Denbury Resources Inc. (DNR), Occidental Petroleum Corporation (OXY): One Company Revolutionizing America’s Aging Oil Fields

The problem is that building out the infrastructure necessary to get a carbon dioxide flood project off the ground requires a lot of money up front. It’s one reason investors easily pass by this company as an investment. However, the long-term payoff is incredible. When looking at Denbury Resources Inc. (NYSE:DNR), it expects to continue investing heavily in its current projects until about 2016, and after that time the capital it’s required to spend will steadily decline. At the same time its production will continue to grow for the rest of the decade. That’s the recipe for substantial future free cash flow. The following slide shows that future inflection point where cash flow and production will ramp up even as capital expenditures start to head lower.

Source: Denbury Resources investor presentation (link opens a PDF).

The free cash flow potential of an EOR project is one reason income-oriented companies such as Linn Energy LLC (NASDAQ:LINE) and BreitBurn Energy Partners L.P. (NASDAQ:BBEP) have both acquired toehold acquisitions in the space over the past year. In the case of LINN, it acquired a 23% interest in Anadarko Petroleum Corporation (NYSE:APC)‘s Salt Creek field in Wyoming. That field, which is in the same area as some of Denbury Resources Inc. (NYSE:DNR)’s Rockies assets, should continue to produce for another 28 years. One of the main reasons Linn Energy LLC (NASDAQ:LINE) made the deal was in an effort to gain knowledge of EOR methods.

The same can be said for BreitBurn Energy Partners L.P. (NASDAQ:BBEP), which recently purchased the Postle assets in the Oklahoma panhandle. One of the important pieces of that deal was that it also included associated midstream assets, including the critical carbon dioxide pipelines required to flood these fields. The company can leverage what it learns from these assets into either its existing asset base or into future acquisitions.

The article 1 Company Revolutionizing America’s Aging Oil Fields originally appeared on Fool.com and is written by Matt DiLallo.

Fool contributor Matt DiLallo owns shares of and has short October 2013 $25 puts on Linn Energy. The Motley Fool recommends BreitBurn Energy Partners and owns shares of Denbury Resources.

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