Texas-based Denbury Resources Inc (DNR - Analyst Report) has inked a definitive agreement with oil-focused exploration and production company Petro Harvester Oil and Gas to sell some of its non-core assets -- located mainly in Mississippi and Louisiana -- for $155 million.
The buyer, Petro Harvester Oil and Gas, is privately held and backed by private equity firm TPG Capital. It was formed to buy mature producing assets in North America.
Denbury intends to use the sale proceeds to partly reduce its debt under the credit facility. The transaction is expected to be completed by the end of February 2012 and is subject to customary closing conditions.
The assets to be shed 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.
The assets being sold include 138 operated wells in 29 producing oil and gas fields. Denbury expects output of about 1400 barrels of oil equivalent per day from properties, per the 2012 production guidance issued earlier.
Denbury has a relatively low-risk business model – it produces oil by applying tertiary recovery techniques to mature fields. Tertiary operations remain the company’s principal focus area. Denbury is continuously expanding its tertiary floods in the Tinsley, Heidelberg and Delhi Fields.
In an attempt to fund its planned $1.35 billion investment program and stock buybacks without putting pressure on the balance sheet, Denbury is making a conscious effort to sell its non operated interest in Utah’s Greater Aneth oil field by the end of 2012.
Moreover, the early start of production at its Oyster Bayou will help fund its program partly. We are also optimistic about the expected increase in output for 2012, given the accelerated drilling in the Bakken area.
Denbury holds a Zacks #2 Rank, which is equivalent to Buy rating for a period of one to three months. For the long term, we maintain a Neutral recommendation on the stock. The company faces considerable threat from Newfield Exploration Company (NFX - Analyst Report) .