Denbury Resources (DNR) is not the fastest-growing oil company in America, but its value creation is. Instead of investing heavily on fast-growing, rapidly depleting shale production its focus is on buying older oil wells that no one else wants. Denbury then uses carbon dioxide to give these old wells a new lease on life. It's a process that leads to slow, predictable results that were evident last year.
Climbing the mountain
An aging oil field acquired by Denbury is typically experiencing declining production as it nears the end of its life. However, by flooding the field with carbon dioxide the company can increase production and recoveries through what's known as the tertiary enhanced oil recovery method. While Denbury has used this method successfully in the Gulf Coast, it was able to carry over that success in 2013 to its assets in the Rocky Mountains.
Last year, the company booked its first tertiary reserves in the Rocky Mountains after it brought its Bell Creek field online. This added 34 million barrels of oil equivalent, or BOE, to the company's proved reserves. That boosted Denbury Resources' tertiary reserves by 15% to a total of 230 million BOE, which is 49% of its total proved reserves.
While those were the only tertiary reserves Denbury booked in the Rockies, they weren't the only reserves the company added last year from that region. The company actually began 2013 by acquiring ConocoPhillips' (COP -0.71%) Cedar Creek Anticline properties in the Rockies. The ConocoPhillips deal added about 42 million BOE of proved reserves. However, Denbury believes that once it begins flooding the field with carbon dioxide that it could eventually recover 80 million barrels of oil. This additional oil would have been left stranded by a company like ConocoPhillips because its focus is on shale growth, as well as major projects overseas, and not in squeezing every last drop of oil out of an ancient field.
More Rockies growth to come
Looking ahead, Denbury Resources has a lot of growth potential in the Rockies. The company has been actively acquiring mature oil properties and access to carbon dioxide reserves in order to set itself up for future growth. The best example is a deal made with ExxonMobil (XOM -0.85%). Denbury Resources exchanged its assets in the Bakken shale for ExxonMobil's Hartzog Draw Field in the Rockies, also acquiring another field in the Gulf Coast, some carbon dioxide-related assets in the Rockies, and cash that it eventually used to make the ConocoPhillips deal. That one Exxon deal set it up for a few years of future growth in the Rockies.
There are a number of other mature oil fields in the region that Denbury Resources could eventually acquire from large oil companies or shale-focused drillers looking to unload declining assets. In fact, Denbury Resources sees 1.3 to 3.2 billion barrels of oil in the Rocky Mountain region the could be recovered using its tertiary enhanced method. Denbury Resources believes it has locked up about 351 million barrels of those potential reserves to date, which suggests that it has plenty of room to grow as these assets become available.
Slow and steady growth
Denbury Resources is a solid slow-growth oil stock. The company has a nice niche that it is slowly exploiting. While it will never grow as large as ExxonMobil or ConocoPhillips, it'll happily pick up the scraps those companies are willing to get rid of and rescue the millions of barrels of oil that would have otherwise been stranded.