e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-12935
DENBURY RESOURCES INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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20-0467835 |
(State or other jurisdictions of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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5100 Tennyson Parkway |
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Suite 1200 |
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Plano, TX |
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75024 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (972) 673-2000
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class |
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Outstanding at April 30, 2010 |
Common Stock, $.001 par value
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399,247,000 |
DENBURY RESOURCES INC.
INDEX
2
DENBURY RESOURCES INC.
GLOSSARY AND SELECT ABBREVIATIONS
The following are abbreviations and definitions of certain terms used in this report. The
definitions of proved developed reserves, proved reserves, and proved undeveloped reserves have
been summarized from the applicable definitions contained in Rule 4-10(a)(2-4) of Regulation S-X.
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Bbl
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One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons. |
Bbls/d
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Barrels of oil produced per day. |
Bcf/d
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One billion cubic feet of natural gas or CO2 produced per day. |
BOE
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One barrel of oil equivalent using the ratio of one barrel of crude oil,
condensate, or natural gas liquids to six Mcf of natural gas. |
BOE/d
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BOEs produced per day. |
CO2
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Carbon dioxide. |
Denbury
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Denbury Resources Inc., a publicly traded Delaware corporation, together
with its subsidiaries. |
Encore
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Encore Acquisition Company, together with its subsidiaries. Encore
merged with and into Denbury on March 9, 2010. |
ENP
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Encore Energy Partners LP, a publicly traded Delaware limited
partnership, together with its subsidiaries. |
EOR
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Enhanced oil recovery. |
FASB
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Financial Accounting Standards Board. |
FASC
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FASB Accounting Standards Codification. |
LIBOR
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London Interbank Offered Rate. |
MBOE
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One thousand BOEs. |
Mcf
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One thousand cubic feet of natural gas or CO2. |
Mcf/d
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One thousand cubic feet of natural gas or CO2 produced per day. |
MMBOE
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One million BOEs. |
MMcf/d
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One million cubic feet of natural gas or CO2 per day. |
NYMEX
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New York Mercantile Exchange. |
Proved Developed
Reserves
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Reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods. |
Proved Reserves
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The estimated quantities of crude oil, natural gas, and natural gas
liquids that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. |
Proved Undeveloped
Reserves
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Reserves that are expected to be recovered from new wells on undrilled
acreage or from existing wells where a relatively major expenditure is
required. |
SEC
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The United States Securities and Exchange Commission. |
3
DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
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March 31, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
109,185 |
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$ |
20,591 |
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Accrued production receivable |
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236,125 |
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120,667 |
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Trade and other receivables, net of allowance of $429 and $414, respectively |
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107,832 |
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67,874 |
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Derivatives |
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56,799 |
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309 |
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Deferred taxes |
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46,321 |
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Other |
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65,566 |
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Total current assets |
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575,507 |
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255,762 |
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Property and equipment: |
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Oil and natural gas properties (using full cost accounting): |
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Proved |
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7,097,339 |
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3,595,726 |
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Unevaluated |
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1,573,737 |
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320,356 |
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CO2 properties, equipment, and pipelines |
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1,607,488 |
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1,529,781 |
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Other |
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96,067 |
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82,537 |
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Less accumulated depletion, depreciation, amortization, and impairment |
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(1,907,070 |
) |
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(1,825,528 |
) |
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Net property and equipment |
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8,467,561 |
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3,702,872 |
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Derivatives |
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43,720 |
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506 |
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Goodwill |
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1,227,324 |
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169,517 |
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Other |
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225,891 |
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141,321 |
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Total assets |
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$ |
10,540,003 |
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$ |
4,269,978 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
396,770 |
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$ |
169,874 |
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Oil and natural gas production payable |
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157,813 |
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90,218 |
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Derivatives |
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125,068 |
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124,320 |
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Deferred taxes |
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7,588 |
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Current maturities of long-term debt |
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105,931 |
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5,308 |
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Other |
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4,069 |
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4,070 |
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Total current liabilities |
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797,239 |
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393,790 |
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Long-term liabilities: |
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Long-term debt, net of current portion |
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3,469,182 |
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1,301,068 |
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Asset retirement obligations, net of current portion |
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97,178 |
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53,251 |
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Deferred taxes |
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1,431,256 |
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515,516 |
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Derivatives |
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38,184 |
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5,239 |
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Other |
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26,453 |
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28,877 |
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Total long-term liabilities |
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5,062,253 |
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1,903,951 |
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Commitments and contingencies (Note 10) |
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Equity: |
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Preferred stock, $.001 par value, 25,000,000 shares authorized, none issued and outstanding |
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Common stock, $.001 par value, 600,000,000 shares authorized; 399,068,168 and
261,929,292 shares issued, respectively |
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399 |
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262 |
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Paid-in capital in excess of par |
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3,005,615 |
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910,540 |
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Retained earnings |
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1,161,307 |
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1,064,419 |
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Accumulated other comprehensive loss |
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(536 |
) |
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(557 |
) |
Treasury stock, at cost, 301,382 and 156,284 shares, respectively |
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(4,769 |
) |
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(2,427 |
) |
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Total Denbury stockholders equity |
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4,162,016 |
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1,972,237 |
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Noncontrolling interest |
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518,495 |
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Total equity |
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4,680,511 |
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1,972,237 |
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Total liabilities and equity |
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$ |
10,540,003 |
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$ |
4,269,978 |
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See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
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Revenues and other income: |
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Oil, natural gas, and related product sales |
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$ |
330,886 |
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$ |
168,069 |
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CO2 sales and transportation fees |
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4,497 |
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3,165 |
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Gain on sale of interests in Genesis |
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101,568 |
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Interest income and other |
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1,870 |
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2,525 |
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Total revenues |
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438,821 |
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173,759 |
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Expenses: |
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Lease operating |
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96,220 |
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74,950 |
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Production taxes and marketing |
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19,317 |
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9,192 |
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CO2 operating |
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1,368 |
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1,300 |
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General and administrative |
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32,709 |
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22,655 |
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Interest, net of amounts capitalized of $21,312 and $12,373, respectively |
|
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26,416 |
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|
12,197 |
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Depletion, depreciation, and amortization |
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81,872 |
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|
61,925 |
|
Derivatives
expense (income) |
|
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(41,225 |
) |
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20,515 |
|
Transaction costs related to Encore acquisition |
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44,999 |
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Total expenses |
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261,676 |
|
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|
202,734 |
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Income (loss) before income taxes |
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177,145 |
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(28,975 |
) |
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Income tax provision (benefit): |
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|
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Current income taxes |
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669 |
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|
173 |
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Deferred income taxes |
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76,272 |
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(10,851 |
) |
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Consolidated net income (loss) |
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100,204 |
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(18,297 |
) |
Less: net income attributable to noncontrolling interest |
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(3,316 |
) |
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Net income (loss) attributable to Denbury stockholders |
|
$ |
96,888 |
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|
$ |
(18,297 |
) |
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Net income (loss) per common share: |
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Basic |
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$ |
0.33 |
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$ |
(0.07 |
) |
Diluted |
|
$ |
0.32 |
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|
$ |
(0.07 |
) |
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|
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Weighted average common shares outstanding: |
|
|
|
|
|
|
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Basic |
|
|
294,143 |
|
|
|
245,573 |
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Diluted |
|
|
299,224 |
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|
245,573 |
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
|
Cash flows from operating activities: |
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|
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Consolidated net income (loss) |
|
$ |
100,204 |
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|
$ |
(18,297 |
) |
Adjustments needed to reconcile consolidated net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
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|
Depletion, depreciation, and amortization |
|
|
81,872 |
|
|
|
61,925 |
|
Deferred income taxes |
|
|
76,272 |
|
|
|
(10,851 |
) |
Gain on sale of interests in Genesis |
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|
(101,568 |
) |
|
|
|
|
Stock-based compensation |
|
|
7,806 |
|
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|
5,537 |
|
Non-cash fair value derivative adjustments |
|
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(101,026 |
) |
|
|
106,351 |
|
Other |
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|
2,410 |
|
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(1,505 |
) |
Changes in operating assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
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|
Accrued production receivable |
|
|
(12,125 |
) |
|
|
(7,333 |
) |
Trade and other receivables |
|
|
30,854 |
|
|
|
(15,590 |
) |
Other assets |
|
|
(2,775 |
) |
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|
(26 |
) |
Accounts payable and accrued liabilities |
|
|
21,971 |
|
|
|
(10,192 |
) |
Oil and natural gas production payable |
|
|
13,394 |
|
|
|
(5 |
) |
Other liabilities |
|
|
(4,121 |
) |
|
|
2,605 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
113,168 |
|
|
|
112,619 |
|
|
|
|
|
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|
|
|
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Cash flows used for investing activities: |
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Oil and natural gas capital expenditures |
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|
(92,647 |
) |
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|
(132,169 |
) |
Acquisitions of oil and natural gas properties |
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|
(340 |
) |
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|
(199,163 |
) |
Cash paid in Encore merger, net of cash acquired |
|
|
(801,489 |
) |
|
|
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|
CO2 capital expenditures, including pipelines |
|
|
(72,647 |
) |
|
|
(194,733 |
) |
Deposit received on divestiture of Southern Assets |
|
|
45,000 |
|
|
|
|
|
Net proceeds from sale of interests in Genesis |
|
|
162,622 |
|
|
|
|
|
Other |
|
|
(4,826 |
) |
|
|
16,526 |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(764,327 |
) |
|
|
(509,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Bank repayments |
|
|
(625,000 |
) |
|
|
(330,000 |
) |
Bank borrowings |
|
|
1,025,000 |
|
|
|
345,000 |
|
Senior subordinated notes tendered post merger |
|
|
(514,439 |
) |
|
|
|
|
Net proceeds from issuance of senior subordinated debt |
|
|
1,000,000 |
|
|
|
389,827 |
|
Escrowed funds for senior subordinated notes redemption |
|
|
(65,566 |
) |
|
|
|
|
Costs of debt financing |
|
|
(76,129 |
) |
|
|
(9,970 |
) |
Other |
|
|
(4,113 |
) |
|
|
3,201 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
739,753 |
|
|
|
398,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
88,594 |
|
|
|
1,138 |
|
Cash and cash equivalents at beginning of period |
|
|
20,591 |
|
|
|
17,069 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
109,185 |
|
|
$ |
18,207 |
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
6
DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In thousands, except share data)
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|
|
|
|
Denbury Stockholders |
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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Paid-In |
|
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|
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|
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Accumulated |
|
|
|
|
|
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|
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Total |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Capital in |
|
|
|
|
|
|
Other |
|
|
Treasury Stock |
|
|
Denbury |
|
|
|
|
|
|
|
|
|
($.001 Par Value) |
|
|
Excess of |
|
|
Retained |
|
|
Comprehensive |
|
|
(at cost) |
|
|
Stockholders |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
Par |
|
|
Earnings |
|
|
Loss |
|
|
Shares |
|
|
Amount |
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
Balance December 31, 2009 |
|
|
261,929,292 |
|
|
$ |
262 |
|
|
$ |
910,540 |
|
|
$ |
1,064,419 |
|
|
$ |
(557 |
) |
|
|
156,284 |
|
|
$ |
(2,427 |
) |
|
$ |
1,972,237 |
|
|
$ |
|
|
|
$ |
1,972,237 |
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266,842 |
|
|
|
(4,268 |
) |
|
|
(4,268 |
) |
|
|
|
|
|
|
(4,268 |
) |
Issued pursuant to employee stock
purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121,744 |
) |
|
|
1,926 |
|
|
|
1,926 |
|
|
|
|
|
|
|
1,926 |
|
Issued pursuant to employee stock
option plan |
|
|
120,177 |
|
|
|
1 |
|
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
639 |
|
|
|
|
|
|
|
639 |
|
Issued pursuant to directors
compensation plan |
|
|
3,743 |
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
63 |
|
Issued pursuant to Encore
acquisition |
|
|
135,170,505 |
|
|
|
135 |
|
|
|
2,085,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,085,681 |
|
|
|
|
|
|
|
2,085,681 |
|
Restricted stock grants |
|
|
1,412,942 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Restricted stock grants forfeited |
|
|
(14,984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based
shares issued |
|
|
446,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
8,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,793 |
|
|
|
|
|
|
|
8,793 |
|
Income tax benefit from equity
awards |
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
35 |
|
ENP revaluation at merger |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
515,210 |
|
|
|
515,210 |
|
Derivative contracts, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
(31 |
) |
|
|
(10 |
) |
Consolidated net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,888 |
|
|
|
3,316 |
|
|
|
100,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2010 |
|
|
399,068,168 |
|
|
$ |
399 |
|
|
$ |
3,005,615 |
|
|
$ |
1,161,307 |
|
|
$ |
(536 |
) |
|
|
301,382 |
|
|
$ |
(4,769 |
) |
|
$ |
4,162,016 |
|
|
$ |
518,495 |
|
|
$ |
4,680,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
7
DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Consolidated net income (loss) |
|
$ |
100,204 |
|
|
$ |
(18,297 |
) |
Other comprehensive income (loss), net of income tax: |
|
|
|
|
|
|
|
|
Interest rate lock derivative contracts reclassified to income,
net of tax of $11 and $11, respectively |
|
|
17 |
|
|
|
18 |
|
Change in deferred hedge loss on interest rate swaps,
net of tax of $10 |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
Consolidated comprehensive income (loss) |
|
|
100,194 |
|
|
|
(18,279 |
) |
Less: comprehensive income attributable to noncontrolling interest |
|
|
(3,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Denbury stockholders |
|
$ |
96,909 |
|
|
$ |
(18,279 |
) |
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
8
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Description of Business
Organization and Nature of Operations
Denbury is a growing independent oil and natural gas company. Denbury is the largest oil and
natural gas operator in Mississippi and Montana, owns the largest reserves of CO2 used
for tertiary oil recovery east of the Mississippi River, and holds significant operating acreage in
the Rockies, Permian Basin, Mid-Continent, and Gulf Coast regions. Denburys goal is to increase
the value of its properties through a combination of exploitation, drilling, and proven engineering
extraction practices, with its most significant emphasis relating to tertiary recovery operations.
Encore Merger
On March 9, 2010, Denbury acquired Encore Acquisition Company (Encore) pursuant to an
Agreement and Plan of Merger (the Merger Agreement) entered into with Encore on October 31, 2009.
The Merger Agreement provided for a stock and cash transaction valued at approximately $4.5
billion at that time, including the assumption of debt and the value of the noncontrolling interest
in ENP. Under the Merger Agreement, Encore was merged with and into Denbury (the Merger), with
Denbury surviving the Merger. The Merger was consummated on March 9, 2010, following approval by
the stockholders of both Denbury and Encore, closing of a new revolving credit facility as part of
the financing for the Merger, and satisfaction of conditions precedent. The combined company
continues to be known as Denbury Resources Inc. and is headquartered in Plano, Texas.
The results of operations of Encore are included with those of Denbury from March 9, 2010
through March 31, 2010. Please read Note 3. Acquisitions and Divestitures for additional
information.
Note 2. Basis of Presentation
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements of Denbury Resources
Inc. and its subsidiaries have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. Unless indicated otherwise or the
context requires, the terms we, our, us, or Denbury, refer to Denbury Resources Inc. and
its subsidiaries. These financial statements and the notes thereto should be read in conjunction
with Denburys Annual Report on Form 10-K for the year ended December 31, 2009.
Accounting measurements at interim dates inherently involve greater reliance on estimates than
at year end and the results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the year. In managements opinion, the
accompanying unaudited condensed consolidated financial statements include all adjustments (of a
normal recurring nature) necessary to present fairly Denburys consolidated financial position as
of March 31, 2010 and consolidated results of operations and cash flows for the three months ended
March 31, 2010 and 2009. Certain prior period items have been reclassified to make the
classification consistent with the classification in the most recent quarter.
Noncontrolling Interest
As of March 31, 2010, Denbury owned approximately 46 percent of ENPs common units. Denbury
also owns 100 percent of Encore Energy Partners GP LLC (GP LLC), a Delaware limited liability
company and indirect wholly owned non-guarantor subsidiary of Denbury, which is ENPs general
partner. Considering the presumption of control of GP LLC in accordance with the Consolidations
topic of the FASC, the financial position, results of operations, and cash flows of ENP are
consolidated with those of Denbury from March 9, 2010 through March 31, 2010.
As presented in the accompanying Unaudited Condensed Consolidated Balance Sheets,
Noncontrolling interest as of March 31, 2010 of $518.5 million represents third-party ownership
interests in ENP. As presented in
9
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
the accompanying Unaudited Condensed Consolidated Statements of Operations, Net income
attributable to noncontrolling interest for the three months ended March 31, 2010 of $3.3 million
represents ENPs results of operations attributable to third-party owners from March 9, 2010
through March 31, 2010.
Supplemental Cash Flow Information
The following table sets forth supplemental cash flow information for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands |
|
2010 |
|
|
2009 |
|
Cash paid
for interest, net of amounts capitalized |
|
$ |
21,962 |
|
|
$ |
7,215 |
|
Cash refunds
for income taxes |
|
|
(4,595 |
) |
|
|
(3,833 |
) |
Interest capitalized |
|
|
21,312 |
|
|
|
12,373 |
|
Increase (decrease) in liabilities for capital expenditures |
|
|
32,399 |
|
|
|
(64,922 |
) |
Issuance of Denbury common stock in connection
with the acquisition of Encore |
|
|
2,085,681 |
|
|
|
|
|
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss)
attributable to Denbury stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net income (loss) per common share is calculated in the
same manner, but also considers the impact of the potential dilution from stock options, unvested
stock appreciation rights (SARs), unvested restricted stock, and unvested performance equity
awards. For the three months ended March 31, 2010 and 2009, there were no adjustments to net income
(loss) attributable to Denbury stockholders for purposes of calculating diluted net income (loss)
per common share. The following is a reconciliation of the weighted average common shares used in
the basic and diluted net income (loss) per common share calculations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands |
|
2010 |
|
|
2009 |
|
Basic weighted average common shares |
|
|
294,143 |
|
|
|
245,573 |
|
Potentially dilutive securities: |
|
|
|
|
|
|
|
|
Stock options and SARs |
|
|
3,690 |
|
|
|
|
|
Performance equity awards |
|
|
477 |
|
|
|
|
|
Restricted stock |
|
|
914 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares |
|
|
299,224 |
|
|
|
245,573 |
|
|
|
|
|
|
|
|
Basic weighted average common shares excludes 3.4 million shares and 2.9 million shares at
March 31, 2010 and 2009, respectively, of unvested restricted stock. As these restricted shares
vest, they will be included in the shares outstanding used to calculate basic net income (loss) per
common share, although all restricted stock is issued and outstanding upon grant. For purposes of
calculating diluted weighted average common shares, unvested restricted stock is included in the
computation using the treasury stock method, with the proceeds equal to the average unrecognized
compensation during the period, adjusted for any estimated future tax consequences recognized
directly in equity. Shares of common stock issued in the Merger with Encore were only weighted
from March 9, 2010 through March 31, 2010. The dilution impact of these shares on Denburys
earnings per share
10
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
calculations may increase in future periods depending on the market price of Denburys common
stock during those periods.
The following securities could potentially dilute earnings per share in the future, but were
excluded from the computation of diluted net income (loss) per share as their effect would have
been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands |
|
2010 |
|
|
2009 |
|
Stock options and SARs |
|
|
5,465 |
|
|
|
11,619 |
|
Performance equity awards |
|
|
|
|
|
|
485 |
|
Restricted stock |
|
|
1,371 |
|
|
|
2,888 |
|
|
|
|
|
|
|
|
Total |
|
|
6,836 |
|
|
|
14,992 |
|
|
|
|
|
|
|
|
CO2 Pipelines
CO2 pipelines are used for transportation of CO2 to Denburys tertiary
floods from its CO2 source field located near Jackson, Mississippi. Denbury is
continuing expansion of its CO2 pipeline infrastructure with several pipelines currently
under construction. At March 31, 2010 and December 31, 2009, Denbury had $832.2 million and $779.1
million of costs (including capitalized interest), respectively, related to pipeline construction in progress, recorded under
CO2 properties, equipment, and pipelines in the accompanying Unaudited Condensed
Consolidated Balance Sheets. These costs of CO2 pipelines under construction were not
being depreciated at March 31, 2010 or December 31, 2009. For financial accounting purposes,
depreciation will commence when the pipelines are placed into service, and each pipeline will be
depreciated on a straight-line basis over its estimated useful life, which ranges from 20 to 50
years. Denbury includes the net capitalized cost of pipelines which provide CO2 to the
tertiary floods that have proved tertiary reserves in the oil and natural gas full cost ceiling
test.
