NYSE:DNR $ 1.62 +0.00 +0% Volume: 10,716,517 December 15, 2017
co2-sources-and-pipelines

Naturally Occurring CO2 Sources

Our primary Gulf Coast CO2 source, Jackson Dome, located near Jackson, Mississippi, was discovered during the 1970s by oil and gas companies that were exploring for hydrocarbons. This large and relatively pure source of naturally occurring CO2 (98% CO2) is, to our knowledge, the only significant underground deposit of CO2 in the United States east of the Mississippi River. Together with the related CO2 pipeline infrastructure, Jackson Dome provides us a significant strategic advantage in the acquisition of properties in Mississippi, Louisiana and southeastern Texas that are well suited for CO2 EOR.

We acquired Jackson Dome in February 2001 in a purchase that also gave us ownership and control of the NEJD CO2 pipeline and provided us with a reliable supply of CO2 at a reasonable and predictable cost for our Gulf Coast CO2 tertiary recovery operations. Since February 2001, we have acquired and drilled numerous CO2-producing wells, significantly increasing our estimated proved Gulf Coast CO2 reserves from approximately 800 Bcf at the time of acquisition of Jackson Dome to approximately 5.3 Tcf as of December 31, 2016. The proved CO2 reserve estimates are based on a gross (8/8ths) basis, of which our net revenue interest is approximately 4.2 Tcf, and is included in the evaluation of proved CO2 reserves prepared by D&M, an independent petroleum engineering consulting firm. In discussing our available CO2 reserves, we make reference to the gross amount of proved and probable reserves, as this is the amount that is available both for our own tertiary recovery programs and for industrial users who are customers of Denbury and others, as we are responsible for distributing the entire CO2 production stream.

In addition to our proved reserves, we estimate that we have 1.2 Tcf of probable CO2 reserves at Jackson Dome. While the majority of these probable reserves are located in structures that have been drilled and tested, such reserves are still considered probable reserves because (1) the original well is plugged; (2) they are located in fault blocks that are immediately adjacent to fault blocks with proved reserves; or (3) they are reserves associated with increasing the ultimate recovery factor from our existing reservoirs with proved reserves. In addition, a significant portion of these probable reserves at Jackson Dome are located in undrilled structures where we have sufficient subsurface and seismic data indicating geophysical attributes that, coupled with our historically high drilling success rate, provide a reasonably high degree of certainty that CO2 is present.

In addition to our drilling at Jackson Dome, we continue to expand our processing and dehydration capacities, and we continue to install pipelines and/or pumping stations necessary to transport the CO2 through our controlled pipeline network. We expect our current proved reserves of CO2, coupled with a risked drilling program at Jackson Dome and CO2 expected to be captured from industrial sources, to provide sufficient quantities of CO2 for us to develop our proved and probable EOR reserves in the Gulf Coast region. In the future, we believe that once a CO2 flood in a field reaches its productive economic limit, we could recycle a portion of the CO2 that remains in that field’s reservoir and utilize it for oil production in another field’s tertiary flood.

Gulf Coast CO2 Captured from Industrial Sources

In addition to our natural source of CO2, we are currently party to three long-term contracts to purchase CO2 from industrial plants. We have purchased CO2 from an industrial facility in Port Arthur, Texas since 2012 and from an industrial facility in Geismar, Louisiana since 2013, which currently supply approximately 55 MMcf/d of CO2 to our EOR operations. Additionally, we are in ongoing discussions with other parties who have plans to construct plants near the Green Pipeline.

In addition to the potential CO2 sources discussed above, we continue to have ongoing discussions with owners of existing plants of various types that emit CO2 that we may be able to purchase and/or transport. In order to capture such volumes, we (or the plant owner) would need to install additional equipment, which includes, at a minimum, compression and dehydration facilities. Most of these existing plants emit relatively small volumes of CO2, generally less than our contracted sources, but such volumes may still be attractive if the source is located near CO2 pipelines. The capture of CO2 could also be influenced by possible legislation or regulatory orders pertaining to CO2 emissions. We believe that we are a likely purchaser of CO2 captured in our areas of operation because of the scale of our tertiary operations and our CO2 pipeline infrastructure.

1.62 +0.00 +0% Volume: 10,716,517 12/15/17
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