Denbury to Sell Acquired Assets – Analyst Blog

Denbury Resources Inc. (DNR) is stepping forward to sell non-core oil and gas properties of previously acquired Encore Acquisition Company to Houston-based Quantum Resources Management LLC for $900 million.

 

The assets to be sold are located in the Permian Basin, southeastern New Mexico, the Mid-continent area and the East Texas Basin. The divestiture is expected to be closed in May 2010. However, the sale does not include Denbury’s Haynesville Shale, Paradox Basin, Cleveland Sand Play and Tuscaloosa Marine Shale properties.

 

Denbury had acquired Encore in last November and hinted that it may sell some non-core assets to reduce the debt level. As of March 31, 2010, the company had $800 million outstanding debt under its bank credit facility.

 

While tertiary operations remain the company’s core area, it has been quite active on the divestiture front to pay down its debt level. In the beginning of this year, the company completed the sale of its Barnett Shale natural gas assets to Talon Oil & Gas LLC (a privately held company) for $480 million.

 

We consider Denbury’s recent sale of various assets 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.

 

Additionally, production attributable to the properties being sold is natural gas weighted; approximately two thirds of Denbury’s production is natural gas. This is contrary to the company’s existing oil-weighted production profile. We believe that the company’s oil-centric niche business model and comfortable financial position will help maintain its growth profile. We are currently Neutral on Denbury shares.