?(NYSE: DNR) has canceled its plans to acquire a 91.4% interest in Conroe Field in Montgomery County, Texas, north of Houston for potential tertiary flooding from an undisclosed private seller for $600 million in cash, citing its need to take “significant steps to preserve capital liquidity.”
“As a result of the current conditions of the capital markets, the company has decided to not pursue the previously announced Conroe Field acquisition for $600 million at the current time,” the company reports. “Denbury would still like to acquire the field at some point in the future, but given the uncertainty surrounding (our) potential Barnett shale asset sale, the company concluded that it would be prudent to delay the Conroe acquisition indefinitely.”
Denbury continues to market its properties in the Barnett shale, but president and chief executive officer Gareth Roberts says he didn’t want to have to depend on the proceeds.
However, Denbury does not plan to cancel its option to purchase the tertiary property Hastings Field near Houston from a subsidiary of Venoco Inc., Denver, (NYSE: VQ) set to close in February. The purchase price will be determined by mutual agreement between the two companies or by following a prescribed contractual formula based on the present discounted value (PV10) of the field’s proved reserves as determined by DeGolyer and MacNaughton using year-end 2008 strip prices.
“We didn’t feel we needed to cancel both,” says Roberts. Venoco may consider a volumetric production payment as part of the purchase price.
Denbury will forfeit its $30-million nonrefundable deposit for the abandoned Conroe Unit acquisition.
In addition, the company has more than doubled its liquidity through an amendment to its bank credit facility from $350 million to $750 million, is buying derivative oil collars for 2009, and is trimming its proposed 2009 capital budget to reflect lower commodity prices.
“In light of the current state of U.S. capital markets, we have taken several measures to assure ourselves that our balance sheet will remain strong during these uncertain economic times. We believe that all of these steps are prudent in light of the current economic environment,” says Roberts.
“With the price floors we have put into place for 2009 and the bank availability from our increased bank commitments, we believe that we will have sufficient liquidity to adequately fund our 2009 capital-expenditure budget and to close on the Hastings acquisition in early February 2009. We remain committed to our tertiary development strategy and are positioned to take advantage of our built-in organic growth in spite of the market conditions surrounding us.”
Denbury focuses on tertiary recovery operations in Mississippi, the Barnett shale, onshore Louisiana and Alabama, and in Southeast Texas.

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