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Well Acquisition Will Double DEN’s Oil, Natural Gas Revenues

Denver International (DEN) spent $5.5M this month to acquire 27 oil and natural gas wells located on airport property that had been leased to Petro-Canada Resources Inc.

Airport officials expect the deal to provide $3.5M a year in additional revenue from gas and oil, more than doubling the $2.5M DEN took in last year, says John Ackerman, DEN’s managing director of asset development.

DEN owns the mineral rights on its 34,000 acres but had leased about 27,000 acres more than a decade ago to Petro-Canada. When Petro-Canada decided to divest much of its U.S. portfolio, the airport exercised a right-of-first-refusal to reacquire the wells. Airport officials say the deal served DEN well at the time.

“Drilling for those minerals is expensive and it’s somewhat risky,” Ackerman says. “Leadership at the time decided there were oil and gas revenues to be had but they didn’t want to take the risk of drilling wells so they farmed it out to an exploration company who has expertise in that.”

They’re also, however, looking forward to using the new revenue to reduce landing fees for airline partners and potentially add service.

“We do believe that by making our landing fees lower here, one of the things we can compete every day on is having an attractive cost structure in place for our current airlines and for other prospective airlines,” Ackerman says. “We work every day to reduce expenses and reduce costs for our airlines. We do believe it will make us more attractive.”
The airport already owned and operated another nearly 50 wells on airport land through a separate partnership, so infrastructure necessary for operating the newly acquired assets was already in place.

“They have a per-well contract,” he says. “The extra expense is minimal. … That $3.5M is essentially pure incremental profit.”