Goodwill
The following table summarizes the changes in Denburys goodwill for the period indicated:
|
|
|
|
|
|
|
Three Months Ended |
|
In thousands |
|
March 31, 2010 |
|
Balance, beginning of period |
|
$ |
169,517 |
|
Adjustment to goodwill related to the acquisition of interests
in the Conroe Field (1) |
|
|
(481 |
) |
Goodwill related to the acquisition of Encore (2) |
|
|
1,058,288 |
|
|
|
|
|
Balance, end of period |
|
$ |
1,227,324 |
|
|
|
|
|
|
|
|
(1) |
|
Goodwill related to the acquisition of interests in the Conroe Field decreased due to a revision to reserve
estimates, offset by closing adjustments. The Conroe Field purchase price allocation is preliminary pending
finalization of closing adjustments. |
|
(2) |
|
See Note 3. Acquisitions and Divestitures. |
Recently Adopted Accounting Pronouncements
Subsequent Events. On February 24, 2010, the FASB issued guidance in the Subsequent Events
topic of the FASC to provide updates including: (1) requiring the company to evaluate subsequent
events through the date in which the financial statements are issued; (2) amending the glossary of
the Subsequent Events topic to include the definition of SEC filer and exclude the definition
of Public entity; and (3) eliminating the requirement to disclose the date through which
subsequent events have been evaluated. This guidance was prospectively effective upon issuance.
The adoption of this guidance did not impact Denburys results of operations of financial
condition.
11
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3. Acquisitions and Divestitures
Merger with Encore Acquisition Company
As previously discussed in Note 1. Description of Business, on March 9, 2010, the Merger of
Encore with and into Denbury was consummated. The Merger was financed through a combination of
$1.0 billion of 8.25% Senior Subordinated Notes due 2020, which Denbury issued on February 10,
2010, a new $1.6 billion revolving credit agreement entered into on March 9, 2010, and the
assumption of Encores remaining outstanding senior subordinated notes. Please read Note 5.
Long-Term Debt for additional information.
Encore shareholders received the following consideration for each share of Encore common stock
they owned, depending upon the elections, if any, which they made, and the collar, proration, and
allocation features of the Merger Agreement so that, in the aggregate, 30 percent of the
consideration for the outstanding shares of Encore common stock would consist of cash, and the
remaining 70 percent of the consideration would consist of shares of Denbury common stock:
|
|
|
Mixed cash/stock electing (or non-electing) Encore stockholders received $15.00 in cash
and 2.4048 shares of Denbury common stock; |
|
|
|
All-cash electing Encore stockholders received $46.48 in cash and 0.2417 shares of
Denbury common stock; and |
|
|
|
All-stock electing Encore stockholders (including those whose Encore restricted stock
bonuses were converted into Denbury restricted stock) received 3.4354 shares of Denbury
common stock. |
All Encore stock options fully vested and their intrinsic value was paid in cash. All Encore
restricted stock vested and each holder had the opportunity to make the same elections as other
holders of Encore common stock as described above, except for shares of Encore restricted stock
granted during 2010 as a bonus pursuant to the 2009 Encore annual incentive program, which were
converted into restricted shares of Denbury common stock.
In the Merger, Denbury issued approximately 135.2 million shares of its common stock and paid
approximately $833.9 million in cash to Encore stockholders. The Denbury shares issued to Encore
stockholders represented approximately 34 percent of Denburys common stock issued and outstanding
immediately after the Merger. The total fair value of the Denbury common stock issued to Encore
stockholders pursuant to the Merger was approximately $2.1 billion based upon Denburys closing
price of $15.43 per share on March 9, 2010.
The acquisition of Encore met the definition of a business under the FASC Business
Combinations topic. As such, Denbury estimated the fair value of Encore as of the acquisition
date, which is the date on which the acquirer obtains control of the acquiree. The acquisition
date for the Merger is March 9, 2010. The FASC Fair Value Measurements and Disclosures topic
defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (often
referred to as the exit price). The fair value measurement is based on the assumptions of market
participants and not those of the reporting entity. Therefore, entity-specific intentions should
not impact the measurement of fair value unless those assumptions are consistent with market
participant views.
In applying these accounting principles, Denbury estimated the fair value of the Encore assets
acquired less liabilities assumed on the acquisition date to be approximately $2.4 billion. This
measurement resulted in the recognition of goodwill totaling approximately $1.1 billion. The FASC
defines goodwill as an asset representing the future economic benefits arising from other assets
acquired in a business combination that are not individually identified and separately recognized.
For this acquisition, goodwill is the excess of the consideration transferred to acquire Encore
plus the fair value of the noncontrolling interest in ENP, over the acquisition date estimated fair
value of the net assets acquired. Goodwill recorded in the Encore acquisition is primarily due to
expansion of its CO2 EOR operations into the Rocky Mountain region, the experience and
technical expertise of former Encore employees, and the addition of strategic areas of operations
in which Denbury did not previously have a significant presence.
12
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The fair value of Encore was based on significant inputs not observable in the market, which
FASC Fair Value Measurements and Disclosures topic defines as Level 3 inputs. Key assumptions
include (1) NYMEX oil and natural gas futures (this input is observable), (2) projections of the
estimated quantities of oil and natural gas reserves, including those classified as proved,
probable, and possible, (3) projections of future rates of production, (4) timing and amount of
future development and operating costs, (5) projected cost of CO2 to a market
participant, (6) projected recovery factors, and (7) risk-adjusted discount rates. The fair value
of the oil and natural gas properties was determined using a risk-adjusted after-tax discounted
cash flow analysis. Denbury applies full cost accounting rules, under which the acquisition cost
of oil and natural gas properties are recognized on a cost center basis (country), of which Denbury
has only one cost center (United States). All of the goodwill was assigned to this single reporting
unit. None of the goodwill is deductible for income tax purposes.
Preliminary Purchase Price Allocation in Encore Merger
Based
on currently available information, the following table is a
preliminary summary of the consideration
issued for the Encore Merger and the fair value of the assets acquired and liabilities assumed at
the acquisition date, as well as the fair value at the acquisition date of the noncontrolling
interest in ENP:
|
|
|
|
|
In thousands |
|
|
|
|
Consideration and noncontrolling interest: |
|
|
|
|
Fair value of Denbury common stock issued (1) |
|
$ |
2,085,681 |
|
Cash payment to Encore stockholders (2) |
|
|
833,909 |
|
Severance payments |
|
|
32,925 |
|
|
|
|
|
Consideration transferred |
|
|
2,952,515 |
|
Fair value of noncontrolling interest of ENP (3) |
|
|
515,210 |
|
|
|
|
|
Consideration and noncontrolling interest of ENP (4) |
|
|
3,467,725 |
|
|
|
|
|
Add: fair value of liabilities assumed: |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
116,541 |
|
Oil and natural gas production payable |
|
|
54,201 |
|
Current derivatives |
|
|
65,954 |
|
Other current liabilities |
|
|
32,986 |
|
Long-term debt |
|
|
1,375,149 |
|
Asset retirement obligations, net of current portion |
|
|
42,360 |
|
Long-term derivatives |
|
|
35,631 |
|
Long-term deferred taxes |
|
|
877,324 |
|
Other long-term liabilities |
|
|
2,717 |
|
|
|
|
|
Amount attributable to liabilities assumed |
|
|
2,602,863 |
|
Less: fair value of assets acquired: |
|
|
|
|
Cash and cash equivalents |
|
|
51,850 |
|
Accrued production receivable |
|
|
124,494 |
|
Trade and other receivables |
|
|
49,514 |
|
Current derivatives |
|
|
29,737 |
|
Oil and natural gas properties proved |
|
|
3,340,141 |
|
Oil and natural gas properties unevaluated |
|
|
1,279,000 |
|
CO2 properties, equipment, and pipelines |
|
|
7,254 |
|
Other property, plant, and equipment |
|
|
11,475 |
|
Long-term derivatives |
|
|
35,207 |
|
Other long-term assets |
|
|
83,628 |
|
|
|
|
|
Amount attributable to assets acquired |
|
|
5,012,300 |
|
|
|
|
|
Goodwill |
|
$ |
1,058,288 |
|
|
|
|
|
13
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
(1) |
|
135.2 million Denbury common shares at $15.43 per share. |
|
(2) |
|
Based on holders of 55.3 million Encore common shares being paid
$15.00 per share plus cash payment to stock option holders of $4.5
million. |
|
(3) |
|
Represents fair value of the noncontrolling interest of ENP. As
of March 9, 2010, there were 45.3 million ENP common units
outstanding and the closing price was $21.10 per common unit. As
of March 9, 2010, Encore owned approximately 46 percent of ENPs
outstanding common units. |
|
(4) |
|
The sum of the consideration issued, the noncontrolling interest
of ENP, and the fair value of Encores long-term debt assumed
totals approximately $4.8 billion, representing the aggregate
purchase price. |
The above purchase price allocation for the Merger with Encore is preliminary and subject
to revision as Denbury finalizes the acquisition tax basis of the assets acquired and liabilities
assumed and other key assumptions utilized in the fair value models, primarily finalization of the
oil and natural gas reserve analysis.
During the three months ended March 31, 2010, Denbury recognized $59.7 million and $43.9
million of oil and natural gas revenues and net field operating income (oil and natural gas
revenues less lease operating expenses and production taxes), respectively, related to the
acquisition of Encore. All transaction-related costs (advisory, legal, accounting, due diligence,
integration, etc.) have been expensed as incurred. Denbury recognized a total of $45.0 million of
transaction costs related to the Merger in the three months ended March 31, 2010.
Conroe Field Acquisition
On December 18, 2009, Denbury acquired a 91.4 percent interest in the Conroe Field, a
significant potential tertiary flood north of Houston, Texas, for total consideration of
approximately $422.9 million comprised of approximately $254.2 million in cash and 11,620,000
shares of Denbury common stock. The common stock was valued at $168.7 million based on the closing
date price of Denburys stock on December 18, 2009 of $14.52 per share. The effective date of
purchase was December 1, 2009, and consequently net operating revenues, net of capital
expenditures, from December 1, 2009 through December 18, 2009, along with any other purchase price
adjustments, were accounted for as adjustments to the purchase price. The cash amount paid at
closing was $269.8 million, which reflects $15.6 million for amounts in escrow accounts reserved
for plugging and abandonment and other adjustments. Denbury recorded approximately $30.2 million
of goodwill related to the acquisition of interests in the Conroe Field. The purchase price allocation for the acquisition of interests
in the Conroe Field is preliminary and subject to revision pending finalization of closing adjustments.
Denbury
shares issued in a private placement in conjunction with the purchase of interests in the
Conroe Field were subsequently
registered for resale with the SEC on February 2, 2010, as required under a registration rights agreement.
The registration rights agreement provides that the registration statement for the shares remain
effective for approximately one year.
Hastings Field Acquisition
During November 2006, Denbury entered into an agreement with a subsidiary of Venoco, Inc.
(Veneco), which gave Denbury an option to purchase Venecos interests in Hastings Field, a
strategically significant potential tertiary flood candidate located near Houston, Texas. Denbury
exercised the purchase option prior to September 2008, and closed the acquisition during February
2009. As consideration for the option agreement, during 2006 through 2008, Denbury made cash
payments totaling $50 million which it recorded as a deposit. The remaining purchase price of
approximately $196 million was paid in cash, and was determined as of January 1, 2009 (the
effective date) with closing on February 2, 2009. The final closing adjustments were completed
during the three months ended September 30, 2009. The final closing price, adjusted for interim
net cash flows between the effective date and closing date of the acquisition (including minor
purchase price adjustments), totaled $246.8 million. Denbury recorded approximately $138.8 million
of goodwill related to the acquisition of interests in the Hastings Field.
14
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Pro Forma Information
The following unaudited pro forma condensed financial data for the three months ended March
31, 2010 gives effect to the Encore acquisition as if it had occurred on January 1, 2010. The
following unaudited pro forma condensed financial data for the three months ended March 31, 2009
gives effect to the Encore acquisition, the acquisition of interests in the Conroe Field, and the
acquisition of interests in the Hastings Field as if each had occurred on January 1, 2009. The
unaudited pro forma condensed financial information has been included for comparative purposes only
and is not necessarily indicative of the results that might have occurred had the transactions
taken place on the dates indicated and is not intended to be a projection of future results.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
In thousands, except per share amounts |
|
2010 |
|
|
2009 |
|
Pro forma total revenues |
|
$ |
615,271 |
|
|
$ |
299,991 |
|
Pro forma net income (loss) attributable to Denbury stockholders |
|
$ |
112,489 |
|
|
$ |
(31,208 |
) |
Pro forma net income (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.28 |
|
|
$ |
(0.08 |
) |
Diluted |
|
$ |
0.28 |
|
|
$ |
(0.08 |
) |
Barnett Shale Dispositions
In May 2009, Denbury entered into an agreement to sell 60 percent of its Barnett Shale natural
gas assets to Talon Oil and Gas LLC (Talon), a privately held company, for $270 million (before
closing adjustments). Denbury closed on approximately three-quarters of the sale in June 2009 and
closed on the remainder of the sale in July 2009. Net proceeds were approximately $259.8 million
(after closing adjustments, and net of $8.1 million for natural gas swaps transferred in the sale).
The agreement was effective June 1, 2009, and consequently operating net revenues after June 1,
net of capital expenditures, along with any other purchase price adjustments, were adjustments to
the selling price. Denbury did not record a gain or loss on the sale in accordance with the full
cost method of accounting.
In December 2009, Denbury closed the sale of the remaining 40 percent of its Barnett Shale
natural gas assets to Talon for $210 million (before closing adjustments). Net proceeds were
approximately $209.9 million (after closing adjustments). The effective date under the agreement
was December 1, 2009, and consequently operating net revenues after December 1, net of capital
expenditures, along with any other purchase price adjustments, were adjustments to the selling
price. Denbury did not record a gain or loss on the sale in accordance with the full cost method
of accounting. Further, the sale was structured as a deferred like-kind exchange in conjunction
with Denburys acquisition of additional interests in the Conroe Field in order to defer most of
the tax impacts of the sale.
Sale of Interests in Genesis Energy, L.P. (Genesis)
On February 5, 2010, Denbury sold its interest in Genesis Energy, LLC, the general partner of
Genesis, for net proceeds of approximately $84 million, after giving effect to the change of
control provision of the incentive compensation agreement with Genesis management which was
triggered and under which Denbury paid a total of $14.9 million, comprised of deferred compensation
of $1.9 million and change of control redemption of $13.0 million. In the first quarter of 2010,
Denbury recognized general and administrative expense of $1.1 million associated with the $14.9
million payment. The remainder of the payment had been previously accrued in Denburys financial
statements as of December 31, 2009. In March 2010, Denbury sold all of its Genesis common units in
a secondary public offering for net proceeds of approximately $79 million. As a result, Denbury no
longer holds any interest in Genesis. Denbury recognized a pre-tax gain of $101.6 million ($63.0
million after tax) on these dispositions.
Pending Sale of Southern Properties
On March 31, 2010, Denbury entered into a purchase and sale agreement to sell to Quantum
Resources Management, LLC, for a cash sales price of $900 million, certain oil and natural gas
properties and related assets
15
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
acquired in the Encore Merger, primarily located in the Permian Basin in West Texas and
southeastern New Mexico; the Mid-continent area, which includes the Anadarko Basin in Oklahoma,
Texas, and Kansas; and the East Texas Basin (the Southern Assets). The pending sale is subject
to customary purchase price adjustments and closing conditions and is expected to close in May
2010, with an effective date of May 1, 2010. The sale properties do not include Denburys Haynesville Shale, Paradox Basin, Cleveland
Sand Play, or Tuscaloosa Marine Shale properties acquired in the Encore Merger.
On March 31, 2010, Denbury received a deposit of $45 million on the pending sale of the Southern Assets, which is included in
Accounts payable and accrued liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet.
Note 4. Asset Retirement Obligations
In general, Denburys future asset retirement obligations relate to future costs associated
with plugging and abandonment of its oil, natural gas, and CO2 wells, removal of
equipment and facilities from leased acreage, and land restoration. The fair value of a liability
for an asset retirement is recorded in the period in which it is incurred, discounted to its
present value using Denburys credit-adjusted risk-free interest rate, and a corresponding amount
capitalized by increasing the carrying amount of the related long-lived asset. The liability is
accreted each period, and the capitalized cost is depreciated over the useful life of the related
asset.
The following table summarizes the changes in Denburys asset retirement obligations for the
period indicated:
|
|
|
|
|
|
|
Three Months Ended |
|
In thousands |
|
March 31, 2010 |
|
Balance, beginning of period |
|
$ |
54,338 |
|
Liabilities incurred and assumed during period |
|
|
975 |
|
Liabilities assumed in acquisition of Encore |
|
|
43,783 |
|
Revisions in estimated retirement obligations |
|
|
924 |
|
Liabilities settled during period |
|
|
(1,333 |
) |
Accretion expense |
|
|
1,107 |
|
|
|
|
|
Balance, end of period |
|
$ |
99,794 |
|
|
|
|
|
At March 31, 2010 and December 31, 2009, $2.6 million and $1.1 million, respectively, of
Denburys asset retirement obligations were classified in Accounts payable and accrued
liabilities under current liabilities in the accompanying Unaudited Condensed Consolidated Balance
Sheets. Denbury has escrow accounts that are legally restricted for certain of its asset retirement
obligations. The balances of these escrow accounts were $33.2 million and $22.8 million at March
31, 2010 and December 31, 2009, respectively, and are included in Other assets in the
accompanying Unaudited Condensed Consolidated Balance Sheets.
16
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 5. Long-Term Debt
The following table shows the components of Denburys long-term debt as of the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
In thousands, except percentages |
|
2010 |
|
|
2009 |
|
Credit Agreement |
|
$ |
800,000 |
|
|
$ |
|
|
OLLC Credit Agreement |
|
|
250,000 |
|
|
|
|
|
Senior bank loan |
|
|
|
|
|
|
125,000 |
|
7.5% Senior Subordinated Notes due 2013, net of discount of $583 and $631, respectively |
|
|
224,417 |
|
|
|
224,369 |
|
6.25% Senior Subordinated Notes due 2014, including premium of $512 |
|
|
42,296 |
|
|
|
|
|
7.5% Senior Subordinated Notes due 2015, including premium of $492 and $513, respectively |
|
|
300,492 |
|
|
|
300,513 |
|
6.0% Senior Subordinated Notes due 2015, including premium of $384 |
|
|
31,583 |
|
|
|
|
|
9.5% Senior Subordinated Notes due 2016, including premium of $16,647 |
|
|
241,647 |
|
|
|
|
|
9.75% Senior Subordinated Notes due 2016, net of discount of $25,352 and $26,424, respectively |
|
|
400,998 |
|
|
|
399,926 |
|
7.25% Senior Subordinated Notes due 2017, including premium of $328 |
|
|
26,813 |
|
|
|
|
|
8.25% Senior Subordinated Notes due 2020 |
|
|
1,000,000 |
|
|
|
|
|
Northeast Jackson Dome pipeline financing |
|
|
169,838 |
|
|
|
170,633 |
|
Free State pipeline financing |
|
|
80,674 |
|
|
|
79,987 |
|
Capital lease obligations |
|
|
6,355 |
|
|
|
5,948 |
|
|
|
|
|
|
|
|
Total |
|
|
3,575,113 |
|
|
|
1,306,376 |
|
Less current obligations |
|
|
105,931 |
|
|
|
5,308 |
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations |
|
$ |
3,469,182 |
|
|
$ |
1,301,068 |
|
|
|
|
|
|
|
|
New $1.6 Billion Revolving Credit Agreement
On March 9, 2010, Denbury entered into a new $1.6 billion revolving credit agreement with
JPMorgan Chase Bank, N.A. (JPMorgan), as administrative agent, and 23 other lenders as party
thereto (the Credit Agreement). Borrowings under the Credit Agreement, coupled with the funds
from Denburys issuance of $1.0 billion of 8.25% Senior Subordinated Notes due 2020, were used to:
|
|
|
fund the cash portion of the Merger consideration (inclusive of payments due to Encore
stock option holders); |
|
|
|
repay amounts outstanding under Denburys then existing $750 million revolving credit
agreement, which had $125 million outstanding as of March 9, 2010; |
|
|
|
repay amounts outstanding under Encores then existing revolving credit agreement, which
had $265 million outstanding as of March 9, 2010; |
|
|
|
pay Encores severance costs; |
|
|
|
pay transaction fees and expenses; and |
|
|
|
provide additional liquidity. |
Both Denburys and Encores then existing revolving credit agreements were repaid on March
9, 2010.
