Denbury Resources Inc. (DNR - Analyst Report) has sold certain properties in the Greater Aneth field of Utah to Resolute Energy Corporation (REN - Snapshot Report) and the Navajo Nation Oil and Gas Company. The transaction, which was part of the company’s divestiture program for non-core assets, was valued at $75 million.
The Greater Aneth Field − located in the Paradox Basin of Utah − held some 6.4 million barrels of oil equivalent (BOE) of proved reserves as of December 31, 2011, with 58% in the proved developed category and 98% oil. The disposed asset was projected to generate about 650 BOE a day this year.
Recently, the Plano, Texas-based Denbury wrapped up its previously announced $155 million asset disposal agreement with an exploration and production company Petro Harvester Oil and Gas. The company sold some of its non-core assets − located mainly in Mississippi and Louisiana − which had proved reserves of approximately 6.2 million barrels of oil equivalent (93% oil), as of December 31, 2010. The reserves consist of 54% proved developed producing and 46% proved developed non-producing.
These two asset sale deals are expected to trim Denbury’s this year’s total daily production outlook by about 1,625 BOE per day. The company had earlier guided production of 70,250–75,250 BOE per day for 2012.
The sale of Utah assets also completes Denbury’s planned non-core asset divestitures for the current year that raised proceeds of about $313.5 million in total, exceeding the company’s guided range of $150 million to $300 million.
We view Denbury’s planned divestiture agreements for non-core properties as a prudent step, which will allow the company greater liquidity and flexibility to focus on its core tertiary oil operations. These are more profitable, carry lower risk and face virtually no competition. With its unique profile, compelling economics and an unmatched infrastructure, we believe Denbury is nicely positioned to deliver long-term sustainable growth.
However, we remain concerned about Denbury’s total production, which experienced a 12% year-over-year decline in the last reported quarter. As such, we see limited upside from current levels and prefer to remain on the sidelines.
We maintain our Neutral recommendation for the company, which retains a Zacks #2 Rank (short-term Buy rating). Denbury competes with Newfield Exploration Co. (NFX - Analyst Report) and Pioneer Natural Resources Co. (PXD - Analyst Report).