Natural Gas Systems Completes Sale Of Working Interest In Delhi Field And Participation In Enhanced Oil Recovery Project
Houston - Natural Gas Systems, Inc. announced that it has completed the sale of its working interest in the Delhi Holt Bryant Unit (Delhi Unit) to Denbury Resources, Inc. Under the terms of the sale agreement, Denbury has agreed to timely install an enhanced oil recovery project in the Delhi Unit utilizing its proven reserves of carbon dioxide (CO2) in northwest Mississippi.
At closing, NGS received total proceeds of approximately $50 million in cash in exchange for its 100% working interest and 80% net revenue interest in the Delhi Unit and a 75% working interest and 60% net revenue interest in other depths. After the CO2 project generates $200 million of net cash flows, excluding capital expenditures, NGS will own a 25% working interest (20% net revenue interest) in the Delhi Unit. Separately, NGS retains a 4.8% royalty interest in the Delhi Unit and a 25% working interest in the Delhi Field outside of the Delhi Unit that were not included in the sale.
Since its discovery in 1945, the Delhi Unit has produced approximately 190 million barrels of oil, which NGS estimates to be less than half of the original oil in place in the reservoirs targeted for the CO2 project. Denbury projects that its capital expenditures to develop the CO2 project will likely reach $200 million, and has estimated that potential reserves net to their interests could range between 30 and 40 million barrels of oil. On a similar basis, NGS estimates that the potential oil recovery from the project net to NGS's 4.8% overriding royalty interest and 25% reversionary working interest could range up to 14 million barrels of oil with no material capital cost to NGS other than eventual plugging and abandonment.
Robert Herlin, President of NGS, stated "This sale and enhanced oil recovery project are huge accomplishments for NGS and its shareholders. Based on timely CO2 project development, we expect to see substantial increases in Delhi production within a few years and peak production in 4-6 years. Our retained interests in the Delhi Unit could generate tremendous value for our shareholders, while our immediate cash receipts net of tax and debt repayment will be carefully put back to work, including one new project now under review."
SOURCE: Natural Gas Systems, Inc.