Denbury pursued the transaction to create a diversified mid-cap oil producer with a strong production growth trajectory. Credit: anita_starzycka from Pixabay.

US oil and gas exploration companies Denbury Resources and Penn Virginia have reached a mutual agreement to terminate their previously announced $1.7bn merger deal.

Last October, Denbury agreed to acquire Penn Virginia in a bid to create a diversified mid-cap oil producer with a strong production growth trajectory. The total consideration included the assumption of debt.

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Denbury offered 12.4 shares of common stock and $25.86 of cash in exchange for each share of Penn Virginia common stock.

According to the proposal, Denbury was supposed to own 71% of the merged entity, with Penn Virginia shareholders holding the remaining 29%.

Penn Virginia president and CEO John Brooks stated that the mutual agreement to scrap the merger is in the best interests of the company and its shareholders.

“We will continue to pursue practical opportunities to expand Denbury’s business.”

Denbury cited ‘difficult’ market conditions and opposition of certain Penn Virginia shareholders as the primary reasons for calling off the deal.

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Denbury Resources president and CEO Chris Kendall said: “While we firmly believed in the strategic merits of the combination with Penn Virginia, the difficult market conditions since announcement, combined with the opposition of certain Penn Virginia shareholders, led us to the conclusion that the transaction was unlikely to receive the necessary supermajority approval from Penn Virginia shareholders.”

As a result of the failed transaction, the companies will now focus on strengthening their own positions.

Denbury Resources is relying on the resource potential that CO2 enhanced oil recovery could deliver in the Eagle Ford to fuel growth.

Kendall added: “We will continue to pursue practical opportunities to expand Denbury’s business, particularly in areas where our EOR expertise, experience and extensive CO2 resources can create value for the benefit of all Denbury stakeholders.”

The firm expects to generate more than $100m of free cash flow this year.

The transaction would have provided a new core position for Denbury in the Eagle Ford near its existing Gulf Coast operations.

Meanwhile, Penn Virginia will continue to implement its two rig development plan.