Jun 2 2008
Genesis Energy, L.P. and Denbury Resources Inc. announced today that they have completed two previously announced carbon dioxide (CO2) pipeline transactions with a total value of $250 million. The two pipeline transactions are as follow:
- Genesis purchased Denbury’s Free State Pipeline for $75 million ($50 million of which has been paid in cash and $25 million of which is in the form of Genesis common units), and entered into a twenty-year transportation services agreement to deliver CO2 on that pipeline for Denbury’s use in its tertiary recovery operations. The Free State Pipeline is an 86 mile, 20” pipeline that runs from Denbury’s CO2 source fields at Jackson Dome, near Jackson, Mississippi, to Denbury’s oil fields in east Mississippi (its Phase II area of operations). Under the terms of the transportation services agreement, Denbury has exclusive use of the pipeline and is required to use the pipeline to supply CO2 to its tertiary operations in that region. The services agreement provides for a $100,000 per month minimum payment plus a tariff based on throughput. Denbury has two renewal options for five years each on similar terms. The number of units issued will be based on the closing price of Genesis common units on the five trading days from May 28, 2008 through June 3, 2008.
- Genesis entered into a twenty-year financing lease transaction valued at $175 million wherein Genesis acquired certain security interests in Denbury’s North East Jackson Dome (NEJD) Pipeline System. The NEJD Pipeline System is a 183-mile, 20” pipeline extending from Jackson Dome to near Donaldsonville, Louisiana, and is currently being used by Denbury for its Phase I area of tertiary operations in southwest Mississippi. Denbury has exclusive use of the NEJD pipeline system and will be responsible for all operations and maintenance on the system.
Grant E. Sims, Chief Executive Officer of Genesis said, “I am extraordinarily pleased to announce the completion of this transaction. With this achievement, we have completed transactions valued at more than $800 million during the last twelve months. The transactions announced today will be immediately accretive to our unitholders and are expected to increase our cash available for distributions by approximately $30 million per year less our incremental interest expense associated with the $225 million in total cash we borrowed to consummate the transactions.”
Gareth Roberts, Chief Executive Officer of Denbury said, “We are excited to complete this transaction with Genesis, which not only provides Denbury with attractive long-term financing for our CO2 operations infrastructure, but also provides feedstock for Genesis continued growth. With the funds from this transaction, we will repay our bank line and have cash left over, giving us plenty of credit capacity for our anticipated future growth.”
The terms of the transaction were approved by the Board of Directors of Genesis’ general partner following the approval and recommendation of that Board’s audit committee, which is comprised entirely of independent directors, with the Denbury board members abstaining from the vote. The Genesis audit committee engaged Credit Suisse Securities (USA) LLC to act as financial advisor and to render a fairness opinion and Bracewell & Giuliani to act as its legal advisor.