Denbury Resources Inc. has entered into an agreement to acquire nearly all of the working interest in the McComb Field in Southwestern Mississippi.
On July 11, 2002, Denbury signed a purchase and sale agreement to acquire McComb Field with the intent of expanding its tertiary carbon dioxide ("CO2") injection operations. The total cash consideration for the field will be $2.5 million with possible additional consideration equal to 15% of the sales price per barrel of oil for that portion of the future sales price that exceeds $22.00 per barrel, with such additional consideration not to exceed $0.75 per barrel. The Company's CO2 pipeline crosses through the northwest corner of the McComb Field and the field is only a few miles from our CO2 facilities at Olive Field acquired last year.
Initial development is planned for this field late this year or the first half of 2003, with a total of approximately $40 to $50 million projected to be invested there over the next three years, with up to $80 million of total development over the field's projected life. Initial estimates by Denbury indicate that there may be between 15 and 20 million net barrels of oil recoverable from McComb Field using CO2 injection, based on our success at Little Creek and Mallalieu Fields. Since a pilot project has not been performed to date at this field, the Company will not be able to immediately classify or record any of these probable reserves as proved. The Company expects to recognize these reserves as development occurs, with the initial proved reserves expected to be recognized in 2003. The purchase is expected to be completed during August, subject to normal and customary closing conditions.
The acquisition of McComb field is part of Denbury's strategy to expand its CO2 recovery operations throughout the Lower Tuscaloosa oil fields of Southwest Mississippi. In late June, the Company announced that it was the high bidder in the COHO Energy Inc. ("COHO") Gulf Coast property auction, with closing scheduled for late August, subject to final authorization and approval by the U.S. Bankruptcy Court. This pending COHO acquisition includes Brookhaven Field, another Lower Tuscaloosa oil field located near the Company's CO2 pipeline in Southwest Mississippi. Denbury is strategically positioned to develop the potential tertiary reserves in these fields because of its ownership of CO2 reserves and pipeline. Denbury operates the only active CO2 operations in the basin at Little Creek, Lazy Creek and Mallalieu Fields and has expertise in installing and managing such an operation. The Company estimates that through tertiary recovery operations, approximately 60-75 million barrels of additional net oil reserves, including the potential at McComb and Brookhaven Fields, may be available to Denbury in fields in this part of the state, including some fields which Denbury does not currently own.