Denbury oil output climbs with Bell Creek start-up

Denbury Resources Inc., Plano, Tex., reported record oil production in the quarter ended June 30 and said it foresees lower output in the third quarter before total and tertiary production resume their sequential growth in the fourth quarter.

Production averaged 74,052 b/d of oil equivalent in the quarter, 94% oil, and oil production averaged 69,895 b/d, 17% above the first quarter and 4% higher than the year-ago quarter.

During the quarter Denbury added 350 bcf of estimated proved carbon dioxide reserves in Jackson Dome field in Mississippi, representing 6% of the field’s estimated yearend 2012 proved CO2 reserves or about 1 year of output at the field’s current rate.

Denbury started tertiary oil production at giant Bell Creek field in Montana after the quarter’s end and slightly ahead of schedule. It is the company’s first tertiary oil production in the Rocky Mountain region.

A production decline at giant Delhi field in northeast Louisiana is expected to offset production gains realized at Bell Creek in the third quarter, Denbury said.

A release of a mixture of CO2, saltwater, natural gas, and a small percentage of oil was discovered and reported in Delhi field in June 2013. Denbury immediately took remedial action to stop the release and contain and recover well fluids in the affected area.

The company believes the origin of the release to be one or more wells in the affected area of the field that had been previously plugged and abandoned. Denbury has recorded $70 million of lease operating expenses related to the release in the second quarter results. The amount is Denbury’s minimum estimate of remediation expenses and may be adjusted.

Denbury estimates that one third to two thirds of its minimum estimate may be recoverable from insurance but has not reached any agreement with its insurance carriers.

Tertiary oil production at Delhi field began declining late in the second quarter due to the various remediation measures taken, which included ceasing injection of CO2 into the affected area in order to reduce that area’s operating pressure.

Based on Denbury’s current understanding of the cause of the release and current expectations relative to remediation, the company anticipates resuming CO2 injection into the impacted area in the fourth quarter of 2013 after which it expects oil production to recover gradually.

Second quarter tertiary oil production was up 10% or 3,544 b/d from the year ago quarter and 305 b/d less than this year’s first quarter. The year-on-year gain stemmed from Delhi, Hastings, and Oyster Bayou fields. The quarter-to-quarter decline was due to the Delhi release and normal declines in mature tertiary fields offset by increases at Oyster Bayou and Heidelberg fields.

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