Denbury Poised to Grow as Oil Demand Rises and CO2 Mitigation Strategies Accelerate

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--High crude oil prices and increased concern over CO2 emissions from power plants are two trends that make for a bright future at Denbury Resources Incorporated (NYSE:DNR) (Plano, Texas). The company, which produces about 68,000 barrels of oil per day (BBL/d), calls itself "a different kind of oil company." It operates mainly in domestic enhanced oil recovery (EOR) projects by injecting carbon dioxide (CO2), which it gathers and transports, into mature oil wells to stimulate incremental production.

Denbury acquires mature oil fields and operates or controls about 1,100 miles of CO2 pipelines in the U.S. It also has more than 17 trillion cubic feet of proved, probable and possible reserves of CO2--enough to help produce hundreds of millions of barrels of oil. Denbury's main EOR operations are located in the Rocky Mountain and Gulf Coast regions.

Industrial Info is tracking 19 active Denbury projects in North America valued at about $2.3 billion. The largest ones include:

• Citronelle EOR CO2 Flood Crude Oil Production Field Phase VI Expansion, a $600 million project in Alabama scheduled to kick off in mid-2015.
• Conroe CO2 Flood EOR Grassroot Phase I CO2 Separation & Recycling Plant, a $240 million project on the Texas Gulf Coast scheduled to begin turning dirt in late 2015.
• Conroe EOR Phase II Natural Gas Processing CO2 Separation & Recycling Plant Addition, a $200 million Texas Gulf Coast project scheduled to kick off in mid-2014.
• Conroe EOR Phase III Natural Gas Processing a CO2 Separation & Recycling Plant Addition, a second $200 million Texas Gulf Coast project scheduled to kick off in late 2015.
• Bakken Natural Gas & Crude Oil Drilling Program, a $200 million oil & gas drilling program in the Bakken Shale that started last year.
• The Beaumont grassroot, 20-inch diameter Conroe lateral CO2 pipeline, a $162 million project to install 88 miles of pipeline in the Texas Gulf Coast that can transport up to 400 million cubic feet of CO2 per day. That project is scheduled to begin turning dirt in early 2016.

Traditional oil drilling only produces about 20% of the original oil in place (OOIP) in a given field, according to Denbury investor presentations. Another 18% of OOIP can be extracted via secondary methods like water flooding. Tertiary recovery using CO2 can result in production of an additional 17% of OOIP, the company said.

Denbury's capital spending totaled about $1 billion last year, and in late 2013, it told investors it planned to spend about the same amount in 2014. The company projects capital outlays of about $1 billion per year during the 2015-2020 period, assuming crude oil fetches $85 to $90 per barrel, Phil Rykhoek, Denbury's president and chief executive, told investors last November.

Rykhoek said Denbury's competitive advantages include its strategic CO2 resource, its pipeline infrastructure, and its large inventory of mature oil fields in the U.S. "CO2 EOR is one of the most efficient tertiary recovery methods," he said, adding that Denbury's EOR production has risen 29% on a compound annual basis from 1999 through 2012. Compared to competitors, Denbury has low finding costs and high cash margins, which position it to continue growing--assuming oil prices continue to remain relatively high.

Denbury said its focus on CO2 EOR offers several environmental benefits not generally associated with oil and gas operations, including the potential to reduce CO2 emissions from power plants and other industrial facilities. The company said its CO2 EOR process provides a technically proven and economical viable way to help manage the nation's CO2 emissions.

"Putting CO2 to work as a commodity rather than as a waste is just common sense," Denbury said.

When Mississippi Power's Kemper County integrated gasification combined-cycle (IGCC) power plant begins operating this year, Denbury will have access to an additional 115 million cubic feet per day of CO2, boosting its supply of CO2 in one of the company's main operating regions.

While the future looks bright for Denbury, the company did suffer a black eye in 2011, when one of its oil wells in Mississippi blew out, venting carbon dioxide, oil and drilling mud for about five weeks. The volume of CO2 emitted was large enough to kill some local wildlife. The company said it was drilling alongside another company's well that had been abandoned, but improperly plugged, which caused that well's casing to fail. Denbury's stock fell more than 50% after the accident, and it has yet to recover fully, even though company officials have said insurance should cover between 33% and 66% of the remediation costs.

"A growing number of U.S. companies are operating on a more sustainable basis, which increasingly means reducing or managing their CO2 emissions, a trend that benefits Denbury," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "Looming federal regulation of power-plant CO2 emissions is another factor driving a positive outlook for Denbury. Continued high crude oil prices and strong demand, particularly for domestic sources of energy, should keep the company busy in the coming years."

View Plant Profile - 1506404 1506916 1083095 3039075 1071647
View Project Report - 4003107 300015647 300015657 300015669 300070332 300013151 3002827

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.