Denbury Resources Inc., Plano, Texas, (NYSE: DNR) plans to acquire Thompson Field in Fort Bend County, Texas, from a private seller for $360 million in cash and a production payment.

Denbury paid $213 million in cash and the remainder from borrowings under its revolving credit facility.

The acquisition includes a nearly 100% working interest (84.7% net revenue interest) in the field, which approximately 18 miles west of Hastings Field that Denbury is currently flooding with carbon dioxide, and the current terminus of the Green pipeline which transports CO2 from Denbury's source in Jackson Dome, Miss.

Net production is approximately 2,200 barrels of oil per day. Potential conventional (non-tertiary) reserves are estimated at approximately 17 million barrels of oil.

Thompson Field was discovered in the early 1930s by Gulf Oil, Hugh Roy Cullen, and Wesley West. The 8,454-acre field was jointly owned and operated by Chevron and ExxonMobil from 1932 until they sold their interests in separate transactions to the seller in 1999 (Chevron) and 2003 (ExxonMobil).

Denbury plans to develop the conventional undeveloped reserves at Thompson Field over the next several years while it designs the field's CO2 flood. Annual development costs until the CO2 flood commences are estimated at approximately $12 million.

In the transaction, the seller will receive a production payment which equates to a 5% net revenue interest when oil production exceeds 3,000 barrels per day and the field is under CO2 flood.

Denbury will fund the purchase with approximately $213 million of the cash received from its 2012 noncore property sales and borrowings under its revolving credit facility.

Denbury president and chief executive Phil Rykhoek says, “Thompson Field is in close proximity to the Green pipeline which will allow it to be connected to this CO2 transportation system with a minimal level of pipeline infrastructure spending. Further, in light of their similarities, we expect to use the knowledge gained from our CO2 flood at Hastings Field to optimize the planned CO2 flood of the Thompson Field. The acquisition adds to our deep inventory of tertiary development projects in the Gulf Coast region that we plan to develop with our natural source of CO2 from Jackson Dome and anthropogenic CO2 sources in the region.”

David Deckelbaum, analyst with KeyBanc Capital Markets, estimates Denbury paid $163,000 per flowing BOE per day, similar to its 2008 Conroe Field purchase, $21.20 per proved BOE, in line with prices it paid for Tinsley, Hastings and Conroe, and between $6 and $12 per 2P BOE assuming a 10-20% recovery factor.

"We anticipate Denbury making further Gulf Coast acquisitions of similar scale in the coming years as it adds a backlog of projects to fuel a stable double-digit growth profile. This deal is yet another instance that enables Denbury to harness its strategically advantaged Jackson Dome CO2 asset to unlock value from aged Gulf Coast oil fields," Deckelbaum said in a research note.

Denbury will also be able to defer $30 million of cash taxes from prior gains on sale that are now offset by the acquisition, he added, and will fund the deal using proceeds from its Paradox Basin and non-core Louisiana/Mississippi asset sales in addition to its borrowing base.

Raymond James analysts Marshall Adkins, James M. Rollyson and Collin Gerry place metrics at $21 per BOE proved, falling to $5 per BOE if unbooked tertiary volumes are considered. "If you consider the tertiary volumes, the deal is in line with the $4.85 per BOE Denbury currently trades at on a proved basis." On a flowing basis, the purchase equates to $164,000 per BOE per day, a discount to the approximately $176,000 per BOE per day the company currently trades at.