Completion of Acquisition of Remaining Riley Ridge Working Interest
On August 1, 2011, the Company completed the previously announced acquisition of the remaining 57.5% working interest in the Riley Ridge Federal Unit (“Riley Ridge”) and a 33% working interest in an additional 28,000 acres adjoining Riley Ridge. As a result of the transaction, Denbury became the operator of both projects.
Combining this acquisition with the interest in Riley Ridge that the Company acquired in October 2010, the Company estimates that its total ownership at Riley Ridge currently contains estimated proved reserves of 435 Bcf of natural gas, 15.5 Bcf of helium and 2.4 Tcf of CO 2. The adjacent 28,000 acres is estimated to contain additional probable reserves of 250 to 300 Bcf of natural gas, 9.5 to 11.5 Bcf of helium and 2.0 to 2.2 Tcf of CO 2, net to Denbury’s interest. The first production of natural gas and helium from Riley Ridge is expected to begin late in the fourth quarter of 2011, with initial production of CO 2 expected in four to five years following construction of both additional facilities to separate the CO 2 from the remaining gas stream, and a CO 2 pipeline to the field.
OutlookAs a result of revisions in the timing of anticipated tertiary oil production increases and delays due to weather in the Company’s Bakken operations, the Company is lowering its overall 2011 production guidance from a year-over-year growth rate of 8% to one of 5% (based on pro forma 2010 continuing production, adjusted to include legacy Encore production during the pre-acquisition period), which translates into a change in previous yearly guidance from 67,400 BOE/d to 65,600 BOE/d. This revised forecast includes an approximate 5% reduction to the Company’s 2011 tertiary production estimate from 32,500 Bbls/d to 31,000 Bbls/d, primarily due to slower than anticipated increases in near-term production at the Company’s Heidelberg and Tinsley Fields. This reduction in tertiary production is not anticipated to have any impact on the amount of oil ultimately recoverable. Additionally, the Company is reducing its 2011 estimated Bakken area production from an anticipated 8,700 BOE/d to 8,400 BOE/d due to weather delays during the first half of the year, which have impacted the schedule for drilling, completion and production of wells in this area. Although still preliminary, the Company expects to have significantly higher production growth in 2012 as a result of initial oil production expected at Hastings and Oyster Bayou, our two new tertiary floods, and further growth from accelerated drilling in the Bakken area.
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