Oil and natural gas company Denbury Resources Inc. (DNR) plans to use most of the proceeds raised from its asset sale to ExxonMobil Corporation (XOM) in 2012, to work out a purchase deal with ConocoPhillips (COP).
Denbury inked an agreement with a wholly owned subsidiary of ConocoPhillips to purchase the producing property interests in Cedar Creek Anticline (CCA). Spread across 86,000 acres between eastern Montana and southwestern North Dakota, the interests in CAA will be sold for $1.05 billion in cash.
The purchase will comprise interests in some properties already being operated by Denbury along with operating interests in some new CCA acreage. With an effective date of January 1, 2013, the deal is scheduled to close by the end of the first quarter.
The purchase price will be taken from the $1.3 billion Bakken asset sale to ExxonMobil in December 2012.
At year-end 2012, the assets to be purchased had estimated proved conventional reserves of about 42 million barrels of oil equivalent, of which 95% was oil and 4% gas liquids.
Both the companies will benefit from this deal. The CAA acreage matches Denbury’s existing portfolio. Also, recovery from these fields requires supply of carbon dioxide – a process in which Denbury excels in the Gulf of Mexico. For ConocoPhillips, the deal will be part of its already announced asset divestiture program.
The deal is also tax efficient for Denbury as it exempts over $400 million of the $500 million of cash taxes initially estimated on the Bakken transaction. This was prior to the purchase of CO2 reserves and approval of the acquisition of the CCA properties.
Denbury holds a Zacks Rank #3 (short-term Hold rating). Longer term, we maintain our Neutral recommendation.
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