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Denbury Resources Inc. Message Board

  • pddane_01929 pddane_01929 Sep 1, 2004 11:09 AM Flag

    Pipeline comparable

    Jere et al,

    Here's a link for Kinder Morgan Energy Partners that is a partial comparable for a CO2 pipeline evaluation:

    $100mm against 418mm of distributable cash or an 18% return to the buyer.

    If that's the way the deals are structured, it sure doesn't make any sense for DNR to sell GEL the pipeline given the fact that they could borrow at 5 1/2%.



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    • 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.....

    • Once again, the idea of building a strong, fast growing MLP is lost on all of the E&P folks. Countless times I have tried to steer folks into looking at many of the successful GP's that have used their MLP's to grow such as Kinder Morgan Inc, CrossTex Energy Inc, Penn Virginia, Kaneb Services LLC etc etc

      The point is this, GEL can be a very important contributor to DNR's earnings and strategy. The fact that DNR did not mention that it is financing the pipeline on its own means that they are letting GEL get its financing in order. I would imagine that the new credit facilty that GEL has is probably lining up is involved. It just seems so obvious to me that DNR is going to grow GEl because otherwise they would not have sold them the VPP when DNR already had plenty of cash and assets that could be liquidated, and nowthere is talk of yet another VPP in the works. Clearly DNR is doing everything it can to help GEL grow and accelerate it to the next level where it has the critical mass and scale to make unaffiliated accretive acquisitions.

      • 1 Reply to rrb1981
      • Of course it may well be that MLPs are generally a great deal for the General Partner, but often are questionable for the limited partners. As near as I can tell, GEL was set up as much as anything to clear debt off of DNR's books. It still isn't clear whether it was a sensible deal for DNR shareholders. Mind you, DNR stated it was to monetize the value of the industrial CO2 contracts. But, for me, it just made things harder to track.

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