Availability under the Credit Agreement is subject to a borrowing base, which is redetermined
semi-annually on or prior to May 1 and November 1, beginning in November 2010, and upon requested special
redeterminations. The Credit Agreement provides for an initial borrowing base of $1.6 billion.
The borrowing base represents the amount that can be borrowed based on the reserves and certain
other oil and natural gas assets of Denbury and its restricted subsidiaries, as confirmed by the
banks, while the commitment amount is the amount the banks have committed to fund pursuant to the
terms of the Credit Agreement. The borrowing base is adjusted at the banks discretion and is
based in part upon external factors over which Denbury has no control. Denbury incurs a commitment
fee of 0.5 percent on the unused portion of this credit facility. If the borrowing base were to be
less than outstanding borrowings under the Credit Agreement, Denbury would be required to repay the
deficit over a period of four months. The loans under the Credit Agreement mature in March 2014.
17
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The Credit Agreement is secured by substantially all of the proved oil and natural gas
properties of Denburys restricted subsidiaries and by the equity interests of Denburys restricted
subsidiaries. In addition, Denburys obligations under the Credit Agreement are guaranteed by its
restricted subsidiaries. The restricted subsidiaries include most of the subsidiaries of the
combined company after the Merger, excluding Denburys non-guarantor subsidiaries.
The Credit Agreement contains several restrictive covenants including, among others:
|
|
|
a prohibition on the payment of dividends to parties other than Denbury and its
restricted subsidiaries; |
|
|
|
a requirement to maintain positive working capital, as determined under the Credit
Agreement, of not less than 1.0 to 1.0; |
|
|
|
a maximum permitted ratio of debt to adjusted EBITDA (as defined in the Credit
Agreement) of Denbury and its restricted subsidiaries of not more than 4.5 to 1.0 for each Rolling Period (as defined in the Credit Agreement) beginning with the quarter ending June 30, 2010, and ending on or before December 31, 2010, and 4.0 to 1.0 for each Rolling Period ending on March 31, 2011 and thereafter; and |
|
|
|
a prohibition against incurring debt, subject to permitted exceptions. |
Additionally, there is a limitation on the aggregate amount of forecasted oil and natural gas
production that can be economically hedged with oil or natural gas derivative contracts.
Loans under the Credit Agreement are subject to varying rates of interest based on (1) the
total outstanding borrowings in relation to the borrowing base and (2) whether the loan is a
Eurodollar loan or a base rate loan. Eurodollar loans bear interest at the Eurodollar rate plus
the applicable margin of 2.0 percent to 3.0 percent based on the ratio of outstanding borrowings to
the borrowing base, and base rate loans bear interest at the base rate plus the applicable margin
of 1.0 percent to 2.0 percent based on the ratio of outstanding borrowings to the borrowing base.
The Eurodollar rate for any interest period (either one, two, three, six, nine, or twelve months,
as selected by Denbury) is the rate per year equal to LIBOR, as published by Reuters or another
source designated by JPMorgan, for deposits in dollars for a similar interest period. The base
rate is calculated as the highest of (1) the annual rate of interest announced by and JPMorgan as
its prime rate, (2) the federal funds effective rate plus 0.5 percent, and (3) the Adjusted
Eurodollar Rate (as defined in the Credit Agreement) for a one-month interest period plus 1.0
percent.
Encore Energy Partners Operating LLC Credit Agreement
Encore Energy Partners Operating LLC (OLLC), a nonguarantor subsidiary of Denbury, is a
party to a five-year credit agreement dated March 7, 2007 (as amended, the OLLC Credit
Agreement). The OLLC Credit Agreement matures on March 7, 2012. In November 2009, OLLC amended
the OLLC Credit Agreement, which was effective upon the closing of the Merger, to, among other
things, permit the consummation of the Merger from being a Change of Control under the OLLC
Credit Agreement. In conjunction with this amendment, Denbury paid a fee of approximately $0.9
million to the lenders under the OLLC Credit Agreement, which is included in General and
administrative expense in the accompanying Unaudited Condensed Consolidated Statement of
Operations for the three months ended March 31, 2010.
The OLLC Credit Agreement provides for revolving credit loans to be made to OLLC from time to
time and letters of credit to be issued from time to time for the account of OLLC or any of its
restricted subsidiaries. The aggregate amount of the commitments of the lenders under the OLLC
Credit Agreement is $475 million. Availability under the OLLC Credit Agreement is subject to a
borrowing base, which is redetermined semi-annually and upon requested special redeterminations.
As of March 31, 2010, the borrowing base was $375 million and there were $250 million of
outstanding borrowings and $125 million of borrowing capacity under the OLLC Credit Agreement.
Obligations under the OLLC Credit Agreement are secured by a first-priority security interest
in substantially all of OLLCs proved oil and natural gas reserves and in the equity interests of
OLLC and its restricted subsidiaries. In addition, obligations under the OLLC Credit Agreement are
guaranteed by ENP and OLLCs restricted subsidiaries. Denbury consolidates the debt of ENP with
that of its own; however, obligations under the OLLC Credit Agreement are non-recourse to Denbury
and its restricted subsidiaries.
18
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Issuance of 8.25% Senior Subordinated Notes due 2020
On February 10, 2010, Denbury issued $1.0 billion of 8.25% Senior Subordinated Notes due 2020
(the 2020 Notes), for net proceeds after underwriting discounts and commissions of $980 million.
The 2020 Notes were sold at par. Upon the closing of the Merger, $400 million of the net proceeds
were used to finance a portion of the Merger consideration and as of March 31, 2010, Denbury had
redeemed $500.5 million principal amount of Encores outstanding senior subordinated notes in a
tender offer. Under the indenture governing the 2020 Notes, to the extent that fewer than $600
million principal amount of Encores outstanding senior
subordinated notes were repurchased in tender offers or change of
control repurchases under the Encore indentures, Denbury is required to redeem an equal amount of the 2020 Notes, plus
accrued and unpaid interest. Denbury has reclassified $99.5 million of the 2020 Notes as a current
liability at March 31, 2010, as it had only redeemed $500.5 million principal amount of Encores
outstanding senior subordinated notes at that date. In April 2010, Denbury repurchased an additional
$95.7 million principal amount of Encores outstanding senior subordinated notes under change of control
provisions, and redeemed $3.7
million principal amount of the 2020 Notes. Please read Tender Offers and Consent Solicitations
for Encores Senior Subordinated Notes; Supplements to Indentures Governing Encores Senior
Subordinated Notes below and Note 13. Subsequent Events for additional discussion.
The 2020 Notes mature on February 15, 2020, and interest is payable on February 15 and August
15 of each year, beginning August 15, 2010. Denbury may redeem the 2020 Notes in whole or in part
at its option beginning February 15, 2015, at the following redemption prices:
|
|
|
104.125 percent after February 15, 2015; |
|
|
|
102.75 percent after February 15, 2016; |
|
|
|
101.375 percent after February 15, 2017; and |
|
|
|
100 percent after February 15, 2018. |
Prior to February 15, 2013, Denbury may at its option redeem up to an aggregate of 35 percent
of the principal amount of the 2020 Notes at a price of 108.25 percent with the proceeds of certain
equity offerings. In addition, at any time prior to February 15, 2015, Denbury may redeem 100
percent of the principal amount of the 2020 Notes at a price equal to 100 percent of the principal
amount plus a make whole premium and accrued and unpaid interest. The indenture contains certain
restrictions on Denburys ability to incur additional debt, pay dividends on its common stock, make
investments, create liens on its assets, engage in transactions with its affiliates, transfer or
sell assets, consolidate or merge, or sell substantially all of its assets. The 2020 Notes are not
subject to any sinking fund requirements. Certain of Denburys significant subsidiaries fully and
unconditionally guarantee this debt.
Supplements to Indentures Governing Denburys Senior Subordinated Notes
On March 9, 2010, upon closing of the Merger of Encore with and into Denbury, Denbury became
an obligor, as successor in interest to Encore, with respect to
Encore senior subordinated notes which are governed by four
indentures covering an original principal amount of $825 million. In conjunction with the
closing of the Merger, Denbury and its subsidiaries entered into supplemental indentures to add
subsidiary guarantors, as required under the Encore indentures as well as the indentures governing
Denburys senior subordinated notes prior to the Merger. The Encore legacy subsidiaries, with
permitted exceptions, became guarantors under the Denbury indentures that were in effect prior to
the Merger and the Denbury legacy subsidiaries, with permitted exceptions, became guarantors under
the Encore indentures with respect to which Denbury succeeded Encore.
Tender Offers and Consent Solicitations for Encores Senior Subordinated Notes; Supplements to
Indentures Governing Encores Senior Subordinated Notes
On February 8, 2010, Denbury commenced a cash tender offer to repurchase $600 million
principal amount of Encores $825 million senior subordinated notes which were governed by three of
Encores four indentures and solicited consents to amend each of those three indentures to
eliminate most of the indenture covenants. Those indentures are the indentures to which Encore was
a party prior to the Merger governing their 6.25% Senior Subordinated Notes due 2014 (the 6.25%
Notes), their 6.0% Senior Subordinated Notes due 2015 (the 6.0% Notes), and their 7.25% Senior
Subordinated Notes due 2017 (the 7.25% Notes).
19
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
On March 10, 2010, upon expiration of the tender offers and consent solicitations,
Denbury accepted for purchase all notes tendered in the tender offer. The total amount of notes
that Denbury purchased was approximately $500.5 million in principal amount out of $600 million in
original principal amount for which tenders were made, leaving
outstanding approximately $99.5 million
of the $600 million of notes for which Denbury made tender offers.
The tender of the notes also constituted the delivery of consents of holders of the notes to
eliminate or modify certain provisions contained in each of the three indentures governing the
Encore senior subordinated notes for which tender offers were made. Denbury received sufficient
consents in the solicitations to amend these three Encore indentures effective upon the Merger.
The
amendments of the three indentures governing the $600 million of
notes subject to the tender offers eliminated most of
the restrictive covenants, including covenants requiring the filing of SEC reports; restricting
certain payments; limiting indebtedness, restrictions on distributions from certain restricted
subsidiaries, affiliate transactions, and liens; requiring certain subsidiaries to deliver
guarantees of the applicable notes; requiring the delivery of certificates concerning compliance
with the applicable Indenture; certain provisions of covenants relating to mergers and
consolidations; and certain events of default in the indentures. The amendments do not apply to
the 9.50% Senior Subordinated Notes due 2016 (the 9.5% Notes).
Encore Indentures and the Encore Indenture with Respect to the 9.5% Notes
In addition to the three indentures that govern the Encore senior subordinated notes for which
Denbury made tender offers, as a result of the Merger, Denbury also became successor in interest to
Encore under the Encore indenture with respect to the 9.5% Notes in
the original principal amount of $225
million (the 9.5% Indenture). Interest on the 9.5% Notes is due semi-annually on May 1 and
November 1. The 9.5% Notes mature on May 1, 2016. The material terms of the 9.5% Indenture
include covenants requiring the filing of SEC reports; restricting certain payments; limiting
indebtedness, restrictions on distributions from certain restricted subsidiaries, affiliate
transactions, and liens; requiring certain subsidiaries to deliver guarantees of the notes;
requiring the delivery of certificates concerning compliance with the indenture; and covenants
relating to mergers and consolidations.
All of the Encore indentures, including the 9.5% Indenture, also have covenants limiting the
sale of assets and providing a put right by holders upon change of control. The Encore indentures
also contain certain affirmative, negative, and financial covenants, which include a requirement
that Denbury maintain a current ratio (as defined in the Encore indentures) of not less than 1.0 to
1.0 and a requirement that Denbury maintain a ratio of consolidated EBITDA (as defined in the
Encore indentures) to consolidated interest expense of not less than 2.5 to 1.0.
Change of Control Offers
On March 12, 2010, Denbury announced cash change of control offers to purchase, for 101
percent of the face amount, the remaining $324.5 million of senior subordinated notes outstanding
under the four Encore indentures, as required by each of the Encore indentures. Subsequent to
March 31, 2010, in the change of control offers, Denbury purchased approximately $95.7 million of
these senior subordinated notes, leaving approximately
$228.7 million of former Encore notes outstanding. Please read
Note 13. Subsequent Events for additional information.
20
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 6. Derivative Instruments and Hedging Activities
Derivative Policy
Denbury applies the provisions of the Derivatives topic of the FASC, which requires each
derivative instrument to be recorded in the balance sheet at fair value. If a derivative has not
been designated as a hedge or does not otherwise qualify for hedge accounting, it must be adjusted
to fair value through earnings. However, if a derivative qualifies for hedge accounting, depending
on the nature of the hedge, the effective portion of changes in fair value can be recognized in
accumulated other comprehensive income or loss within equity until such time as the hedged item is
recognized in earnings. In order to qualify for cash flow hedge accounting, the cash flows from
the hedging instrument must be highly effective in offsetting changes in cash flows of the hedged
item. In addition, all hedging relationships must be designated, documented, and reassessed
periodically.
Denbury has elected to designate its outstanding interest rate swaps as cash flow hedges. The
effective portion of the mark-to-market gain or loss on these derivative instruments is recorded in
Accumulated other comprehensive loss on the accompanying Unaudited Condensed Consolidated Balance
Sheets and reclassified into earnings in the same period in which the hedged transaction affects
earnings. Any ineffective portion of the mark-to-market gain or loss is recognized in earnings and
included in Derivatives expense (income) in the accompanying Unaudited Condensed Consolidated Statements of
Operations.
Denbury does not apply hedge accounting treatment to its oil and natural gas derivative
contracts and therefore, the changes in the fair values of these instruments are recognized in
income in the period of change. These fair value changes, along with the cash settlements of
expired contracts, are shown under Derivatives expense (income) in the accompanying Unaudited Condensed
Consolidated Statements of Operations.
Oil and Natural Gas Derivative Contracts
From time to time, Denbury enters into various oil and natural gas derivative contracts to
provide an economic hedge of its exposure to commodity price risk associated with anticipated
future oil and natural gas production. Denbury does not hold or issue derivative financial
instruments for trading purposes. These contracts consist of price floors, collars, and fixed
price swaps. Historically, Denbury has hedged up to 80 percent of its anticipated production for
the following year to provide it with a reasonably certain amount of cash flow to cover most of its
budgeted exploration and development expenditures without incurring significant debt. Also, in
light of the Merger, and Denburys desire to protect its cash flows given the increased debt
levels, in November 2009, Denbury entered into costless collar crude oil contracts covering 25,000
Bbls/d during 2011 and in March 2010, it entered into costless collar crude oil contracts covering
an additional 17,000 Bbls/d during the first half of 2011.
Denbury manages and controls market and counterparty credit risk through established internal
control procedures that are reviewed on an ongoing basis. Denbury attempts to minimize credit risk
exposure to counterparties through formal credit policies, monitoring procedures, and
diversification. All of Denburys commodity derivative contracts are with parties that are lenders
under the Credit Agreement and all of ENPs commodity derivative contracts are with parties that
are lenders under the OLLC Credit Agreement. Denbury has included an estimate of nonperformance
risk in the fair value measurement of its commodity derivative contracts as required by FASC
guidance on fair value. At March 31, 2010 and December 31, 2009, the net liability of Denburys
open commodity derivative contracts was reduced by $0.2 million and $0.8 million, respectively, for
estimated nonperformance risk.
The
following is a summary of Derivatives expense (income) included in the accompanying Unaudited Condensed
Consolidated Statements of Operations for the periods indicated:
21
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands |
|
2010 |
|
|
2009 |
|
Receipts (payments) on settlement of oil derivative contracts |
|
$ |
(63,550 |
) |
|
$ |
85,836 |
|
Receipts on settlement of natural gas derivative contracts |
|
|
3,749 |
|
|
|
|
|
Fair value adjustments to derivative contracts income (expense) |
|
|
100,839 |
|
|
|
(106,351 |
) |
Ineffectiveness on interest rate swaps |
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives income (expense) |
|
$ |
41,225 |
|
|
$ |
(20,515 |
) |
|
|
|
|
|
|
|
22
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Fair
Value of Commodity Derivative Contracts Not Classified as Hedging
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYMEX Contract Prices Per Bbl |
|
|
Estimated Fair Value |
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Asset (Liability) |
|
|
|
Type of |
|
|
|
|
|
Swap |
|
|
Floor |
|
|
Ceiling |
|
|
March 31, |
|
|
December 31, |
|
Period |
|
Contract |
|
Bbls/d |
|
|
Price |
|
|
Price |
|
|
Price |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Crude Oil Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan - Mar |
|
Swap |
|
|
25,000 |
|
|
$ |
51.85 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(63,525 |
) |
Jan - Dec |
|
Swap |
|
|
6,635 |
|
|
|
71.45 |
|
|
|
|
|
|
|
|
|
|
|
(24,383 |
) |
|
|
|
|
Jan - Mar |
|
Collar |
|
|
5,000 |
|
|
|
|
|
|
|
70.00 |
|
|
|
92.16 |
|
|
|
|
|
|
|
95 |
|
Apr - Jun |
|
Collar |
|
|
30,000 |
|
|
|
|
|
|
|
53.33 |
|
|
|
78.04 |
|
|
|
(23,406 |
) |
|
|
(24,741 |
) |
Jul - Sept |
|
Collar |
|
|
30,000 |
|
|
|
|
|
|
|
59.58 |
|
|
|
83.03 |
|
|
|
(19,608 |
) |
|
|
(20,761 |
) |
Oct - Dec |
|
Collar |
|
|
30,000 |
|
|
|
|
|
|
|
61.67 |
|
|
|
90.49 |
|
|
|
(12,406 |
) |
|
|
(13,320 |
) |
Jan - Dec |
|
Collar |
|
|
6,440 |
|
|
|
|
|
|
|
65.95 |
|
|
|
80.97 |
|
|
|
(14,210 |
) |
|
|
|
|
Jan - Dec |
|
Put |
|
|
9,325 |
|
|
|
|
|
|
|
67.84 |
|
|
|
|
|
|
|
3,893 |
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan - Dec |
|
Swap |
|
|
1,635 |
|
|
|
77.39 |
|
|
|
|
|
|
|
|
|
|
|
(5,119 |
) |
|
|
|
|
Jan - Mar |
|
Collar |
|
|
17,000 |
|
|
|
|
|
|
|
70.00 |
|
|
|
97.30 |
|
|
|
(1,985 |
) |
|
|
|
|
Apr - Jun |
|
Collar |
|
|
17,000 |
|
|
|
|
|
|
|
70.00 |
|
|
|
97.30 |
|
|
|
(2,225 |
) |
|
|
|
|
Jan - Dec |
|
Collar |
|
|
27,940 |
|
|
|
|
|
|
|
70.69 |
|
|
|
101.72 |
|
|
|
(2,122 |
) |
|
|
(3,752 |
) |
Jan - Dec |
|
Put |
|
|
8,825 |
|
|
|
|
|
|
|
70.85 |
|
|
|
|
|
|
|
16,493 |
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan - Dec |
|
Swap |
|
|
2,135 |
|
|
|
78.36 |
|
|
|
|
|
|
|
|
|
|
|
(6,291 |
) |
|
|
|
|
Jan - Dec |
|
Collar |
|
|
750 |
|
|
|
|
|
|
|
68.33 |
|
|
|
81.12 |
|
|
|
(2,776 |
) |
|
|
|
|
Jan - Dec |
|
Put |
|
|
2,135 |
|
|
|
|
|
|
|
65.59 |
|
|
|
|
|
|
|
3,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Crude Oil Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(90,337 |
) |
|
$ |
(126,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Prices per Mcf |
|
|
Estimated Fair Value |
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Asset (Liability) |
|
|
|
Type of |
|
|
|
|
|
Swap |
|
|
Floor |
|
|
Ceiling |
|
|
March 31, |
|
|
December 31, |
|
Period |
|
Contract |
|
Mcf/d |
|
|
Price |
|
|
Price |
|
|
Price |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Natural Gas Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan - Jun |
|
Swap |
|
|
20,000 |
|
|
$ |
5.22 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,429 |
|
|
$ |
|
|
Jan - Dec |
|
Swap |
|
|
65,002 |
|
|
|
5.98 |
|
|
|
|
|
|
|
|
|
|
|
31,110 |
|
|
|
(1,759 |
) |
Jul - Dec |
|
Collar |
|
|
10,000 |
|
|
|
|
|
|
|
5.13 |
|
|
|
6.25 |
|
|
|
1,689 |
|
|
|
|
|
Jan - Dec |
|
Collar |
|
|
3,800 |
|
|
|
|
|
|
|
7.20 |
|
|
|
9.58 |
|
|
|
3,103 |
|
|
|
|
|
Jan - Dec |
|
Put |
|
|
4,698 |
|
|
|
|
|
|
|
8.07 |
|
|
|
|
|
|
|
4,978 |
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan - Dec |
|
Swap |
|
|
55,502 |
|
|
|
6.35 |
|
|
|
|
|
|
|
|
|
|
|
21,545 |
|
|
|
(981 |
) |
Jan - Dec |
|
Put |
|
|
3,398 |
|
|
|
|
|
|
|
6.31 |
|
|
|
|
|
|
|
1,815 |
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan - Dec |
|
Swap |
|
|
26,002 |
|
|
|
6.46 |
|
|
|
|
|
|
|
|
|
|
|
7,615 |
|
|
|
|
|
Jan - Dec |
|
Put |
|
|
898 |
|
|
|
|
|
|
|
6.76 |
|
|
|
|
|
|
|
535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
74,819 |
|
|
$ |
(2,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commodity Derivative Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(15,518 |
) |
|
$ |
(128,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
As of March 31, 2010, Denbury had $43.7 million of deferred premiums payable, which
relate to various oil and natural gas floor contracts and are payable on a monthly basis from April
2010 to January 2013. These premiums are excluded from the above table.
