Denbury Resources Dumps Noncore Assets In Rare Williston Basin Deal

Denbury Resources Inc. (NYSE: DNR) entered into an agreement to sell its remaining noncore assets in the Williston Basin of North Dakota and Montana, the company disclosed in SEC filings.

In the divestiture, subsidiary Denbury Onshore LLC will sell production of about 1,350 barrels of oil equivalent per day (boe/d), 96% oil, for $58 million. Denbury Resources’ total production in first-quarter 2016 was 69,351 boe/d.

A&D activity in the Williston has been spotty for much of 2016 with less than one deal announced per month. The largest deal so far this year was the $73 million acquisition of bankrupt Emerald Oil Inc.’s assets in the Bakken.

Unrelated to the divestiture, the company also reported that it has settled a contractual matter in Louisiana.

Proceeds from the sale will be used to pay down borrowings on its senior secured bank credit facility. Denbury has $310 million drawn on its $1.05 billion revolver, said David Deckelbaum, an analyst at KeyBanc Capital Markets.

Denbury will receive about $43,000 per flowing boe/d, a “solid price given recent comps closer to $30,000 per flowing boe/d,” Deckelbaum said. “The production sold was minimal and will affect approximately 0.5% of 2016 estimated production.

“Further noncore asset sales would likely be well received in efforts to restructure” the balance sheet below pro forma 5.5 net debt/EBITDAX at 2017 estimated strip pricing, Deckelbaum said.

The Plano, Texas-based company signed the purchase and sale agreement June 20. It did not disclose the buyer.

The sale is expected to close by the end of July with an effective date of April 1.

Litigation

Denbury also reported that it reached a settlement with Evolution Petroleum Corp. (NYSE: EPM) to resolve an ongoing contract dispute in the Delhi Unit in Louisiana. Both parties dismissed claims and counterclaims related to litigation in the matter.

On June 24, Denbury also entered into a settlement agreement that will pay Evolution $27.5 million in cash by June 30.

Evolution will receive 25% of the interests Denbury acquired in late 2014 in the Mengel Sand Interval, a separate interval within the Delhi Unit which Denbury purchased for $6.5 million. The Mengel Sand is not currently producing.

Denbury will be credited with an additional 0.2226% overriding royalty interest in the Holt-Bryant interval, which is the currently producing interval of the Delhi Unit.

Related Article: Evolution, Denbury Settle Contract Dispute Over Louisiana's Delhi Field

Darren Barbee can be reached at dbarbee@hartenergy.com.