2010-09-15-2010-09-15

To acquire 42.5% WI in the more than 9,700-acre Riley Ridge Unit, gaining 185 Bcf proved gas and 1 Tcf proved CO2 reserves.

Denbury Resources Inc., Dallas, (NYSE: DNR) plans to acquire a nonoperated working interest in the Riley Ridge Federal Unit in southwestern Wyoming and 33% of the CO2 rights in an additional 28,000 acres adjoining the unit for $115 million

The assets feature 42.5% working interest in the more than 9,700-acre Riley Ridge Unit. Denbury estimates the unit contains proved net reserves of 185 billion cubic feet of gas, 6.6 billion cubic feet of helium and approximately one trillion cubic feet of CO2. The additional adjoining acreage is estimated to contain an additional one trillion net cubic feet of probable CO2 reserves.

Denbury Resources sees strategic value in CO2, both for enhanced oil recovery (EOR) in oil fields and in recovery of CO2 from industrial sites.

The Riley Ridge Unit and adjoining acreage are in LaBarge Field, which features other E&Ps currently producing and selling gas, helium and CO2.

First production of gas and helium from Riley Ridge is expected in late 2011.

The company will fund the acquisition with its existing bank credit facility.

Denbury chief executive Phil Rykhoek says, "This acquisition provides us with our second source of CO2 in the Rockies, a source with significant expansion potential. We plan to continue our evaluation of other potential sources of CO2 in this region before we commence construction of CO2 separation facilities at Riley Ridge, thus today, we do not have a definitive development timetable for these CO2 reserves."

Rykhoek says the anticipated gas and helium sales from this field are expected to cover the purchase price, giving Denbury a low-cost option on the CO2 resources.

"If we build the separation facilities, we estimate that our cost of Riley Ridge CO2 will be competitive with other sources of man-made or anthropogenic CO2 in the area," he says. "If the CO2 reserves associated with the Riley Ridge Unit and the adjoining acreage are all fully developed, this single source could potentially supply most, and perhaps all, of the volumes of CO2 we need for our existing oil properties in this region acquired in the Encore acquisition."

Denbury is expected spend nearly $24 million in development costs associated with the Riley Ridge Unit during 2010 and $32 million in 2011.

The full well stream is expected to consist of 65% CO2, 19% gas, 10% hydrogen sulfide (H2S) and 0.6% helium and other gases. Initially the operator plans to re-inject the CO2 and H2S, but Denbury will have the right to separate and take the CO2 and re-inject the H2S.

Denbury is continuing to evaluate other potential CO2 sources in the Rockies and no determination has been made whether to construct the facilities to separate CO2 from the H2S. The initial phase of development could provide up to 65 million cubic feet per day of CO2 to the company, and when fully developed, the Riley Ridge unit could provide as much as 130 million cubic feet per day of CO2. If the additional 28,000 acres are developed, the potential CO2 volumes could exceed 400 million cubic feet per day.

The deal is expected to close in late October.