"Merits of Higher WI in existing floods

One concern I see with DNR in 4-5 years is a potential shortage of man-made CO2 volumes one might have expected only a few years ago. A partial remedy is for DNR to purchase the ORRIs and the WIs retained be sellers of floods within the existing 8 phases.

Purchasing these interests has the effect of increasing reserve and production growth without any additional capital spending, or CO2 use from Jackson Dome.

For example, DNR could purchase EPM for $5/share, or around $160M. This represents a 100% premium to EPM trading levels. DNR could then sell EPM's 4M barrels of proven oil reserves not associated with Delhi Field, for say $10/barrel, lowering their net cost to $120M. They would be acquiring 13-15M barrels at their upcoming Delhi flood for $8-10/barrel. These reserves could be booked in mid-2010, and would boost DNR production over time by several thousand barrels per day, particularly once project payout is reached, and EPM's interest is slated to rise. DNR is already responsible for the CO2 flood, so there would be no incremental capital, or CO2 use.

The same opportunity may exist at Hastings, where for the correct price, DNR could purchase from VQ a higher interest in Hastings.

These opportunities do not offer the same appeal as buying what amount to PUDs for $2-$3 per barrel, but they add incremental reserve and production growth without straining Jackson Dome.

The EPM deal seems particularly sensible. Why shouldn't they use untapped credit to boost their WI in Delhi with its production 6-9 months away? Why shouldn't they become more aggressive?"




My response...



or one could buy EPM for $2.50 and double their money.