Interest Rate Swaps
ENP uses derivative instruments in the form of interest rate swaps, which hedge risk related
to interest rate fluctuation, whereby it converts the interest due on certain floating rate debt
under its revolving credit agreement to a weighted average fixed rate. The following table
summarizes ENPs open interest rate swaps as of March 31, 2010, all of which were entered into with
Bank of America, N.A.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Term |
|
Notional Amount |
|
|
Fixed Rate |
|
|
Floating Rate |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Apr. 2010 - Jan. 2011 |
|
$ |
50,000 |
|
|
|
3.1610 |
% |
|
1-month LIBOR |
Apr. 2010 - Jan. 2011 |
|
|
25,000 |
|
|
|
2.9650 |
% |
|
1-month LIBOR |
Apr. 2010 - Jan. 2011 |
|
|
25,000 |
|
|
|
2.9613 |
% |
|
1-month LIBOR |
Apr. 2010 - Mar. 2012 |
|
|
50,000 |
|
|
|
2.4200 |
% |
|
1-month LIBOR |
Additional Disclosures about Derivative Instruments
At March 31, 2010 and December 31, 2009, Denbury had derivative financial instruments recorded
in the accompanying Unaudited Condensed Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value |
|
|
|
|
|
Asset (Liability) |
|
|
|
|
|
March 31, |
|
|
December 31, |
|
Type of Contract |
|
Balance Sheet Location |
|
2010 |
|
|
2009 |
|
|
|
|
|
(In thousands) |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Derivative asset: |
|
|
|
|
|
|
|
|
|
|
Oil contracts |
|
Derivative assets - current |
|
$ |
7,750 |
|
|
$ |
309 |
|
Natural gas contracts |
|
Derivative assets - current |
|
|
49,049 |
|
|
|
|
|
Oil contracts |
|
Derivative assets - long-term |
|
|
17,950 |
|
|
|
506 |
|
Natural gas contracts |
|
Derivative assets - long-term |
|
|
25,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability: |
|
|
|
|
|
|
|
|
|
|
Oil contracts |
|
Derivative liabilities - current |
|
|
(97,875 |
) |
|
|
(122,561 |
) |
Natural gas contracts |
|
Derivative liabilities - current |
|
|
|
|
|
|
(1,759 |
) |
Deferred premiums |
|
Derivative liabilities - current |
|
|
(24,031 |
) |
|
|
|
|
Oil contracts |
|
Derivative liabilities - long-term |
|
|
(18,162 |
) |
|
|
(4,258 |
) |
Natural gas contracts |
|
Derivative liabilities - long-term |
|
|
|
|
|
|
(981 |
) |
Deferred premiums |
|
Derivative liabilities - long-term |
|
|
(19,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
|
|
|
(59,181 |
) |
|
|
(128,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Derivative liability: |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
Derivative liabilities - current |
|
|
(3,162 |
) |
|
|
|
|
Interest rate swaps |
|
Derivative liabilities - long-term |
|
|
(390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments |
|
|
|
|
(3,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
$ |
(62,733 |
) |
|
$ |
(128,744 |
) |
|
|
|
|
|
|
|
|
|
24
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
For the three months ended March 31, 2010 and 2009, the net effect on income of
derivative instruments not designated as hedges was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) |
|
|
|
|
|
Recognized in Income |
|
|
|
|
|
Three Months Ended |
|
|
|
Location of Gain/(Loss) |
|
March 31, |
|
Type of Contract |
|
Recognized in Income |
|
2010 |
|
|
2009 |
|
|
|
|
|
(In thousands) |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
Oil contracts |
|
Derivatives expense (income) |
|
$ |
1,729 |
|
|
$ |
10,025 |
|
Natural gas contracts |
|
Derivatives expense (income) |
|
|
(42,767 |
) |
|
|
10,490 |
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
|
|
$ |
(41,038 |
) |
|
$ |
20,515 |
|
|
|
|
|
|
|
|
|
|
Please read Note 7. Fair Value Measurements for additional information regarding Denburys
derivative instruments.
Note 7. Fair Value Measurements
Fair Value Hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (exit
price). Denbury utilizes market data or assumptions that market participants would use in pricing
the asset or liability, including assumptions about risk and the risks inherent in the inputs to
the valuation technique. These inputs can be readily observable, market corroborated, or generally
unobservable. Denbury primarily applies the market approach for recurring fair value measurements
and endeavors to utilize the best available information. Accordingly, Denbury utilizes valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
Denbury is able to classify fair value balances based on the observability of those inputs. The
FASC establishes a fair value hierarchy that prioritizes the inputs used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities as of the
reporting date. During 2009 and the first three months of 2010, Denbury had no Level 1
recurring measurements. |
|
|
|
|
Level 2 Pricing inputs are other than quoted prices in active markets included in
Level 1, which are either directly or indirectly observable as of the reported date. Level
2 includes those financial instruments that are valued using models or other valuation
methodologies. These models are primarily industry-standard models that consider various
assumptions, including quoted forward prices for commodities, time value, volatility
factors, and current market and contractual prices for the underlying instruments, as well
as other relevant economic measures. Substantially all of these assumptions are observable
in the marketplace throughout the full term of the instrument, can be derived from
observable data, or are supported by observable levels at which transactions are executed
in the marketplace. |
|
|
|
|
Level 3 Pricing inputs include significant inputs that are generally less observable
from objective sources. These inputs may be used with internally developed methodologies
that result in managements best estimate of fair value. Denburys oil and natural gas
calls, puts, and short puts are average value options, which are not exchangetraded
contracts. Settlement is determined by the average underlying price over a predetermined
period of time. Denbury uses both observable and unobservable inputs in a Black-Scholes
valuation model to determine fair value. Accordingly, these derivative instruments are
|
25
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
classified within the Level 3 valuation hierarchy. The observable inputs of Denburys
valuation model include: (1) current market and contractual prices for the underlying
instruments; (2) quoted forward prices for oil and natural gas; and (3) interest rates, such
as a LIBOR curve for a term similar to the commodity derivative contract. The unobservable
inputs of Denburys valuation model include volatility. The implied volatilities for
Denburys calls, puts, and short puts with comparable strike prices are based on the
settlement values from certain exchange-traded contracts. The implied volatilities for
calls, puts, and short puts where there are no exchange-traded contracts with the same
strike price are extrapolated from exchange-traded implied volatilities by an independent
party. |
Denbury adjusts the valuations from the valuation model for nonperformance risk, using
managements estimate of the counterpartys credit quality for asset positions and Denburys credit
quality for liability positions. Denbury uses multiple sources of third-party credit data in
determining counterparty nonperformance risk, including credit default swaps.
The following table sets forth by level within the fair value hierarchy Denburys financial
assets and liabilities that were accounted for at fair value on a recurring basis as of the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
In thousands |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
March 31,
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas derivative contracts |
|
$ |
|
|
|
$ |
63,626 |
|
|
$ |
36,893 |
|
|
$ |
100,519 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas derivative contracts |
|
|
|
|
|
|
(98,038 |
) |
|
|
(17,999 |
) |
|
|
(116,037 |
) |
Interest rate swaps |
|
|
|
|
|
|
(3,552 |
) |
|
|
|
|
|
|
(3,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
(37,964 |
) |
|
$ |
18,894 |
|
|
$ |
(19,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil derivative contracts |
|
$ |
|
|
|
$ |
815 |
|
|
$ |
|
|
|
$ |
815 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas derivative contracts |
|
|
|
|
|
|
(129,559 |
) |
|
|
|
|
|
|
(129,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
(128,744 |
) |
|
$ |
|
|
|
$ |
(128,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
26
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes the changes in the fair value of Denburys Level 3 assets and
liabilities for the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant |
|
|
|
Unobservable Inputs (Level 3) |
|
|
|
Oil |
|
|
Natural Gas |
|
|
|
|
|
|
Derivative |
|
|
Derivative |
|
|
|
|
|
|
Contracts |
|
|
Contracts |
|
|
|
|
In thousands |
|
Floors and Caps |
|
|
Floors and Caps |
|
|
Total |
|
Balance at December 31, 2009 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(481 |
) |
|
|
4,263 |
|
|
|
3,782 |
|
Commodity
derivative contracts acquired from Encore |
|
|
8,942 |
|
|
|
9,645 |
|
|
|
18,587 |
|
Settlements |
|
|
(1,688 |
) |
|
|
(1,787 |
) |
|
|
(3,475 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
6,773 |
|
|
$ |
12,121 |
|
|
$ |
18,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains (losses) for the period included
in earnings attributable to the change in unrealized
gains (losses) relating to assets still held at the
reporting date |
|
$ |
(481 |
) |
|
$ |
4,263 |
|
|
$ |
3,782 |
|
|
|
|
|
|
|
|
|
|
|
Since Denbury does not use hedge accounting for its commodity derivative contracts, all gains
and losses on its assets and liabilities are included in
Derivatives expense (income) in the accompanying
Unaudited Condensed
Consolidated Statements of Operations.
All fair values have been adjusted for nonperformance risk resulting in an decrease of the net
commodity derivative liability of approximately $0.2 million as of March 31, 2010. For commodity
derivative contracts which are in an asset position, Denbury uses the counterpartys credit default
swap rating. For commodity derivative contracts which are in a liability position, Denbury uses
the average credit default swap rating of its peer companies as Denbury does not have its own
credit default swap rating.
27
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table sets forth the carrying amount and estimated fair value of financial
instruments as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
December 31, 2009 |
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
In thousands, except percentages |
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts |
|
$ |
100,519 |
|
|
$ |
100,519 |
|
|
$ |
815 |
|
|
$ |
815 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Agreement |
|
|
800,000 |
|
|
|
778,358 |
|
|
|
|
|
|
|
|
|
OLLC Credit Agreement |
|
|
250,000 |
|
|
|
245,269 |
|
|
|
|
|
|
|
|
|
Senior bank loan |
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
122,500 |
|
7.5% Senior Subordinated Notes due 2013 |
|
|
224,417 |
|
|
|
228,094 |
|
|
|
224,369 |
|
|
|
226,125 |
|
6.25% Senior Subordinated Notes due
2014 |
|
|
42,296 |
|
|
|
41,575 |
|
|
|
|
|
|
|
|
|
7.5% Senior Subordinated Notes due 2015 |
|
|
300,492 |
|
|
|
308,925 |
|
|
|
300,513 |
|
|
|
299,250 |
|
6.0% Senior Subordinated Notes due 2015 |
|
|
31,583 |
|
|
|
31,472 |
|
|
|
|
|
|
|
|
|
9.5% Senior Subordinated Notes due 2016 |
|
|
241,647 |
|
|
|
242,719 |
|
|
|
|
|
|
|
|
|
9.75% Senior Subordinated Notes due
2016 |
|
|
400,998 |
|
|
|
471,117 |
|
|
|
399,926 |
|
|
|
455,129 |
|
7.25% Senior Subordinated Notes due
2017 |
|
|
26,813 |
|
|
|
26,750 |
|
|
|
|
|
|
|
|
|
8.25% Senior Subordinated Notes due
2020 |
|
|
1,000,000 |
|
|
|
1,062,500 |
|
|
|
|
|
|
|
|
|
Commodity derivative contracts |
|
|
116,037 |
|
|
|
116,037 |
|
|
|
129,559 |
|
|
|
129,559 |
|
Deferred premiums on commodity
derivative contracts |
|
|
43,663 |
|
|
|
43,663 |
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
3,552 |
|
|
|
3,552 |
|
|
|
|
|
|
|
|
|
The book values of cash and cash equivalents, accrued production receivable, trade and
other receivables, net, and accounts payable and accrued liabilities approximate fair value due to
the short-term nature of these instruments. The fair values of the senior subordinated notes were
determined using open market quotes. The difference between book value and fair value of the
senior subordinated notes represents the premium or discount on that date. The carrying values of
Denburys revolving credit agreements approximates fair value since they are subject to short-term
floating interest rates that approximate the rates available to Denbury for those periods; however,
the estimated fair value has been adjusted for estimated nonperformance risk of approximately $26.4
million and $2.5 million at March 31, 2010 and December 31, 2009, respectively. The nonperformance
risk was determined utilizing industry credit default swaps. Commodity derivative contracts and
interest rate swaps are marked-to-market each period and are thus stated at fair value in the
accompanying Unaudited Condensed Consolidated Balance Sheets. Deferred premiums on commodity
derivative contracts were recorded at their fair value at the time they were acquired from Encore
and Denbury accretes that value to the eventual settlement price by recording interest expense each
period.
Please read Note 6. Derivative Instruments and Hedging Activities for additional information
regarding Denburys derivative instruments.
Note 8. Income Taxes
Denburys effective tax rate has historically been slightly lower than its estimated statutory
rate due to the impact of certain items such as the domestic production activities deduction,
offset in part by certain non-cash stock-based compensation that cannot be deducted for tax
purposes in the same manner as book expense. As a result of the Merger, Denburys statutory rate increased, which required Denbury to re-measure its deferred tax
liabilities. This discrete item (approximately $10.0 million) in Denburys tax provision increased its effective tax
rate for the first quarter of 2010 to 43.4 percent.
28
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 9. Accounts Payable and Accrued Liabilities
The following table summarizes Denburys accounts payable and accrued liabilities as of the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
In thousands |
|
2010 |
|
|
2009 |
|
Accounts payable |
|
$ |
49,173 |
|
|
$ |
40,140 |
|
Accrued commodity derivative settlements |
|
|
25,366 |
|
|
|
|
|
Accrued exploration and development costs |
|
|
128,827 |
|
|
|
40,375 |
|
Accrued compensation |
|
|
21,577 |
|
|
|
35,292 |
|
Accrued lease operating expense |
|
|
30,754 |
|
|
|
14,512 |
|
Accrued interest |
|
|
45,097 |
|
|
|
24,214 |
|
Taxes payable |
|
|
9,641 |
|
|
|
5,358 |
|
Asset retirement obligations |
|
|
2,615 |
|
|
|
1,087 |
|
Deposit
received on divestiture of Southern Assets |
|
|
45,000 |
|
|
|
|
|
Other |
|
|
38,720 |
|
|
|
8,896 |
|
|
|
|
|
|
|
|
Total |
|
$ |
396,770 |
|
|
$ |
169,874 |
|
|
|
|
|
|
|
|
Note 10. Commitments and Contingencies
In conjunction with the Merger, Denbury acquired certain commitments associated with its
acquisition of Encore, including: remaining outstanding principal and interest on the 6.5% Notes,
the 6.0% Notes, the 9.5% Notes, and the 7.25% Notes previously issued by Encore, derivative
contracts, operating leases, and asset retirement obligations. The Merger with Encore is discussed
in Note 3, asset retirement obligations are discussed in Note 4, long-term debt is discussed in
Note 5, and derivative contracts are discussed in Notes 6 and 7. Operating leases assumed from
Encore require payments of approximately $3.0 million in the remainder of 2010, $7.0 million in
2011 through 2012, and $2.6 million in 2013. In addition, Denbury entered into a new lease for its
corporate headquarters with a 12-year term that has total minimum monthly payments which aggregate
approximately $55.6 million.
Note 11. Condensed Consolidating Financial Information
Denburys subordinated debt is fully and unconditionally guaranteed jointly and severally by
certain of its subsidiaries, except that with respect to Denburys $225 million of 7.5% Senior
Subordinated Notes due 2013, Denbury Resources Inc. and Denbury Onshore, LLC are co-obligors.
Except as noted in the foregoing sentence, Denbury Resources Inc. is the sole issuer and Denbury
Onshore, LLC is a subsidiary guarantor. Each subsidiary guarantor and the subsidiary co-obligor
are wholly-owned, directly or indirectly, by Denbury Resources Inc.
All intercompany investments in, loans due to/from, subsidiary equity, revenues, and expenses
between Denbury Resources Inc., Denbury Onshore, LLC, guarantor subsidiaries, and non-guarantor
subsidiaries are shown prior to consolidation with Denbury Resources Inc. and then eliminated to
arrive at consolidated totals per the accompanying Unaudited Condensed Consolidated Financial
Statements.
