The past few weeks have been full in the way of mergers and acquisitions in the energy sector. Today the trend continues, with Denbury Resources selling its Bakken assets to XTO Energy, the gas arm of ExxonMobil, in exchange for $1.6 billion and working interest in fields in Texas and Wyoming. The majority of deals being made in the energy space are companies paying top dollar to move into oil heavy shale plays, but Denbury is going against the grain, and making a deal that will have long-term benefits.
Denbury’s core competence is producing oil using a CO2 enhanced oil recovery process that provides the company the highest rates of return. In order to produce with the highest ROR, Denbury needs to tap fields in close proximity to their CO2 supply sources in the Gulf and mid-continent. This deal benefits Denbury in two strategic ways. First, by shedding the Bakken assets, the company moves away from an area where it does not have a strategic CO2 source. In addition, selling the highly valuable land provides the company with much needed cash and reduced capital expenditures from having to build out the Bakken shale region going forward. Second, besides the money, Denbury is receiving mature fields in Texas and Wyoming, which are both in proximity to its carbon dioxide source. Check out the video below for more information on this deal.
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