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Newfield buys Denbury’s offshore Gulf assets Independent raises ’04 production estimate; $187 million sale of Denbury Offshore will allow firm to focus on tertiary operations Ray Tyson Petroleum News Houston Correspondent
Independent producer Newfield Exploration, a major natural gas player on the Gulf of Mexico’s outer continental self, has acquired Denbury Resources’ Gulf assets for an adjusted $187 million, causing Newfield to raise its overall production guidance for this year by 7 to 11 percent.
“The Denbury Gulf of Mexico assets are an excellent fit with our offshore operations and this will lead to substantial operating cost savings,” David Trice, Newfield’s chief executive officer, said July 20.
Newfield said it specifically acquired the outstanding stock of Denbury Offshore, a subsidiary of Dallas-based Denbury Resources, giving Newfield additional daily production of more than 50 million cubic feet of gas equivalent, 97 percent of which is classified as natural gas.
Consequently, Newfield said it increased its overall 2004 production estimate to 235-245 billion cubic feet of gas equivalent over 2003 production of 220.6 billion cubic feet of equivalent. Thirty-eight Gulf blocks The deal included 38 Gulf blocks, 32 percent of which are company operated, and 16 fields. Ninety percent of the reserves and 95 percent of the production come from seven fields. Eighty percent of the wells and 95 percent are company operated. Average working interest in the properties is 75 percent.
Trice said the expected cost savings coupled with the price hedging of natural gas production from Denbury’s properties at a weighted average price of $6.26 per thousand cubic feet “will ensure a quick payout and a superior rate of return on this acquisition.”
He said Newfield would conduct detailed field studies to identify additional exploitation and exploration opportunities on the Denbury properties. The company said it would pay for the properties using a combination of cash on hand and credit.
Denbury said its offshore subsidiary had total proven reserves of 96.2 billion cubic feet of gas equivalent, including $82 million of future development and plugging and abandonment costs as of year-end 2003. The company said average daily production in the 2004 second quarter averaged 50 to 55 million cubic feet of equivalent.
Proceeds from the sale will be used to retire bank debt and reduce its total debt to $225 million, Denbury said. The company said it expects to receive an additional $2.8 million during 2004 from the sale of other offshore assets in separate transactions.
Denbury estimated that the sale to Newfield would generate between $70 million and $75 million of excess cash after repayment of its bank debt, estimated income taxes and other fees and expenses of the sale. Denbury focus will be on tertiary operations Gareth Roberts, Denbury’s chief executive officer, said that with completion of the property sale, Denbury intends to focus its energy and investment on its tertiary operations “where we have lower risk, greater predictability, virtually no competition and higher profitability.”
He said the company plans to accelerate development of its CO2 reserves and production, accelerate Phase II of its tertiary operations, and invest additional funds in its East Texas Barnett Shale acreage and other areas of operations.
“With our focus on the tertiary operations, we expect to show steady, predictable organic growth in 2005 and for multiple years thereafter,” Roberts said.
As a result of the proceeds generated by the sale, Denbury said it increased its 2004 development and exploration budget from $185 million to $205 million.
However, the company said it expects its daily production during the third quarter of this year to be about 27,500 barrels of oil equivalent, reflecting the absence of production from its offshore properties. Production for the fourth quarter was estimated at between 28,000 and 28,500 barrels of equivalent per day.
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