29
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Denbury |
|
|
Denbury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resources Inc. |
|
|
Onshore, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Parent and |
|
|
(Issuer and |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
In thousands |
|
Co-Obligor) |
|
|
Co-Obligator) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
54,441 |
|
|
$ |
23,878 |
|
|
$ |
21,484 |
|
|
$ |
9,382 |
|
|
$ |
|
|
|
$ |
109,185 |
|
Other current assets |
|
|
1,030,724 |
|
|
|
205,154 |
|
|
|
297,138 |
|
|
|
41,294 |
|
|
|
(1,107,988 |
) |
|
|
466,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,085,165 |
|
|
|
229,032 |
|
|
|
318,622 |
|
|
|
50,676 |
|
|
|
(1,107,988 |
) |
|
|
575,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (using full cost accounting): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved |
|
|
|
|
|
|
3,683,519 |
|
|
|
2,639,161 |
|
|
|
774,659 |
|
|
|
|
|
|
|
7,097,339 |
|
Unevaluated |
|
|
|
|
|
|
343,782 |
|
|
|
1,108,465 |
|
|
|
121,490 |
|
|
|
|
|
|
|
1,573,737 |
|
CO2 properties, equipment, and pipelines |
|
|
|
|
|
|
1,342,325 |
|
|
|
265,163 |
|
|
|
|
|
|
|
|
|
|
|
1,607,488 |
|
Other |
|
|
|
|
|
|
84,177 |
|
|
|
11,528 |
|
|
|
362 |
|
|
|
|
|
|
|
96,067 |
|
Less accumulated depletion, depreciation,
amortization, and impairment |
|
|
|
|
|
|
(1,890,662 |
) |
|
|
(13,397 |
) |
|
|
(3,011 |
) |
|
|
|
|
|
|
(1,907,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
|
|
|
|
3,563,141 |
|
|
|
4,010,920 |
|
|
|
893,500 |
|
|
|
|
|
|
|
8,467,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net |
|
|
1,897,881 |
|
|
|
231,663 |
|
|
|
104,504 |
|
|
|
17,748 |
|
|
|
(754,861 |
) |
|
|
1,496,935 |
|
Investment in subsidiaries (equity method) |
|
|
4,114,188 |
|
|
|
|
|
|
|
1,374,312 |
|
|
|
|
|
|
|
(5,488,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,097,234 |
|
|
$ |
4,023,836 |
|
|
$ |
5,808,358 |
|
|
$ |
961,924 |
|
|
$ |
(7,351,349 |
) |
|
$ |
10,540,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
190,859 |
|
|
$ |
941,778 |
|
|
$ |
738,591 |
|
|
$ |
33,999 |
|
|
$ |
(1,107,988 |
) |
|
$ |
797,239 |
|
Long-term debt |
|
|
2,744,359 |
|
|
|
474,362 |
|
|
|
461 |
|
|
|
250,000 |
|
|
|
|
|
|
|
3,469,182 |
|
Deferred taxes |
|
|
|
|
|
|
558,633 |
|
|
|
900,548 |
|
|
|
586 |
|
|
|
(28,511 |
) |
|
|
1,431,256 |
|
Other liabilities |
|
|
|
|
|
|
809,275 |
|
|
|
54,570 |
|
|
|
24,320 |
|
|
|
(726,350 |
) |
|
|
161,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,935,218 |
|
|
|
2,784,048 |
|
|
|
1,694,170 |
|
|
|
308,905 |
|
|
|
(1,862,849 |
) |
|
|
5,859,492 |
|
Total equity |
|
|
4,162,016 |
|
|
|
1,239,788 |
|
|
|
4,114,188 |
|
|
|
653,019 |
|
|
|
(5,488,500 |
) |
|
|
4,680,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
7,097,234 |
|
|
$ |
4,023,836 |
|
|
$ |
5,808,358 |
|
|
$ |
961,924 |
|
|
$ |
(7,351,349 |
) |
|
$ |
10,540,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Denbury |
|
|
Denbury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resources Inc. |
|
|
Onshore, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Parent and |
|
|
(Issuer and |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
In thousands |
|
Co-Obligor) |
|
|
Co-Obligator) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24 |
|
|
$ |
20,281 |
|
|
$ |
286 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,591 |
|
Other current assets |
|
|
637,310 |
|
|
|
233,320 |
|
|
|
20,432 |
|
|
|
|
|
|
|
(655,891 |
) |
|
|
235,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
637,334 |
|
|
|
253,601 |
|
|
|
20,718 |
|
|
|
|
|
|
|
(655,891 |
) |
|
|
255,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (using full cost accounting): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved |
|
|
|
|
|
|
3,595,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,595,726 |
|
Unevaluated |
|
|
|
|
|
|
320,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320,356 |
|
CO2 properties, equipment, and pipelines |
|
|
|
|
|
|
1,309,325 |
|
|
|
220,456 |
|
|
|
|
|
|
|
|
|
|
|
1,529,781 |
|
Other |
|
|
|
|
|
|
82,185 |
|
|
|
352 |
|
|
|
|
|
|
|
|
|
|
|
82,537 |
|
Less accumulated depletion, depreciation,
amortization and impairment |
|
|
|
|
|
|
(1,825,282 |
) |
|
|
(246 |
) |
|
|
|
|
|
|
|
|
|
|
(1,825,528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
|
|
|
|
3,482,310 |
|
|
|
220,562 |
|
|
|
|
|
|
|
|
|
|
|
3,702,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net |
|
|
746,442 |
|
|
|
225,938 |
|
|
|
6,078 |
|
|
|
|
|
|
|
(742,131 |
) |
|
|
236,327 |
|
Investment in subsidiaries (equity method) |
|
|
1,303,728 |
|
|
|
23,792 |
|
|
|
1,299,186 |
|
|
|
|
|
|
|
(2,551,689 |
) |
|
|
75,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,687,504 |
|
|
$ |
3,985,641 |
|
|
$ |
1,546,544 |
|
|
$ |
|
|
|
$ |
(3,949,711 |
) |
|
$ |
4,269,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
14,827 |
|
|
$ |
795,486 |
|
|
$ |
239,368 |
|
|
$ |
|
|
|
$ |
(655,891 |
) |
|
$ |
393,790 |
|
Long-term debt |
|
|
700,440 |
|
|
|
1,326,978 |
|
|
|
|
|
|
|
|
|
|
|
(726,350 |
) |
|
|
1,301,068 |
|
Deferred taxes |
|
|
|
|
|
|
527,849 |
|
|
|
3,448 |
|
|
|
|
|
|
|
(15,781 |
) |
|
|
515,516 |
|
Other liabilities |
|
|
|
|
|
|
87,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
715,267 |
|
|
|
2,737,680 |
|
|
|
242,816 |
|
|
|
|
|
|
|
(1,398,022 |
) |
|
|
2,297,741 |
|
Total equity |
|
|
1,972,237 |
|
|
|
1,247,961 |
|
|
|
1,303,728 |
|
|
|
|
|
|
|
(2,551,689 |
) |
|
|
1,972,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,687,504 |
|
|
$ |
3,985,641 |
|
|
$ |
1,546,544 |
|
|
$ |
|
|
|
$ |
(3,949,711 |
) |
|
$ |
4,269,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidating Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
Denbury |
|
|
Denbury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resources Inc. |
|
|
Onshore, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Parent and |
|
|
(Issuer and |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
In thousands |
|
Co-Obligor) |
|
|
Co-Obligator) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Revenues and other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas, and related product sales |
|
$ |
|
|
|
$ |
270,571 |
|
|
$ |
47,881 |
|
|
$ |
12,434 |
|
|
$ |
|
|
|
$ |
330,886 |
|
CO2 sales and transportation fees |
|
|
|
|
|
|
4,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,497 |
|
Gain on sale of interests in Genesis |
|
|
|
|
|
|
(160 |
) |
|
|
101,728 |
|
|
|
|
|
|
|
|
|
|
|
101,568 |
|
Interest income and other |
|
|
16,022 |
|
|
|
827 |
|
|
|
1,034 |
|
|
|
4 |
|
|
|
(16,017 |
) |
|
|
1,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
16,022 |
|
|
|
275,735 |
|
|
|
150,643 |
|
|
|
12,438 |
|
|
|
(16,017 |
) |
|
|
438,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating |
|
|
|
|
|
|
85,884 |
|
|
|
7,552 |
|
|
|
2,784 |
|
|
|
|
|
|
|
96,220 |
|
Production taxes and marketing |
|
|
|
|
|
|
12,277 |
|
|
|
5,653 |
|
|
|
1,387 |
|
|
|
|
|
|
|
19,317 |
|
CO2 operating |
|
|
|
|
|
|
1,360 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
1,368 |
|
General and administrative |
|
|
118 |
|
|
|
26,683 |
|
|
|
5,227 |
|
|
|
681 |
|
|
|
|
|
|
|
32,709 |
|
Interest, net of amounts capitalized |
|
|
33,828 |
|
|
|
13,944 |
|
|
|
(6,418 |
) |
|
|
1,079 |
|
|
|
(16,017 |
) |
|
|
26,416 |
|
Depletion, depreciation, and amortization |
|
|
|
|
|
|
65,025 |
|
|
|
13,748 |
|
|
|
3,099 |
|
|
|
|
|
|
|
81,872 |
|
Derivatives
income |
|
|
|
|
|
|
(31,638 |
) |
|
|
(5,817 |
) |
|
|
(3,770 |
) |
|
|
|
|
|
|
(41,225 |
) |
Transaction costs related to Encore acquisition |
|
|
|
|
|
|
43,809 |
|
|
|
252 |
|
|
|
938 |
|
|
|
|
|
|
|
44,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
33,946 |
|
|
|
217,344 |
|
|
|
20,205 |
|
|
|
6,198 |
|
|
|
(16,017 |
) |
|
|
261,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net earnings of subsidiaries |
|
|
111,084 |
|
|
|
|
|
|
|
(8,480 |
) |
|
|
|
|
|
|
(102,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
93,160 |
|
|
|
58,391 |
|
|
|
121,958 |
|
|
|
6,240 |
|
|
|
(102,604 |
) |
|
|
177,145 |
|
Income tax provision (benefit) |
|
|
(7,044 |
) |
|
|
66,871 |
|
|
|
17,101 |
|
|
|
13 |
|
|
|
|
|
|
|
76,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
$ |
100,204 |
|
|
$ |
(8,480 |
) |
|
$ |
104,857 |
|
|
$ |
6,227 |
|
|
$ |
(102,604 |
) |
|
$ |
100,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
Denbury |
|
|
Denbury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resources Inc. |
|
|
Onshore, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Parent and |
|
|
(Issuer and |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
In thousands |
|
Co-Obligor) |
|
|
Co-Obligator) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Revenues and other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas, and related product sales |
|
$ |
|
|
|
$ |
168,069 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
168,069 |
|
CO2 sales and transportation fees |
|
|
|
|
|
|
3,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,165 |
|
Interest income and other |
|
|
10,858 |
|
|
|
826 |
|
|
|
1,699 |
|
|
|
|
|
|
|
(10,858 |
) |
|
|
2,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
10,858 |
|
|
|
172,060 |
|
|
|
1,699 |
|
|
|
|
|
|
|
(10,858 |
) |
|
|
173,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating |
|
|
|
|
|
|
74,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,950 |
|
Production taxes and marketing |
|
|
|
|
|
|
9,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,192 |
|
CO2 operating |
|
|
|
|
|
|
1,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300 |
|
General and administrative |
|
|
|
|
|
|
18,906 |
|
|
|
3,749 |
|
|
|
|
|
|
|
|
|
|
|
22,655 |
|
Interest, net of amounts capitalized |
|
|
11,632 |
|
|
|
12,176 |
|
|
|
(753 |
) |
|
|
|
|
|
|
(10,858 |
) |
|
|
12,197 |
|
Depletion, depreciation, and amortization |
|
|
|
|
|
|
61,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,925 |
|
Derivatives expense |
|
|
|
|
|
|
20,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
11,632 |
|
|
|
198,964 |
|
|
|
2,996 |
|
|
|
|
|
|
|
(10,858 |
) |
|
|
202,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net earnings of subsidiaries |
|
|
(17,523 |
) |
|
|
|
|
|
|
(16,330 |
) |
|
|
|
|
|
|
33,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(18,297 |
) |
|
|
(26,904 |
) |
|
|
(17,627 |
) |
|
|
|
|
|
|
33,853 |
|
|
|
(28,975 |
) |
Income tax
benefit |
|
|
|
|
|
|
(10,574 |
) |
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
|
(10,678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss |
|
$ |
(18,297 |
) |
|
$ |
(16,330 |
) |
|
$ |
(17,523 |
) |
|
$ |
|
|
|
$ |
33,853 |
|
|
$ |
(18,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
Denbury |
|
|
Denbury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resources Inc. |
|
|
Onshore, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Parent and |
|
|
(Issuer and |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
In thousands |
|
Co-Obligor) |
|
|
Co-Obligator) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
3,173 |
|
|
$ |
219,573 |
|
|
$ |
190,852 |
|
|
$ |
6,882 |
|
|
$ |
(307,312 |
) |
|
$ |
113,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used for investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas capital expenditures |
|
|
|
|
|
|
(70,061 |
) |
|
|
(22,262 |
) |
|
|
(324 |
) |
|
|
|
|
|
|
(92,647 |
) |
Acquisitions of oil and natural gas properties |
|
|
|
|
|
|
(503 |
) |
|
|
455 |
|
|
|
(292 |
) |
|
|
|
|
|
|
(340 |
) |
Cash paid in the Encore merger, net of cash acquired |
|
|
(830,310 |
) |
|
|
|
|
|
|
15,705 |
|
|
|
13,116 |
|
|
|
|
|
|
|
(801,489 |
) |
CO2 capital expenditures, including pipelines |
|
|
|
|
|
|
(37,011 |
) |
|
|
(35,636 |
) |
|
|
|
|
|
|
|
|
|
|
(72,647 |
) |
Deposit received on divestiture of Southern Assets |
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
Net proceeds from sale of interests in Genesis |
|
|
|
|
|
|
23,537 |
|
|
|
139,085 |
|
|
|
|
|
|
|
|
|
|
|
162,622 |
|
Investments in subsidiaries (equity method) |
|
|
(305,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305,646 |
|
|
|
|
|
Other |
|
|
|
|
|
|
(4,799 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
(4,826 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
|
(1,090,956 |
) |
|
|
(88,837 |
) |
|
|
97,320 |
|
|
|
12,500 |
|
|
|
305,646 |
|
|
|
(764,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank repayments |
|
|
|
|
|
|
(350,000 |
) |
|
|
(265,000 |
) |
|
|
(10,000 |
) |
|
|
|
|
|
|
(625,000 |
) |
Bank borrowings |
|
|
800,000 |
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,025,000 |
|
Senior subordinated notes tendered post merger |
|
|
(514,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(514,439 |
) |
Net proceeds from issuance of senior subordinated debt |
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
Escrowed funds for senior subordinated notes redemption |
|
|
(65,566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,566 |
) |
Costs of debt financing |
|
|
(76,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76,129 |
) |
Other |
|
|
(1,666 |
) |
|
|
(2,139 |
) |
|
|
(1,974 |
) |
|
|
|
|
|
|
1,666 |
|
|
|
(4,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
1,142,200 |
|
|
|
(127,139 |
) |
|
|
(266,974 |
) |
|
|
(10,000 |
) |
|
|
1,666 |
|
|
|
739,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
54,417 |
|
|
|
3,597 |
|
|
|
21,198 |
|
|
|
9,382 |
|
|
|
|
|
|
|
88,594 |
|
Cash and cash equivalents at beginning of period |
|
|
24 |
|
|
|
20,281 |
|
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
20,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
54,441 |
|
|
$ |
23,878 |
|
|
$ |
21,484 |
|
|
$ |
9,382 |
|
|
$ |
|
|
|
$ |
109,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
Denbury |
|
|
Denbury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resources Inc. |
|
|
Onshore, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Parent and |
|
|
(Issuer and |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
In thousands |
|
Co-Obligor) |
|
|
Co-Obligator) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
|
|
|
$ |
110,784 |
|
|
$ |
1,835 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
112,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow used for investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas capital expenditures |
|
|
|
|
|
|
(132,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132,169 |
) |
Acquisitions of oil and natural gas properties |
|
|
|
|
|
|
(199,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199,163 |
) |
CO2 capital expenditures, including pipelines |
|
|
|
|
|
|
(194,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194,733 |
) |
Investments in subsidiaries (equity method) |
|
|
(384,328 |
) |
|
|
2,312 |
|
|
|
|
|
|
|
|
|
|
|
384,328 |
|
|
|
2,312 |
|
Other |
|
|
|
|
|
|
14,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(384,328 |
) |
|
|
(509,539 |
) |
|
|
|
|
|
|
|
|
|
|
384,328 |
|
|
|
(509,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank repayments |
|
|
|
|
|
|
(330,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330,000 |
) |
Bank borrowings |
|
|
|
|
|
|
345,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345,000 |
|
Net proceeds from issuance of senior subordinated debt |
|
|
389,827 |
|
|
|
389,827 |
|
|
|
|
|
|
|
|
|
|
|
(389,827 |
) |
|
|
389,827 |
|
Net equity contributions |
|
|
3,621 |
|
|
|
3,621 |
|
|
|
|
|
|
|
|
|
|
|
(3,621 |
) |
|
|
3,621 |
|
Other |
|
|
(9,120 |
) |
|
|
(10,390 |
) |
|
|
|
|
|
|
|
|
|
|
9,120 |
|
|
|
(10,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
384,328 |
|
|
|
398,058 |
|
|
|
|
|
|
|
|
|
|
|
(384,328 |
) |
|
|
398,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
(697 |
) |
|
|
1,835 |
|
|
|
|
|
|
|
|
|
|
|
1,138 |
|
Cash and cash equivalents at beginning of period |
|
|
24 |
|
|
|
16,898 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
17,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
24 |
|
|
$ |
16,201 |
|
|
$ |
1,982 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12. Encore Energy Partners LP
Administrative Services Agreement
ENP does not have any employees. The employees supporting ENPs operations are employees of
Denbury. Encore Operating, L.P., a guarantor subsidiary of Denbury, performs administrative
services for ENP, such as
accounting, corporate development, finance, land, legal, and engineering, pursuant to an
administrative services agreement. In addition, Encore Operating provides all personnel,
facilities, goods, and equipment necessary to perform these services which are not otherwise
provided for by ENP. Encore Operating is not liable to ENP for its
32
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
performance of, or failure to perform, services under the administrative services agreement
unless its acts or omissions constitute gross negligence or willful misconduct.
During the three months ended March 31, 2010 and 2009, the administration fee was $2.02 per
BOE and $1.88 per BOE, respectively, of ENPs production. ENP also reimburses Encore Operating for
actual third-party expenses incurred on ENPs behalf. Encore Operating has substantial discretion
in determining which third-party expenses to incur on ENPs behalf. In addition, Encore Operating
is entitled to retain any COPAS overhead charges associated with drilling and operating wells that
would otherwise be paid by non-operating interest owners to the operator.
The administrative fee will increase in the following circumstances:
|
|
|
beginning on the first day of April in each year by an amount equal to the product
of the then-current administrative fee multiplied by the COPAS Wage Index Adjustment
for that year; |
|
|
|
|
if ENP acquires additional assets, Encore Operating may propose an increase in its
administrative fee that covers the provision of services for such additional assets;
however, such proposal must be approved by the board of directors of GP LLC upon the
recommendation of its conflicts committee; and |
|
|
|
|
otherwise as agreed upon by Encore Operating and GP LLC, with the approval of the
conflicts committee of the board of directors of GP LLC. |
ENP reimburses Denbury for any state, income, franchise, or similar tax incurred by Denbury
resulting from the inclusion of ENP in consolidated tax returns with Denbury as required by
applicable law. The amount of any such reimbursement is limited to the tax that ENP would have
incurred had they not been included in a combined group with Denbury.
Note 13. Subsequent Events
On April 1, 2010, Denbury granted equity incentive awards under its long-term incentive plan
to legacy Encore employees who were active employees as of March 9, 2010, which were comparable to
those that Denbury grants to all new employees. The grant included 416,810 shares of restricted
stock valued at $17.34 per share and 1,056,796 SARs with an exercise price of $17.34 and a weighted
average grant date fair value of $8.92 per unit.
Effective April 1, 2010, the administrative fee under ENPs administrative services agreement
increased to $2.06 per BOE of ENPs production as a result of the COPAS Wage Index Adjustment.
In April 2010, Denbury used the remaining $65.6 million in escrow from the issuance of the
2020 Notes, plus cash on hand, to redeem Encores senior subordinated notes put to Denbury under
the change of control provision of the Encore Indentures. In the change of control offers Denbury
purchased:
|
|
|
$40,712,000 principal amount of the 6.25% Notes, leaving $1,072,000 outstanding
(less than one percent of the original principal amount issued); |
|
|
|
|
$30,714,500 principal amount of the 6.0% Notes, leaving $484,500 outstanding (less
than one percent of the original principal amount issued); |
|
|
|
|
$24,235,000 principal amount of the 7.25% Notes, leaving $2,250,000 outstanding (1.5
percent of the original principal amount issued); and |
|
|
|
|
$80,000 principal amount of the 9.5% Notes, leaving $224,920,000 outstanding
(greater than 99.9 percent of the original principal amount issued). |
The offers were conducted upon the terms and subject to the conditions set forth in the Notice
of Change of Control and Offer to Purchase Statement, dated as of March 12, 2010, and in the
related Letter of Transmittal.
