Denbury Resources Inc. (DNR)

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Denbury Resources Inc. (DNR)

IPAA OGIS San Francisco Conference

September 30, 2013, 17:40 PM ET

Executives

Phil Rykhoek - President and Chief Executive Officer

Analysts

Presentation

Unidentified Analyst

All right, we are going to continue with Denbury Resources. Presenting for the Company is President and CEO, Phil Rykhoek; EOR pure play with floods in -- on the Gulf Coast and now in the Rockies. And with that, I will turn it over to Phil.

Phil Rykhoek

All right. Welcome to Denbury. Sorry we weren't in one-on-ones. This building is not the fastest in the world to get around in, is it?

All right. So we have forward-looking statements. I know you've seen those slides before.

So those of you that aren't familiar with Denbury, we are a different kind of play. We are a pure play. What that means is everything we do relates to enhanced oil recovery with CO2. So we buy old oil fields. We flood them with carbon-di-oxide and we produce additional oil. That quite simply is what we do.

We've shown that we can produce as much as 50% more oil than what's been produced today. And so it's a very attractive process. I will show you the value that we are creating. It's a very value accretive business. We have growth for the next 10 years or so with existing inventory and then we have a lot of fields that we can buy over and beyond that. So it's a very repeatable and sustainable process.

So it's very unique. We have a very strong competitive advantage because we own and control the sources of CO2. And we own the pipeline infrastructure that transports CO2 to the oil fields. So we have very minimal competition in the two areas that we operate in.

And one other one is kind of interesting what [since I would love] to talk today about capturing CO2 is we also offer a viable economic method of storing carbon underground. So, that’s why you see environmentally responsible here, little unique for an oil company be talking about that, but we do use some anthropogenic carbon or CO2, and we do store that as part of the process of producing oil.

So Denbury at a glance, you can see some of the numbers. These are just all statistics, obviously of everything we do relates to enhanced oil recovery. We either have current EOR floods or future EOR floods or we have assets that produce CO2, and those are basically that’s our portfolio.

So, because it all relates to EOR as you would expect or highly weighted toward oil, 94% oil and you can see various numbers now. The PV-10 here on this slide has not been adjusted for the acquisition we closed on end of March, the ConocoPhillips purchase of Cedar Creek Anticline. So, that was about a $1 billion transaction. So you could add about a $1 billion to that number.

And we’d now have to add debt for that because the money was set aside as part of the trade from last year. We obviously own a lot of CO2, 17 TCF pipelines and so forth.

This is second quarter, so it’s a little bit abated, but we had a strong quarter. And one of the other things I kind of use this, second quarter was the first quarter where we kind of got back to normal after the flurry of trades that we did in the last 12 months.

If you’re not familiar with Denbury, we basically traded the Bakken to Exxon for cash, two oilfields we could flood and some of the CO2 assets and then we took that cash and the like kind of exchanged and purchased ConocoPhillips Cedar Creek Anticline assets. So, it was about $4 billion of transactions, about $2 billion of sales and about $2 billion of purchases.

So we closed on the last piece of that March 31st and so therefore the second quarter was the first full quarter where you had a production contribution from the assets that we traded. And if you look at it, we ended up roughly in the same place on a production basis after you get through all the trades. But there were a couple of quarters there was a little different.

So second quarter was strong. We had record revenue. LOE was good. We added some CO2 reserves from drilling Jackson Dome. Our first -- a field that we acquired from Encore, Bell Creek, we had our first EOR production in the third quarter, so that's good.

The one thing that wasn’t quite so good is we had to expense about $70 million from Delhi. So what happened at Delhi we will go quickly, you’re probably familiar with this if you follow us, but we had some fluids come to the surface relating to one of our floods and what happened is if you look at this kind of cartoon, CO2 would have been injected into the targeted oil zone, it came to this -- in this cartoon, the wellbore there in the center that says old abandoned well, we believe that, that plug either was faulty or gave away or didn’t exist.

And so this -- the fluid gotten into the shallow zones and travelled through it. Note that the casing had been poured on this P&A well at about 1,000 feet. And so the CO2 moves through the shallow zones and basically came to the surface.

Read the rest of this transcript for free on seekingalpha.com