Denbury has initiated a comprehensive feasibility study of a possible long-term CO2 pipeline project which would connect proposed gasification plants in the Midwest to the Company’s existing CO2 pipeline infrastructure in Mississippi or Louisiana. The Illinois Department of Commerce and Economic Opportunity has provided financial assistance for the feasibility study for the Illinois portion of the pipeline. The feasibility study is expected to determine the most likely pipeline route, the estimated costs of constructing such a pipeline, and review regulatory, legal and permitting requirements. It is estimated that the study will be completed in the fourth quarter of 2009, following which, the Company will evaluate external market conditions, the state of financing and construction of the proposed gasification projects, and make a decision as to whether or not they will take initial steps to build such a pipeline.

In related developments, two proposed Midwestern gasification plants with which Denbury has CO2 purchase contracts, one in Illinois and one in Indiana, have been selected to proceed to the term sheet negotiation phase under the U.S. Department of Energy Loan Guarantee Program. This program, instituted in the Energy Policy Act of 2005, is designed to spur technological innovation in fossil fuel development. Governmental guarantees of debt financing for these plants is not assured, and building of these plants is subject to the normal financing due diligence, term sheet negotiations, loan documentation and various approvals, including state legislative approval.

The feasibility study will investigate multiple routes, scenarios and combinations of the various proposed gasification sites within the area. Thus, the final pipeline system, estimated cost, total miles and diameter of pipeline(s) could vary significantly. The Company’s preliminary internal estimates suggest this would be a 500 to 700 mile pipeline system with a preliminary cost estimate of approximately $1.0 billion, based on the cost of other pipelines recently built or under construction by the Company. As building such a pipeline is still in the preliminary stages, the Company has not yet evaluated its financing options, but they could include third party financing, project financing, bank financing, joint venture development and potential governmental support. The potential pipeline project would likely take from four to five years to complete.

A third proposed gasification plant with which Denbury has a CO2 purchase contract, was also selected by the loan guarantee program. The Company plans to commence a pipeline study for this plant proposed to be built along the Gulf Coast of Mississippi, which would likely be a 110 mile pipeline that connects to the existing Free State Pipeline.

Mr. Phil Rykhoek, Chief Executive Officer, stated, “The announcement that multiple proposed gasification plants have been selected for the next phase of the government loan guarantee program is a significant step toward our stated goal of augmenting our natural CO2 with man-made volumes. We believe that we offer these industrial users the most practical and economical way to sequester CO2 and we benefit as we will use their CO2 to further increase our domestic oil production. We see our ability to sequester man-made CO2 to be very timely in view of our government’s goal to reduce CO2 emissions and estimate that our current enhanced oil recovery projects store between 25% and 50% more CO2 than will be emitted from the incremental recovered oil. While there is much work to do before these potential additional sources of CO2 become a reality, we are encouraged by these latest developments.”

Tags: Denbury Resources Inc.