On April 30, 2010, the board of directors of GP LLC declared an ENP cash distribution for the
first quarter of 2010 to unitholders of record as of the close of business on May 10, 2010 at a
rate of $0.50 per unit. Approximately $22.9 million is expected to be paid to unitholders on or
about May 14, 2010, of which $10.7 million is expected to be paid to Denbury. Also on April 30,
2010, ENP and Denbury announced that they intend to explore a broad range
of strategic alternatives to enhance the value of ENPs common units, including, but not
limited to, those involving a possible merger, sale, or other transaction involving ENP, Denburys
interest in ENPs general partner, or all or part of the ENP common units that Denbury owns.
33
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis should be read in conjunction with our consolidated
financial statements and notes thereto contained herein and in our Annual Report on Form 10-K for
the year ended December 31, 2009, along with Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in such Form 10-K. Any terms used but not defined in
the following discussion have the same meaning given to them in the Form 10-K. Our discussion and
analysis includes forward-looking information that involves risks and uncertainties and should be
read in conjunction with Risk Factors under Item 1A of this report, along with Forward-Looking
Information at the end of this section for information about the risks and uncertainties that
could cause our actual results to be materially different than our forward-looking statements.
Overview
We are a growing independent oil and natural gas company. We are the largest oil and natural
gas operator in Mississippi and Montana, own the largest reserves of CO2 used for
tertiary oil recovery east of the Mississippi River, and hold significant operating acreage in the
Rockies, Permian Basin, Mid-Continent, and Gulf Coast regions. Our goal is to increase the value
of our properties through a combination of exploitation, drilling, and proven engineering
extraction practices, with our most significant emphasis relating to tertiary recovery operations.
Merger with Encore Acquisition Company. On March 9, 2010, we acquired Encore Acquisition
Company (Encore) pursuant to an Agreement and Plan of Merger (the Merger Agreement) entered
into with Encore on October 31, 2009. The Merger Agreement provided for a stock and cash
transaction valued at approximately $4.5 billion at that time, including the assumption of debt and
the value of the noncontrolling interest in ENP. Under the Merger Agreement, Encore was merged
with and into Denbury (the Merger), with Denbury surviving the Merger. The Merger was
consummated on March 9, 2010, following approval by the stockholders of both Denbury and Encore,
closing of a new revolving credit facility as part of the financing for the Merger, and
satisfaction of conditions precedent. The combined company continues to be known as Denbury
Resources Inc. and is headquartered in Plano, Texas.
Encore shareholders received the following consideration for each share of Encore common stock
they owned, depending upon the elections, if any, which they made, and the collar, proration, and
allocation features of the Merger Agreement so that, in the aggregate, 30 percent of the
consideration for the outstanding shares of Encore common stock would consist of cash, and the
remaining 70 percent of the consideration would consist of shares of Denbury common stock:
|
|
|
Mixed cash/stock electing (or non-electing) Encore stockholders received $15.00 in cash
and 2.4048 shares of our common stock; |
|
|
|
|
All-cash electing Encore stockholders received $46.48 in cash and 0.2417 shares of our
common stock; and |
|
|
|
|
All-stock electing Encore stockholders (including those whose Encore restricted stock
bonuses were converted into Denbury restricted stock) received 3.4354 shares of our common
stock. |
All Encore stock options fully vested and their value was paid in cash. All Encore restricted
stock vested and each holder had the opportunity to make the same elections as other holders of
Encore common stock as described above, except for shares of Encore restricted stock granted during
2010 as a bonus pursuant to the 2009 Encore annual incentive program, which were converted into
restricted shares of Denbury common stock.
In the Merger, we issued approximately 135.2 million shares of our common stock and paid
approximately $833.9 million in cash to Encore stockholders. The Denbury shares issued to Encore
stockholders represent approximately 34 percent of our common stock issued and outstanding
immediately after the Merger. The total fair value of the Denbury common stock issued to Encore
stockholders pursuant to the Merger was approximately $2.1 billion based upon Denburys closing
price of $15.43 per share on March 9, 2010.
34
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
The Merger was financed through a combination of $1.0 billion of 8.25% Senior Subordinated
Notes due 2020, which we issued on February 10, 2010, the new $1.6 billion revolving credit
agreement entered into on March 9, 2010, and the assumption of Encores remaining outstanding
senior subordinated notes.
First Quarter Operating Highlights. We recognized net income of $96.9 million, or $0.33 per
basic common share, during the first quarter of 2010 as compared to a net loss of $18.3 million, or
$0.07 per basic common share, in the first quarter of 2009.
Our first quarter 2010 financial results include the results of operations for Encore from the date of this acquisition on March 9, 2010 through March 31, 2010.
The increase in net income between the
periods is primarily due to a $101.6 million ($63.0 million after tax) gain on the sale of our
interests in Genesis and non-cash income due to the changes in fair value of our commodity
derivative contracts, partially offset by $45.0 million ($30.8 million after tax) of transaction
costs related to the Encore acquisition, incremental interest expense of $6.9 million for approximately one month
for the $1.0 billion in subordinated debt issued in mid-February 2010 to complete the Encore Merger
on March 9, 2010 ($4.3 million after tax), and an increase in deferred tax expense resulting from a
rate increase related to the Merger with Encore ($10.0 million).
During the first quarter of 2010, our oil and natural gas production averaged 53,125 BOE/d
compared to 53,408 BOE/d for the first quarter of 2009. Adjusting first quarter 2010 production to
exclude production of 11,379 BOE/d during the last 23 days of March from the properties acquired as
part of the Encore acquisition, and adjusting first quarter 2009
production for the sale of our Barnett Shale properties in the
second half of 2009, our first quarter 2010 adjusted production would have been 41,651 BOE/d, an eight
percent increase over the adjusted production level of 38,476 BOE/d in the first quarter
of 2009. Aside from the Encore acquisition, our largest production increase was attributable to
our tertiary oil production (which increased by 4,440 Bbls/d to 27,023 Bbls/d). This increase was
partially offset by expected declines in our Mississippi non-tertiary production primarily due to
lower Selma Chalk natural gas production as a result of limited drilling activity, and to a lesser
extent due to lower non-tertiary Heidelberg oil production as additional areas of that field were
shut-in in order to expand the tertiary flooding to those areas. See Results of Operations
Operating Results Production for more information.
Tertiary oil production averaged 27,023 BOE/d during the first quarter of 2010, representing a
20 percent increase over our average tertiary oil production of 22,583 BOE/d during the first
quarter of 2009. We had strong production increases during the first quarter of 2010 from several
of our existing tertiary oil fields and we had initial tertiary production in the Delhi field.
Please read Results of Operations CO2 Operations for more information.
Oil and natural gas prices continued to trend upwards during the first quarter of 2010. Our
average revenue per BOE, excluding the impact of oil and natural gas derivative contracts, was
$69.21 per BOE in the first quarter of 2010, as compared to $34.97 per BOE in the first quarter of
2009, a 98 percent increase between the two periods. The increase in commodity prices increased our oil and natural gas revenues during the first quarter of 2010 by 98 percent as
compared to the first quarter of 2009. However, our average revenue per BOE including commodity
derivative contracts was $56.70 per BOE in the first quarter of 2010,
compared to $52.82 per BOE
during the first quarter of 2009. We did not realize most of the benefit of higher commodity
prices during the first quarter of 2010 due to settlements paid on
our oil derivative contracts (swaps) on
25,000 Bbls/d at $51.85 per Bbl, resulting in cash payments made by us on our oil derivative
contracts during the period of $63.6 million. These particular swaps expired at the end of the
first quarter.
Net cash settlements paid on our commodity derivative contracts during the first quarter of 2010
were $59.8 million, compared to $85.8 million of cash settlements received during the first quarter
of 2009. During the first quarter of 2010, we had a non-cash fair value gain on our commodity
derivative contracts of $100.8 million, compared to a non-cash fair value loss of $106.4 million in
the first quarter of 2009. Coupled together, our total adjustments on commodity derivative
contracts resulted in a net change between the first quarters of 2009 and 2010 of $61.5 million of
additional income in the first quarter of 2010.
Our lease operating expenses increased 28 percent between the first quarters of 2009 and 2010,
primarily due to our increased emphasis on tertiary operations, higher utility and electrical costs
to operate our tertiary fields, increased lease payments for certain equipment in our tertiary
operating facilities, and the disposition of our Barnett Shale assets which had a low operating
cost per unit of production. General and administrative (G&A) expenses
35
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
increased significantly from the first quarter of 2009 primarily due to an increase in the
number of employees and overhead costs all associated with the Merger, resulting in higher
compensation and personnel-related costs. Interest expense also increased during the first quarter
of 2010, due primarily to our issuance of $1.0 billion of new Senior Subordinated Notes in February
2010, debt assumed from Encore in the Merger, and borrowings under our new $1.6 billion revolving
credit agreement used to finance the Encore acquisition, offset in part by increased interest
capitalization related to our CO2 pipelines under construction.
Sale of Interests in Genesis. On February 5, 2010, we sold our interest in Genesis Energy,
LLC, the general partner of Genesis, to an affiliate of Quintana Capital Group L.P. for net
proceeds of approximately $84 million, after giving effect to the change of control provision of
the incentive compensation agreement with Genesis management which was triggered and under which
we paid a total of $14.9 million, comprised of deferred compensation of $1.9 million and change of
control redemption of $13.0 million. In the first quarter of 2010, we recognized G&A expense of
$1.1 million associated with the $14.9 million payment. The remainder of the payment had been
previously accrued in our financial statements as of December 31, 2009. In March 2010, we sold all
of our common units in Genesis in a secondary public offering for net proceeds of approximately $79
million. As a result, we no longer hold any interest in Genesis. We recognized a pre-tax gain of
$101.6 million ($63.0 million after tax) on these dispositions.
Subordinated Debt Issuance. On February 10, 2010, we issued $1.0 billion of 8.25% Senior
Subordinated Notes due 2020 (the 2020 Notes), for net proceeds after underwriting discounts and
commissions of $980 million. The 2020 Notes, which carry a coupon rate of 8.25%, were sold at par.
Upon the closing of the Merger, $400 million of the net proceeds were used to finance a portion of
the Merger consideration and $580 million was used to fund repurchases of portions of Encores
outstanding senior subordinated notes during March and April 2010.
Pending Sale of Southern Assets. On March 31, 2010, we entered into a purchase and sale
agreement to sell to Quantum Resources Management, LLC, for a cash sales price of $900 million,
certain oil and natural gas properties and related assets acquired in the Encore Merger, primarily
located in the Permian Basin in West Texas and southeastern New Mexico; the Mid-continent area,
which includes the Anadarko Basin in Oklahoma, Texas, and Kansas; and the East Texas Basin (the
Southern Assets). The pending sale is subject to customary purchase price adjustments and
closing conditions and is expected to close in May 2010, with an
effective date of May 1, 2010. The sale properties do not include our
Haynesville Shale, Paradox Basin, Cleveland Sand Play, or Tuscaloosa Marine Shale properties
acquired in the Encore Merger. Production attributable to the
properties being sold is estimated at approximately 13,000 BOE/d
(approximately 67 percent natural gas), and the December 31, 2009
proved reserves on these properties based on SEC prices as of that
date were estimated to be approximately 54 MMBOE (approximately 64
percent natural gas).
The proceeds from the sale are
expected to be used to reduce borrowings under our revolving credit agreement.
In
addition to the pending sale of the Southern Assets, we have attempted to sell our Haynesville assets acquired in the Encore Merger, but to date, the prices offered have not been acceptable to us. Since these are not core assets for us, we may
solicit offers for these assets from time to time in the future, depending in part on future natural gas prices. If any such offers were
deemed acceptable and we sell these assets, our total sales proceeds from sale of properties acquired as part of the Merger would be
greater than our previously forecasted range of $500 million to $1.0 billion from these sales. Any such Haynesville assets proceeds
would be used to retire any existing bank debt at that time or used for general working capital needs.
Effect of Southern Assets Pending Sale on ENP. The pending Southern Assets sale
discussed above includes most
of the properties acquired from Encore that could have been potential dropdown candidates to ENP,
given the nature of their reserves and production. As a result of the sale, they are no longer
available for dropdowns, assuming the sale closes as expected. Most of our remaining assets
require significant capital expenditures in order to recognize their
potential value, and therefore
would not be appropriate properties to dropdown to ENP. Consequently, on April 30, 2010, ENP and
Denbury announced that they intend to explore a broad range of strategic alternatives to enhance
the value of ENPs common units, including, but not limited to, those involving a possible merger,
sale, or other transaction involving ENP, our interest in ENPs general partner, or all or part
of the ENP common units that we own. We are additionally exploring a way to recognize the
full potential value of potential CO2 tertiary projects that are owned by ENP, the
biggest of which is Elk Basin Field, and which require the substantial capital investment required
for a tertiary flood. We are reviewing alternative structures or transactions which could be
pursued by ENP, Denbury, or a combination of the two, to allow development of this field without
diluting the value of ENPs units or reducing the ENPs distributions per unit.
Capital Resources and Liquidity
Assuming a full year of operations, we currently estimate our 2010 capital spending will be
approximately $1.0 billion, excluding capitalized interest, acquisitions, and divestitures, and net
of equipment leases, and also excluding the expenditures related to the Encore acquisition. Our
current 2010 capital budget includes the following:
36
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
$400 million allocated for tertiary oil field expenditures; |
|
|
|
|
$159 million to be spent on our CO2 pipelines; |
|
|
|
|
$142 million to drill or participate in drilling or refracing of 55 to 75 wells in the
Bakken area of North Dakota; |
|
|
|
|
$126 million on drilling and completion activities in our other areas; |
|
|
|
|
$99 million to drill and complete 6 to 8 operated wells and participate in 20 to 25
non-operated wells in the Haynesville and other East Texas fields; and |
|
|
|
|
$74 million to be spent in the Jackson Dome area. |
This estimate also assumes that we fund approximately $50 million of budgeted equipment
purchases with operating leases, which is dependent upon securing acceptable financing. If we do
not enter into a total of $50 million of operating leases during 2010, our net capital expenditures
would increase in an equal amount, and we would anticipate funding those additional capital
expenditures under our bank credit line.
As discussed above in Overview Merger with Encore Acquisition
Company, the primary sources of cash for the acquisition of Encore included a new $1.6 billion
revolving credit agreement, which replaced our then-existing $900 million revolving credit
agreement, and $1.0 billion of new 2020 Notes. We structured the financing of the acquisition to
provide $600 million to $700 million of availability on our new $1.6 billion revolving credit
agreement upon closing the transaction; this provides a level of liquidity similar to that
available to us prior to the transaction, and a portion of those funds are available for the
capital expenditures discussed above. In addition, net proceeds from the sale of the Southern
Assets discussed above will help to cover capital expenditures in excess of cash flow from
operations, reduce debt levels, and provide additional liquidity.
During 2009 and the first quarter of 2010, we also entered into oil
derivative contracts through 2011 in order to protect our future cash flows. Please read Notes 6
and 7 to the Unaudited Condensed Consolidated Financial Statements for further details regarding
our commodity derivative contracts.
Based
on oil and natural gas commodity futures prices in early May 2010 and our current
estimated production forecasts, and before any asset sales, our 2010 capital budget is expected to
be $150 million to $250 million greater than our
anticipated cash flow from operations assuming a full year of operations of the combined companies.
Funding of
this shortfall is anticipated to come from the cash generated from the sale of our interests in
Genesis (see Sale of Interests in Genesis) and with the proceeds from the sale of the Southern Assets acquired from Encore (see Pending Sale of Southern Assets), assuming the pending assets sale closes as expected. If the pending asset sale does not close, we will either borrow the necessary funds
under our revolving
credit agreement or reconsider and potentially lower our capital
expenditures for the remainder of the year.
As of May 10, 2010, we had $839 million of bank debt outstanding on our $1.6
billion revolving credit agreement, which we expect to repay with proceeds from the pending sale of
the Southern Assets (see Pending Sale of Southern Assets). This would leave us significant
borrowing capacity to fund any shortfall. The borrowing base under our revolving credit agreement
may be reduced by the lenders as a result of the sale the Southern
Assets; however, we currently
believe that any such reduction would be minor relative to the sales proceeds.
We continually monitor our capital spending and anticipated cash flows and believe that we can
adjust our capital spending up or down depending on cash flows; however, any such reduction in
capital spending could reduce our anticipated production levels in future years. For 2010, we have
contracted for certain capital expenditures, including construction of the Green Pipeline already
in progress and several drilling rigs, and therefore we cannot eliminate all of our capital
commitments without penalties (refer to Off-Balance Sheet Arrangements Commitments and
Obligations for further information regarding these commitments).
Sources and Uses of Capital Resources
Capital Expenditure Summary
The following table of capital expenditures includes accrued capital for each period. Our
cash expenditures were $32.4 million lower in the 2010 period and $64.9 million higher in the 2009
period than the amounts listed below due to the change in our capital accruals in those periods:
37
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands |
|
2010 |
|
|
2009 |
|
Oil and natural gas exploration and development: |
|
|
|
|
|
|
|
|
Drilling |
|
$ |
48,261 |
|
|
$ |
20,588 |
|
Geological, geophysical, and acreage |
|
|
6,994 |
|
|
|
3,791 |
|
Facilities |
|
|
37,710 |
|
|
|
52,964 |
|
Recompletions |
|
|
28,536 |
|
|
|
16,940 |
|
Capitalized interest |
|
|
5,743 |
|
|
|
4,042 |
|
|
|
|
|
|
|
|
Total oil and natural gas exploration and development expenditures |
|
|
127,244 |
|
|
|
98,325 |
|
Oil and natural gas property acquisitions |
|
|
340 |
|
|
|
199,163 |
|
Fair value assigned to oil and
natural gas properties acquired from Encore |
|
|
5,634,219 |
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and natural gas capital expenditures |
|
|
5,761,803 |
|
|
|
297,488 |
|
|
|
|
|
|
|
|
CO2 capital expenditures: |
|
|
|
|
|
|
|
|
CO2 pipelines |
|
|
42,973 |
|
|
|
143,508 |
|
Fair value assigned to CO2
properties acquired from Encore |
|
|
7,254 |
|
|
|
|
|
CO2 producing fields |
|
|
11,907 |
|
|
|
11,816 |
|
Capitalized interest |
|
|
15,569 |
|
|
|
8,331 |
|
|
|
|
|
|
|
|
Total CO2 capital expenditures |
|
|
77,703 |
|
|
|
163,655 |
|
|
|
|
|
|
|
|
Total |
|
$ |
5,839,506 |
|
|
$ |
461,143 |
|
|
|
|
|
|
|
|
The amounts shown above for the acquisition of Encore during the first quarter of 2010 include
approximately $2.1 billion of our common stock issued to Encore stockholders in the Merger, based
upon 135.2 million shares valued at the closing price of $15.43 per share on March 9, 2010, and
approximately $1.1 billion of the total Merger consideration was assigned to goodwill.
Please read Note 3 to the Unaudited Condensed Consolidated Financial Statements for additional information regarding the Encore Merger.
Our capital
expenditures for the first quarter of 2010, excluding the acquisition of Encore, were funded with
$113.2 million of cash flow from operations and proceeds from the sale of our interests in
Genesis. See Overview Merger with Encore Acquisition Company for a discussion of the financing of
that acquisition. Our capital expenditures for the first quarter of 2009 were funded with $112.6
million of cash flow from operations, $15.0 million of net bank borrowings, and $381.4 million of
proceeds from the February 2009 issuance of 9.75% Senior Subordinated Notes.
Off-Balance Sheet Arrangements
Commitments and Obligations
Our obligations that are not currently recorded on our balance sheet consist of our operating
leases and various obligations for development and exploratory expenditures arising from purchase
agreements, our capital expenditure program, or other transactions common to our industry. In
addition, in order to recover our proved undeveloped reserves, we must also fund the associated
future development costs as forecasted in our proved reserve reports. Our derivative contracts,
which are recorded at fair value in our balance sheets, are discussed in Notes 6 and 7 to the
Unaudited Condensed Consolidated Financial Statements.
