Exxon Expands in Bakken Shale (XOM, DNR)

Energy

Published: September 20, 2012 10:00 am

Exxon Mobil Corp. (NYSE: XOM) announced this morning that it would pay $1.6 billion to Denbury Resources Inc. (NYSE: DNR) for 100% of Denbury’s acreage and interests in the Bakken shale play in North Dakota and Montana. As part of the deal, Exxon will transfer its interests in two smaller Wyoming and Texas fields to Denbury. Denbury also has agreed to purchase an interest in an Exxon-owned carbon dioxide field or to purchase CO2 from Exxon to use for tertiary recovery of crude from the two fields.

Exxon said the Bakken acreage it is acquiring is currently producing about 15,000 barrels of oil equivalent per day and the fields that Denbury is receiving are producing about 3,600 barrels of oil equivalent per day. The acquisition expands Exxon’s Bakken acreage by about 50%.

Denbury outlined how it plans to use the proceeds from the sale:

Denbury intends to use the cash proceeds from the transaction to pursue the purchase of additional oil fields in the Gulf Coast or Rocky Mountain regions that are suited for CO2 flooding, to fund capital expenditures, and/or to repay outstanding debt under its bank credit facility. Additionally, Denbury plans to resume its stock repurchase program begun in October 2011 under which $195 million of the $500 million of authorized repurchases have been made.

Denbury, with a market cap of around $6 billion, does not want to go to the expense of exploring and drilling the Bakken prospects, preferring instead to go after proved fields. The company’s CEO said:

This trade allows us to realize that value and leverage our Bakken position to acquire two of the top oil fields in our core operating regions that are candidates for CO2 flooding, while also adding incremental CO2 resources in the Rocky Mountain region and increasing liquidity by over $1 billion. We can now focus on what Denbury does best, CO2 enhanced oil recovery (“EOR”), which we believe offers one of the most compelling rates of return in the oil and gas industry today.

Denbury’s shares are up about 3.5% at $17.27 in a 52-week range of $10.20 to $21.37.

Exxon’s shares are off about 0.4% at $90.23 in a 52-week range of $67.93 to $92.50.

Paul Ausick

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