it all turns out, only time will tell.....

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