38
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
In conjunction with the Merger, we acquired certain commitments associated with our
acquisition of Encore, including: senior subordinated notes, derivative contracts, operating
leases, and asset retirement obligations. The Merger with Encore is discussed in Note 3 to the
Unaudited Condensed Consolidated Financial Statements, asset retirement obligations are discussed
in Note 4 to the Unaudited Condensed Consolidated Financial Statements, long-term debt is discussed
in Note 5 to the Unaudited Condensed Consolidated Financial Statements, and derivative contracts
are discussed in Notes 6 and 7 to the Unaudited Condensed Consolidated Financial Statements.
Operating leases assumed from Encore require payments of approximately $3.0 million in the
remainder of 2010, $7.0 million in 2011 through 2012, and $2.6 million in 2013. In addition, we
entered into a new lease for our corporate headquarters with a 12-year term that has total minimum
monthly payments which aggregate approximately $55.6 million. Please refer to Managements
Discussion and Analysis of Financial Condition and Results of Operations and the section entitled
Off-Balance Sheet Arrangements Commitments and Obligations contained in our Annual Report on
Form 10-K for the year ended December 31, 2009 for further information regarding our commitments
and obligations.
Results of Operations
CO2 Operations
Our focus on CO2 operations is becoming an ever-increasing part of our
business and operations. We believe that there are significant additional oil reserves and
production that can be obtained through the use of CO2, and we have outlined
certain of this potential in our 2009 annual report and other public disclosures. In addition to
its long-term effect, our focus on these types of operations impacts certain trends in our current
and near-term operating results. Please refer to Managements Discussion and Analysis of
Financial Condition and Results of Operations and the section entitled CO2
Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2009 for
further information regarding these matters.
During the first quarter of 2010, we began drilling a CO2 exploration well at
Jackson Dome, which was still in the drilling phase as of the end of April 2010. Also during April
2010, we spudded an additional CO2 source well at Jackson Dome in the Gluckstadt field
to further increase our production capacity. We estimated that we are currently capable of
producing between 900 MMcf/d and 1 Bcf/d of CO2. During the first quarter of 2010, our
CO2 production averaged 802 MMcf/d as compared to an average of 732 MMcf/d during the
first quarter of 2009. We used 87 percent of this production, or 698 MMcf/d, in our tertiary
operations during the first quarter of 2010, and sold the balance to our industrial customers or to
Genesis pursuant to our volumetric production payments. During June 2010, we plan to place the
first phase of the Green Pipeline, a 320-mile CO2 pipeline that runs from southern
Louisiana to near Houston, Texas, in service. This first phase runs to our Oyster Bayou field and
will require us to fill this pipeline with CO2 from our source at Jackson Dome prior to
first injection of CO2 at the Oyster Bayou field. Our current production capacity at
Jackson Dome is sufficient for the CO2 line fill, CO2 injections at the
Oyster Bayou field, continued supply of CO2 to our active tertiary fields, industrial
customers and any other CO2 commitment obligations. Refer to Managements Discussion
and Analysis of Financial Condition and Results of Operations in our 2009 Form 10-K for further
discussion on these CO2 delivery obligations.
We spent approximately $0.20 per Mcf in operating expenses to produce our
CO2 during the first quarter of 2010, more than our 2009 first quarter average
of $0.14 per Mcf, with the increase due primarily to increased CO2
39
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
royalty expense as a result of higher oil prices. Our estimated total cost per Mcf of
CO2 during the first quarter of 2010 was approximately $0.29 per Mcf, after
inclusion of depletion, depreciation, and amortization (DD&A) expense, as compared to $0.23 per
Mcf during the first quarter of 2009.
During 2009, we announced that we had initiated a comprehensive feasibility study of a
possible long-term CO2 pipeline project that would connect proposed gasification plants
in the Midwest to the Companys existing CO2 pipeline infrastructure in Mississippi or
Louisiana. Two of the proposed plants are in the term-sheet negotiation phase of a U.S. Department
of Energy Loan Guarantee Program, which still require successful finalization of negotiations with the Department of
Energy to receive such guarantees. We have completed the initial feasibility study of this Midwest
pipeline, and are evaluating market conditions, potential financing opportunities, and construction
of the proposed gasification projects. It is currently uncertain whether or not we will build such
a pipeline, but this future decision will be highly dependent upon whether or not the proposed
gasification plants will be constructed and the economic feasibility of the overall project.
A third proposed gasification plant to be built along the Gulf Coast of Mississippi, for which
we have a CO2 purchase contract, was also selected by the loan guarantee program. We
plan to commence a pipeline study for this proposed plant, which would likely be a 110-mile
pipeline that connects to the existing Free State Pipeline.
In addition to our natural source of CO2 and the proposed gasification
plants, we continue to have ongoing discussions with owners of existing plants of various
types that emit CO2 which we may be able to purchase. In order to capture such
volumes, we (or the plant owner) would need to install additional equipment, which includes at a
minimum, compression and dehydration facilities. Most of these existing plants emit relatively
small volumes of CO2, generally less than the proposed gasification plants, but
such volumes may still be attractive if the source is located near our Green Pipeline. The capture
of CO2 could also be influenced by potential federal legislation, which could
impose economic penalties for the emission of CO2. We believe that we are a
likely purchaser of CO2 produced in our area of operations because of the scale
of our tertiary operations, our CO2 pipeline infrastructure, and our large
natural source of CO2 (Jackson Dome), which can act as a swing
CO2 source to balance CO2 supply and demand.
The following table summarizes our tertiary oil production and tertiary lease operating
expense per Bbl for each quarter in 2009 and the first quarter of 2010:
40
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Production (BOE/d) |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
First |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
Tertiary Oil Field |
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
| |
|
|
Phase 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookhaven |
|
|
3,451 |
|
|
|
3,466 |
|
|
|
3,397 |
|
|
|
3,350 |
|
|
|
3,416 |
|
Little Creek area |
|
|
1,619 |
|
|
|
1,560 |
|
|
|
1,356 |
|
|
|
1,479 |
|
|
|
1,690 |
|
Mallalieu area |
|
|
4,490 |
|
|
|
4,264 |
|
|
|
3,679 |
|
|
|
4,005 |
|
|
|
3,443 |
|
McComb area |
|
|
2,246 |
|
|
|
2,429 |
|
|
|
2,473 |
|
|
|
2,412 |
|
|
|
2,289 |
|
Lockhart Crossing |
|
|
607 |
|
|
|
698 |
|
|
|
882 |
|
|
|
1,025 |
|
|
|
1,127 |
|
Phase 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eucutta |
|
|
3,813 |
|
|
|
4,145 |
|
|
|
4,068 |
|
|
|
3,912 |
|
|
|
3,792 |
|
Heidelberg |
|
|
|
|
|
|
250 |
|
|
|
829 |
|
|
|
1,506 |
|
|
|
1,708 |
|
Martinville |
|
|
1,118 |
|
|
|
951 |
|
|
|
720 |
|
|
|
724 |
|
|
|
927 |
|
Soso |
|
|
2,705 |
|
|
|
2,589 |
|
|
|
2,813 |
|
|
|
3,224 |
|
|
|
3,213 |
|
Phase 3: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tinsley |
|
|
2,390 |
|
|
|
3,402 |
|
|
|
3,558 |
|
|
|
3,942 |
|
|
|
4,419 |
|
Phase 4: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranfield |
|
|
144 |
|
|
|
338 |
|
|
|
572 |
|
|
|
728 |
|
|
|
936 |
|
Phase 5: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delhi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
Total tertiary oil production |
|
|
22,583 |
|
|
|
24,092 |
|
|
|
24,347 |
|
|
|
26,307 |
|
|
|
27,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tertiary operating expense per Bbl |
|
$ |
20.48 |
|
|
$ |
20.86 |
|
|
$ |
23.14 |
|
|
$ |
22.03 |
|
|
$ |
22.67 |
|
|
|
|
|
|
|
| |
|
|
Oil production from our tertiary operations increased to an average of 27,023 Bbls/d in the
first quarter of 2010, a 20 percent increase over our first quarter 2009 tertiary production level
of 22,583 Bbls/d, primarily due to production growth in response to continued expansion of the
tertiary floods in our Tinsley, Soso, and Lockhart Crossing Fields. The Tinsley Field has been one
of our top performing tertiary oil fields, and production there is expected to increase further as
we continue to expand the flood. In March 2010, we shut in production at the Mallalieu Field for
several days for facility maintenance, which resulted in the loss of approximately 165 Bbls/d for
the quarter. The Delhi pipeline is complete, and we initiated CO2 injections at the
Delhi Field (Phase 5) during November 2009. We saw initial tertiary production response at the
Delhi Field during the first quarter of 2010, a little earlier than expected, and we expect this
production to continue to increase as we expand this CO2 flood.
During the first quarter of 2010, operating costs for our tertiary properties averaged $22.67
per Bbl, higher than the 2009 first quarter average of $20.48 per Bbl, primarily due to the higher
cost of CO2 in the current year period. On a per Bbl basis, our cost of CO2
increased by $1.42 per Bbl, from $3.47 per Bbl in the first quarter of 2009 to $4.89 per Bbl in the
first quarter of 2010, primarily due to the increase in oil prices to which our CO2
costs are partially tied. Our single highest cost for our tertiary operations is our cost for fuel
and utilities, which averaged $5.54 per Bbl in the first quarter of 2009 and $6.12 per Bbl in the
first quarter of 2010, which has increased on a per Bbl basis due to higher commodity prices, which
result in higher fuel and utility cost. For any specific field, we expect our tertiary lease
operating expense per Bbl to be high initially, then decrease as production increases, ultimately
leveling off until production begins to decline in the latter life of the field, when lease
operating expense per Bbl will again increase.
Operating Results
As summarized in the Overview section above, and discussed in further detail below, our
operating results for the first quarter of 2010 were significantly higher as compared to those in
the same period in the prior year. The operating results of Encore and ENP from March 9, 2010
through March 31, 2010 are included in these results. As we control the general partner of ENP,
the operating results of ENP are consolidated with Denburys results of
41
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
operations from its legacy properties, even though we only own approximately 46 percent of
ENPs common units. The primary factors impacting our operating results were the acquisition of
Encore, higher oil and natural gas prices, changes in the fair value of our oil and natural gas
derivative contracts, the gain on the sale of our interests in Genesis, and changes in production,
which are all explained in more detail below.
Certain of our operating results and statistics for the comparative first quarters of 2010 and
2009 are included in the following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands, except per share and unit data |
|
2010 (1) |
|
|
2009 |
|
|
|
|
|
|
|
|
Operating results: |
|
|
|
|
|
|
|
|
Net income (loss) attributable to Denbury stockholders |
|
$ |
96,888 |
|
|
$ |
(18,297 |
) |
Net income (loss) per common share basic |
|
|
0.33 |
|
|
|
(0.07 |
) |
Net income (loss) per common share diluted |
|
|
0.32 |
|
|
|
(0.07 |
) |
Cash flow from operations |
|
|
113,168 |
|
|
|
112,619 |
|
Average daily production volumes: |
|
|
|
|
|
|
|
|
Bbls/d |
|
|
44,309 |
|
|
|
37,640 |
|
Mcf/d |
|
|
52,892 |
|
|
|
94,613 |
|
BOE/d |
|
|
53,125 |
|
|
|
53,408 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
Oil sales |
|
$ |
305,204 |
|
|
$ |
133,265 |
|
Natural gas sales |
|
|
25,682 |
|
|
|
34,804 |
|
|
|
|
|
|
|
|
Total oil and natural gas sales |
|
$ |
330,886 |
|
|
$ |
168,069 |
|
|
|
|
|
|
|
|
Commodity derivative contracts: (2) |
|
|
|
|
|
|
|
|
Cash receipt (payment) on settlement of commodity derivative contracts |
|
$ |
(59,801 |
) |
|
$ |
85,836 |
|
Non-cash fair value adjustment income (expense) |
|
|
100,839 |
|
|
|
(106,351 |
) |
|
|
|
|
|
|
|
Total income (expense) from commodity derivative contracts |
|
$ |
41,038 |
|
|
$ |
(20,515 |
) |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Lease operating |
|
$ |
96,220 |
|
|
$ |
74,950 |
|
Production taxes and marketing |
|
|
19,317 |
|
|
|
9,192 |
|
|
|
|
|
|
|
|
Total production expenses |
|
$ |
115,537 |
|
|
$ |
84,142 |
|
|
|
|
|
|
|
|
Non-tertiary CO2 operating margin: |
|
|
|
|
|
|
|
|
CO2 sales and transportation fees |
|
$ |
4,497 |
|
|
$ |
3,165 |
|
CO2 operating expenses |
|
|
(1,368 |
) |
|
|
(1,300 |
) |
|
|
|
|
|
|
|
Non-tertiary CO2 operating margin |
|
$ |
3,129 |
|
|
$ |
1,865 |
|
|
|
|
|
|
|
|
Unit prices including impact of derivative settlements: (2) |
|
|
|
|
|
|
|
|
Oil price per Bbl |
|
$ |
60.60 |
|
|
$ |
64.68 |
|
Natural gas price per Mcf |
|
|
6.18 |
|
|
|
4.09 |
|
Unit prices excluding impact of derivative settlements: (2) |
|
|
|
|
|
|
|
|
Oil price per Bbl |
|
$ |
76.53 |
|
|
$ |
39.34 |
|
Natural gas price per Mcf |
|
|
5.40 |
|
|
|
4.09 |
|
Oil and natural gas operating revenues and expenses per BOE: |
|
|
|
|
|
|
|
|
Oil and natural gas revenues |
|
$ |
69.21 |
|
|
$ |
34.97 |
|
|
|
|
|
|
|
|
Oil and natural gas lease operating expenses |
|
$ |
20.12 |
|
|
$ |
15.59 |
|
Oil and natural gas production taxes and marketing expense |
|
|
4.04 |
|
|
|
1.91 |
|
|
|
|
|
|
|
|
Total oil and natural gas production expenses |
|
$ |
24.16 |
|
|
$ |
17.50 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the results of operations of Encore and ENP from March 9, 2010 through March 31, 2010. |
|
(2) |
|
Please read Item 3. Qualitative and Quantitative Disclosures about Market Risk for additional information concerning our commodity
derivative contracts. |
42
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Production. Average daily production by area for each of the four quarters of 2009 and
for the first quarter of 2010 are shown below, as well as our
estimated pro forma production for the first quarter of 2010 had the Encore production been included with ours for the entire quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Production (BOE/d) |
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
First |
|
Pro Forma |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
First Quarter |
Operating Area |
|
2009 |
|
2009 |
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
|
|
|
|
|
|
Tertiary oil fields
|
|
|
22,583 |
|
|
|
24,092 |
|
|
|
24,347 |
|
|
|
26,307 |
|
|
|
27,023 |
|
|
|
27,023 |
|
Mississippi non-CO2 floods
|
|
|
11,904 |
|
|
|
10,043 |
|
|
|
8,931 |
|
|
|
8,914 |
|
|
|
7,829 |
|
|
|
7,829 |
|
Texas
|
|
|
17,063 |
|
|
|
16,088 |
|
|
|
7,579 |
|
|
|
8,035 |
|
|
|
5,235 |
|
|
|
5,235 |
|
Onshore Louisiana
|
|
|
708 |
|
|
|
885 |
|
|
|
699 |
|
|
|
679 |
|
|
|
662 |
|
|
|
662 |
|
Alabama and other
|
|
|
1,150 |
|
|
|
1,161 |
|
|
|
1,103 |
|
|
|
1,077 |
|
|
|
997 |
|
|
|
997 |
|
Cedar Creek Anticline
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,606 |
(1) |
|
|
10,070 |
(2) |
Bakken
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
893 |
(1) |
|
|
3,560 |
(2) |
Haynesville
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
838 |
(1) |
|
|
3,196 |
(2) |
Permian Basin
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,180 |
(1) |
|
|
9,105 |
(2) |
Other Rockies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,429 |
(1) |
|
|
9,411 |
(2) |
Mid-Continent
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,433 |
(1) |
|
|
9,490 |
(2) |
|
|
|
|
|
|
|
Total
|
|
|
53,408 |
|
|
|
52,269 |
|
|
|
42,659 |
|
|
|
45,012 |
|
|
|
53,125 |
|
|
|
86,578 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Only includes production from March 9, 2010 through
March 31, 2010. ENPs production for each area during this period was as follows: Cedar Creek Anticline 69 BOE/d, Bakken 3 BOE/d, Permian Basin 852 BOE/d, Other Rockies 1,227 BOE/d, and Mid-Continent 120 BOE/d. |
|
(2) |
|
ENPs pro forma production
for each area during this period was as follows: Cedar Creek Anticline 240 BOE/d, Bakken 11 BOE/d, Permian Basin
3,411 BOE/d, Other Rockies 4,845 BOE/d, and Mid-Continent 527 BOE/d. |
As outlined in the above table, production in the first quarter of 2010 was comparable to
that in the first quarter of 2009. However, our continuing production excluding production from
our Barnett Shale properties, which were sold in the second half of 2009, increased 38 percent
(14,554 BOE/d) over adjusted levels in the first quarter of 2009. Our tertiary oil production
increased 20 percent between these two periods. The Encore properties, which we acquired on March
9, 2010, added 11,379 BOE/d during the current quarter for the 23 days of production that were
included in our first quarter 2010 results. The production associated with the Southern Assets for
which we have entered into a purchase and sale agreement on March 31, 2010 (anticipated to close in
May) contributed approximately 2,875 BOE/d during the current quarter for the 23 days of production
that were included on our operating results, lower than normal production due to a temporary plant shut down in March. We estimate that our pro forma first quarter 2010
production would have been 86,578 BOE/d if the Encore production had been included for the entire
quarter. The increase in our tertiary oil production is discussed above under Results of
Operations CO2 Operations.
Production in our Mississippi non-tertiary operations decreased 34 percent between the
first quarter of 2009 and the first quarter of 2010, partially due to the expected gradual decline
in the Heidelberg Field due to depletion and the development of
the Heidelberg CO2 flood, which resulted in production being shut-in while portions of
the field were converted to tertiary operations. When production commences from these
CO2 floods, these volumes are reported as tertiary production for the Heidelberg Field.
Another almost equal factor in the lower production in the first quarter of 2010 was due to the lack of drilling activity in the Selma Chalk, a natural gas asset characterized by relatively higher decline rates.
Our production during the first quarter of 2010 was 83 percent oil as compared to 70 percent
during the first quarter of 2009. This increase is due to the sale of our Barnett Shale properties
in the second half of 2009, the acquisition of interests in the Hastings Field in February 2009,
the acquisition of interests in the Conroe Field in December 2009, and the increase in our tertiary
operations, partially offset by the natural gas properties which were part of the Encore
acquisition.
Oil and Natural Gas Revenues. Due to the significant increase in oil and natural gas prices
between the first quarter of 2009 and the first quarter of 2010, our oil and natural gas revenues
increased sharply in the first quarter of 2010 as compared to those in the same period of 2009.
These changes in oil and natural gas revenues, excluding any impact of our commodity derivative
contracts, are reflected in the following table:
43
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 vs. 2009 |
|
|
|
Increase |
|
|
Percentage Increase |
|
|
|
(Decrease) in |
|
|
(Decrease) in |
|
In thousands |
|
Revenues |
|
|
Revenues |
|
Change in oil and natural gas revenues due to: |
|
|
|
|
|
|
|
|
Increase in commodity prices |
|
$ |
163,710 |
|
|
|
98 |
% |
Decrease in production |
|
|
(893 |
) |
|
|
(1 |
%) |
|
|
|
|
|
|
|
Total increase in oil and natural gas revenues |
|
$ |
162,817 |
|
|
|
97 |
% |
|
|
|
|
|
|
|
The majority of the $163.7 million increase in our oil and natural gas revenues attributable
to higher commodity prices in the first quarter of 2010 was offset by a $145.6 million increase in net cash settlements paid
on our oil derivative contracts. See Oil and Natural Gas Derivative Contracts below.
