Denbury Resources (DNR) has completed the sale of remaining 40% of its Barnett Shale natural gas assets to Talon Oil & Gas LLC (a privately held company) for $210 million. During June last year, Denbury had completed the sale of its first 60% for $270 million to the same buyer.
Proceeds from the sale were used to pay off bank debt. The Barnett Shale divestment allows the company greater liquidity and flexibility to focus on its core tertiary oil operations, which are more profitable, carry lower risks and face virtually no competition. Besides paying off bank debt, Denbury has plans to use the sale proceeds to increase its 2010 tertiary related spending.
Tertiary operations remain the company’s principal focus area. In the last month, the company acquired a 95% stake in the Conroe oil field for about $430 million in cash and stock. It expects to spend about $750 million to $1 billion to develop Conroe as a tertiary field.
While the Barnett Shale assets sale is a prudent step towards an efficient liquidity management, Denbury’s niche business model of extracting crude oil from mature fields using tertiary recovery methods has turned out to be very valuable. However, our conservative posture reflects high cost levels associated with the tertiary oil recovery method. Our Neutral recommendation remains unchanged.
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