Excluding any impact of our commodity derivative contracts, our net realized commodity prices
and NYMEX differentials were as follows during the first quarter of 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Net Realized Prices: |
|
|
|
|
|
|
|
|
Oil price per Bbl |
|
$ |
76.53 |
|
|
$ |
39.34 |
|
Natural gas price per Mcf |
|
|
5.40 |
|
|
|
4.09 |
|
Price per BOE |
|
|
69.21 |
|
|
|
34.97 |
|
|
|
|
|
|
|
|
|
|
NYMEX Differentials: |
|
|
|
|
|
|
|
|
Oil per Bbl |
|
$ |
(2.08 |
) |
|
$ |
(3.99 |
) |
Natural gas per Mcf |
|
|
0.37 |
|
|
|
(0.41 |
) |
Our oil NYMEX differential improved in the first quarter of 2010 as compared to the first quarter of
2009 primarily due to the 2009 sale of our Barnett Shale properties, where the NGL price was
significantly below NYMEX oil prices.
Our natural gas NYMEX differentials are generally caused by movement in the NYMEX natural gas
prices during the month, as most of our natural gas is sold on an index price that is set near the
first of each month. While the percentage change in NYMEX natural gas differentials can be quite
large, these differentials are very seldom more than a dollar above or below NYMEX prices.
Oil and Natural Gas Derivative Contracts. The following table summarizes the impact that our
oil and natural gas derivative contracts had on our operating results for the first quarter of 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
In thousands |
|
Oil Derivative Contracts |
|
|
Natural Gas Derivative Contracts |
|
Non-cash fair value gain (loss) |
|
$ |
61,821 |
|
|
$ |
(95,861 |
) |
|
$ |
39,018 |
|
|
$ |
(10,490 |
) |
Cash settlement receipts (payments) |
|
|
(63,550 |
) |
|
|
85,836 |
|
|
|
3,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(1,729 |
) |
|
$ |
(10,025 |
) |
|
$ |
42,767 |
|
|
$ |
(10,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
44
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Changes in commodity prices and the expiration of contracts cause fluctuations in the
estimated fair value of our oil and natural gas derivative contracts. Because we do not utilize
hedge accounting for our commodity derivative contracts, the changes in fair value of these
contracts, as outlined above, are recognized currently in the income statement. Please read Notes
6 and 7 to the Unaudited Condensed Consolidated Financial Statements for additional information
regarding our commodity derivative contracts.
Production Expenses. Our lease operating expenses increased between the first quarter of 2009
and the first quarter of 2010 in absolute dollars primarily as a result of:
|
|
|
the acquisition of Encore on March 9, 2010, which increased lease operating expense on
an absolute basis, but reduced it on a per BOE basis; |
|
|
|
|
our increasing emphasis on tertiary operations and additional tertiary fields moving
into the productive phase (please read discussion of those expenses under
CO2 Operations); |
|
|
|
|
the acquisition of interests in the Hastings Field in February 2009, which has a higher operating
cost per BOE than most of our other properties; |
|
|
|
|
increased personnel and related costs; |
|
|
|
|
higher electrical costs to operate our properties due primarily to the expansion of our
tertiary operations; and |
|
|
|
|
increasing lease payments due to incremental leasing of certain equipment in our
tertiary operating facilities; partially offset by |
|
|
|
|
the sale of our Barnett Shale natural gas properties, which reduced lease operating
expense on an absolute basis, but increased it on a per BOE basis as these properties had a
lower per unit operating cost. |
Lease operating expense per BOE averaged $20.12 per BOE and $15.59 per BOE for the first
quarters of 2010 and 2009, respectively. Our tertiary operating costs, which have historically
been higher than our company-wide operating costs, averaged $22.67 per BOE and $20.48 per BOE
during the first quarters of 2010 and 2009, respectively. Please read CO2 Operations for a more detailed discussion. We expect that our operating cost
on a per BOE basis will become closer to our tertiary operating costs as these operations become a
larger percentage of our total operations. Costs of electricity and utilities to operate our
tertiary properties have increased primarily due to the expansion of our tertiary operations. We
expect our tertiary operating costs to partially correlate with oil prices, as the price we pay for
CO2 is partially tied to oil prices.
Production taxes and marketing expenses generally change in proportion to commodity prices and
production volumes, and as such, increased 110 percent in the first quarter of 2010 as compared to
those in the first quarter of 2009, correlating with the 97 percent increase in total revenues
between the two periods. Transportation and plant processing fees were approximately $2.4 million
lower in the first quarter of 2010 than the first quarter of 2009, primarily due to the sale of our
Barnett Shale properties in the second half of 2009.
45
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
General and Administrative Expenses
G&A expenses increased on both a gross basis and on a per BOE basis between the respective
first quarters of 2010 and 2009 as set forth below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands, except per BOE data and employees |
|
2010 |
|
|
2009 |
|
Gross cash G&A expense |
|
$ |
48,274 |
|
|
$ |
35,367 |
|
Gross stock-based compensation |
|
|
8,790 |
|
|
|
6,140 |
|
Incentive compensation for Genesis management |
|
|
1,149 |
|
|
|
2,593 |
|
State franchise taxes |
|
|
1,070 |
|
|
|
1,115 |
|
Operator labor and overhead recovery charges |
|
|
(22,045 |
) |
|
|
(18,986 |
) |
Capitalized exploration and development costs |
|
|
(4,529 |
) |
|
|
(3,574 |
) |
|
|
|
|
|
|
|
Net G&A expense |
|
$ |
32,709 |
|
|
$ |
22,655 |
|
|
|
|
|
|
|
|
G&A per BOE: |
|
|
|
|
|
|
|
|
Net cash G&A expense |
|
$ |
4.84 |
|
|
$ |
2.86 |
|
Net stock-based compensation |
|
|
1.54 |
|
|
|
1.08 |
|
Incentive compensation for Genesis management |
|
|
0.24 |
|
|
|
0.54 |
|
State franchise taxes |
|
|
0.22 |
|
|
|
0.23 |
|
|
|
|
|
|
|
|
Net G&A expense |
|
$ |
6.84 |
|
|
$ |
4.71 |
|
|
|
|
|
|
|
|
Employees as of March 31 |
|
|
1,251 |
|
|
|
817 |
|
|
|
|
|
|
|
|
Gross cash G&A expenses increased $12.9 million or 36 percent between the respective first
quarters, primarily due to higher compensation and personnel-related costs associated with an
increase in the number of employees and higher wages, which we consider necessary in order to
remain competitive in our industry, and the acquisition of Encore on
March 9, 2010. During the first quarter of 2010, we increased our employee
count by 51 percent, primarily as a result of the Encore
acquisition although most of these costs were only included for the period of March 9, 2010 to March 31, 2010. Total personnel-related
costs increased by 26 percent, to $43.4 million during the first quarter of 2010, as compared to
$34.3 million during the first quarter of 2009. Stock-based compensation expense increased to $8.8
million during the first quarter of 2010 from $6.1 million for the first quarter of 2009, primarily
due to the increase in employees and changes in the mix of compensation awarded to employees.
The increase in personnel-related costs was partially offset by a $1.4 million decrease in
charges relating to incentive compensation awards for the management of Genesis. As discussed
above under Overview Sale of Interests in Genesis, we sold our interests in Genesis during the
first quarter of 2010. As such, the change of control provision of each members compensation
agreement was triggered and the incentive compensation awards were settled for $14.9 million, with
$1.1 million of this being recognized as expense during the first quarter of 2010.
The increase in gross G&A expense between the first quarters of 2010 and 2009 was offset in
part by an increase in operator overhead recovery charges. Our well operating agreements allow us,
when we are the operator, to charge a well with a specified overhead rate during the drilling phase
and also to charge a monthly fixed overhead rate for each producing well. As a result of
additional operated wells from acquisitions, additional tertiary operations, drilling activity
during the past year, and increased compensation expense, the amount we recovered as operator labor
and overhead charges increased by 16 percent between the first quarters of 2010 and 2009.
Capitalized exploration and development costs also increased between the periods, primarily due to
additional personnel and increased compensation costs.
The net effect of these changes resulted in a 44 percent increase (45 percent increase on a
per BOE basis) in net G&A expense between the first quarters of 2010 and 2009.
46
DENBURY RESOURCES INC.
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
Interest and Financing Expenses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands, except per BOE data and interest rates |
|
2010 |
|
|
2009 |
|
Cash interest expense |
|
$ |
44,974 |
|
|
$ |
23,284 |
|
Non-cash interest expense |
|
|
2,754 |
|
|
|
1,286 |
|
Less: capitalized interest |
|
|
(21,312 |
) |
|
|
(12,373 |
) |
|
|
|
|
|
|
|
Interest expense |
|
$ |
26,416 |
|
|
$ |
12,197 |
|
|
|
|
|
|
|
|
Interest income and other |
|
$ |
1,870 |
|
|
$ |
2,525 |
|
Net cash interest expense and other income per BOE (1) |
|
$ |
4.67 |
|
|
$ |
2.15 |
|
Average debt outstanding |
|
$ |
2,225,700 |
|
|
$ |
1,133,786 |
|
Average interest rate (2) |
|
|
8.1 |
% |
|
|
8.2 |
% |
|
|
|
(1) |
|
Cash interest expense less capitalized interest less interest and other income on a per BOE basis. |
|
(2) |
|
Includes commitment fees but excludes debt issue costs and amortization of discount and premium. |
Interest expense increased $14.2 million or 117 percent, comparing the first quarters of
2010 and 2009, primarily due to our February 2010 issuance of $1.0 billion of the 2020 Notes, debt
assumed from Encore in the Merger, and borrowings under our new $1.6 billion revolving credit
agreement, which were used to finance the Merger. These increases were partially offset by a 72 percent increase in our interest
capitalization, relating mainly to our CO2 pipelines currently under
construction.
Depletion, Depreciation, and Amortization
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands, except per BOE data |
|
2010 |
|
|
2009 |
|
Depletion, depreciation, and amortization of oil and natural gas
properties |
|
$ |
71,197 |
|
|
$ |
53,451 |
|
Depletion and depreciation of CO2 assets |
|
|
5,300 |
|
|
|
4,542 |
|
Asset retirement obligations |
|
|
1,107 |
|
|
|
827 |
|
Depreciation of other fixed assets |
|
|
4,268 |
|
|
|
3,105 |
|
|
|
|
|
|
|
|
Total DD&A |
|
$ |
81,872 |
|
|
$ |
61,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DD&A per BOE: |
|
|
|
|
|
|
|
|
Oil and natural gas properties |
|
$ |
15.12 |
|
|
$ |
11.29 |
|
CO2 assets and other fixed assets |
|
|
2.00 |
|
|
|
1.59 |
|
|
|
|
|
|
|
|
Total DD&A cost per BOE |
|
$ |
17.12 |
|
|
$ |
12.88 |
|
|
|
|
|
|
|
|
Depletion of oil and natural gas properties increased on both a per BOE basis and in absolute
dollars during the first quarter of 2010 as compared to the level of those expenses in the first
quarter 2009 primarily due to the increase in our oil and natural gas property balance and the
associated reserve volumes from our Encore acquisition in March 2010 and the acquisition of
interests in the Conroe Field in December 2009.
We continually evaluate the performance of our other tertiary projects, and if performance
indicates that we are reasonably certain of recovering additional reserves from these floods, we
recognize those incremental reserves in that quarter. Since we adjust our DD&A rate each quarter
based on any changes in our estimates of oil and natural gas reserves and costs, our DD&A rate
could change significantly in the future. We anticipate recognizing incremental reserves during the
second quarter of 2010 related to our tertiary production at Delhi Field, where we initiated
CO2 injections during the fourth quarter of 2009, and had our first oil production
response to tertiary injections during March 2010.
47
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Our DD&A rate for our CO2 and other fixed assets increased in the first
quarter of 2010 as compared to the rate in the first quarter of 2009 primarily as a result of the
Encore acquisition and field office expansion during 2009. At March 31, 2010, we had $832.2
million of costs (including capitalized interest) related to CO2 pipelines under construction, which were not
being depreciated. For financial accounting purposes, depreciation of these pipelines will
commence as each pipeline is placed into service.
Under full cost accounting rules, we are required each quarter to perform a ceiling test
calculation. We did not have a ceiling test write-down at March 31, 2010. However, if oil prices
were to decrease significantly in subsequent periods, we may be required to record additional
write-downs under the full cost pool ceiling test in the future. The possibility and amount of any
future write-down is difficult to predict, and will depend upon oil and natural gas prices, the
incremental proved reserves that may be added each period, revisions to previous reserve estimates
and future capital expenditures, and additional capital spent.
Encore Transaction Costs
FASC
Business Combinations topic requires that all transaction-related costs (advisory,
legal, accounting, due diligence, integration, etc.) be expensed as incurred. We recognized a
total of $45.0 million of transaction costs in the first quarter of 2010 associated with the Encore
acquisition.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
In thousands, except per BOE amounts and tax rates |
|
2010 |
|
|
2009 |
|
Current income tax provision |
|
$ |
669 |
|
|
$ |
173 |
|
Deferred income tax provision (benefit) |
|
|
76,272 |
|
|
|
(10,851 |
) |
|
|
|
|
|
|
|
Total income tax provision (benefit) |
|
$ |
76,941 |
|
|
$ |
(10,678 |
) |
|
|
|
|
|
|
|
Average income tax provision (benefit) per BOE |
|
$ |
16.09 |
|
|
$ |
(2.22 |
) |
Effective tax rate |
|
|
43.4 |
% |
|
|
36.8 |
% |
Our income taxes are based on an estimated statutory rate of approximately 37.8 percent. Our
effective tax rate has historically been slightly lower than our estimated statutory rate due to
the impact of certain items such as our domestic production activities deduction, offset in part by
certain non-cash stock-based compensation that cannot be deducted for tax purposes in the same
manner as book expense. As a result of the Merger, our statutory rate increased, which required us to re-measure its
deferred tax liabilities. This discrete item (approximately $10.0 million) in our tax provision
increased our effective tax rate for the first quarter of 2010 to 43.4 percent.
In the first quarter of 2009, the current income tax expense
represented our anticipated alternative minimum cash taxes that we could not offset with enhanced
oil recovery credits. The current income tax expense for the first quarter of 2010 represents
state income taxes, primarily related to the sale of our interests in Genesis. As of March 31,
2010, we had an estimated $50.3 million of enhanced oil recovery credits, including $11.3 million
related to the Merger with Encore, to carry forward that can be utilized to reduce our current
income taxes during 2010 or future years. These enhanced oil recovery credits do not begin to
expire until 2023. Since the ability to earn additional enhanced oil recovery credits is based
upon the level of oil prices, we would not currently expect to earn additional enhanced oil
recovery credits unless oil prices were to significantly deteriorate.
The Merger with Encore was treated as a tax-free asset acquisition for tax purposes.
Accordingly, Encores tax basis and tax attributes carried over to us, with the tax attributes
being subject to certain limitations. Upon testing these limitations, it has been determined that
the limitations do not affect our use of Encores tax attributes. The tax attributes that carried
over to us include enhanced oil recovery credits of $11.3 million, alternative minimum tax credits
of $2.3 million, and state net operating losses of $0.9 million, tax effected.
In the second quarter of 2008, we obtained approval from the Internal Revenue Service to
change our method of tax accounting for certain assets used in our tertiary oilfield recovery
operations. Although the overall effects of this
48
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
accounting change are under audit, we expect to receive tax refunds of approximately $10.6
million for tax years through 2007, along with other deferred tax benefits, and in the second
quarter of 2008 we reduced our current income tax expense by approximately $19 million to adjust
for the impact of this change through the first six months of 2008. The reduction in current
income tax expense has been offset by a corresponding increase in deferred income tax expense of
approximately the same amount. Although this change is not expected to have a significant impact
on our overall tax rate, it is anticipated that it could defer the amount of cash taxes we might
otherwise pay over the next several years. The current administration in Washington D.C.
has proposed removing many tax incentives for the oil and natural gas industry. Those items that
would have the most significant impact on us would include the loss of the domestic manufacturing
deduction as well as the repeal of the immediate expensing of intangible drilling costs
and tertiary injectant costs. It is uncertain whether or not the
proposed changes or similar measures will be adopted; if so, it would likely increase the amount
of cash taxes that we pay.
Per BOE Data
The following table summarizes our cash flow, DD&A, and results of operations on a per BOE
basis for the comparative periods. Each of the individual components is discussed above.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
Per BOE data |
|
2010 |
|
|
2009 |
|
Oil and natural gas revenues |
|
$ |
69.21 |
|
|
$ |
34.97 |
|
Settlement payments (receipts) of commodity derivative contracts |
|
|
(12.51 |
) |
|
|
17.85 |
|
Lease operating expenses |
|
|
(20.12 |
) |
|
|
(15.59 |
) |
Production taxes and marketing expenses |
|
|
(4.04 |
) |
|
|
(1.91 |
) |
|
|
|
|
|
|
|
Production netback |
|
|
32.54 |
|
|
|
35.32 |
|
Non-tertiary CO2 operating margin |
|
|
0.65 |
|
|
|
0.39 |
|
G&A expenses |
|
|
(6.84 |
) |
|
|
(4.71 |
) |
Transactions costs related to Encore acquisition |
|
|
(9.41 |
) |
|
|
|
|
Net cash interest expense and other income |
|
|
(4.67 |
) |
|
|
(2.15 |
) |
Current income taxes and other |
|
|
1.53 |
|
|
|
0.93 |
|
Changes in operating assets and liabilities |
|
|
9.87 |
|
|
|
(6.35 |
) |
|
|
|
|
|
|
|
Cash flow from operations |
|
|
23.67 |
|
|
|
23.43 |
|
DD&A |
|
|
(17.12 |
) |
|
|
(12.88 |
) |
Deferred income taxes |
|
|
(15.95 |
) |
|
|
2.26 |
|
Gain on sale of interests in Genesis |
|
|
21.24 |
|
|
|
|
|
Non-cash fair value derivative adjustments |
|
|
21.13 |
|
|
|
(22.13 |
) |
Net income attributable to noncontrolling interest |
|
|
(0.69 |
) |
|
|
|
|
Changes in operating assets and liabilities and other non-cash items |
|
|
(12.02 |
) |
|
|
5.51 |
|
|
|
|
|
|
|
|
Net income (loss) attributable to Denbury stockholders |
|
$ |
20.26 |
|
|
$ |
(3.81 |
) |
|
|
|
|
|
|
|
Critical Accounting Policies
For additional discussion of our critical accounting policies, which remain unchanged, please
read Managements Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2009.
Forward-Looking Information
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts,
including, but not limited to, statements found in this Managements Discussion and Analysis of
Financial Condition and Results of Operations, are forward-looking statements, as that term is
defined in Section 21E of the Securities and Exchange
49
DENBURY RESOURCES INC.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Act of 1934, as amended, that involve a number of risks and uncertainties. Such
forward-looking statements may be or may concern, among other things, forecasted capital
expenditures, drilling activity or methods, acquisition plans and proposals and dispositions,
development activities, cost savings, capital budgets, production rates and volumes or forecasts
thereof, hydrocarbon reserve quantities and values, CO2 reserves, potential reserves
from tertiary operations, hydrocarbon prices, pricing or cost assumptions based on current and
projected oil and natural gas prices, liquidity, cash flows, availability of capital, borrowing
capacity, regulatory matters, mark-to-market values, competition, long-term forecasts of
production, finding costs, rates of return, estimated costs, or changes in costs, future capital
expenditures and overall economics and other variables surrounding our operations and future plans.
Such forward-looking statements generally are accompanied by words such as plan, estimate,
expect, predict, anticipate, projected, should, assume, believe, target, or other
words that convey the uncertainty of future events or outcomes. Such forward-looking information
is based upon managements current plans, expectations, estimates, and assumptions and is subject
to a number of risks and uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and our financial condition and results of operations. As a
consequence, actual results may differ materially from expectations, estimates or assumptions
expressed in or implied by any forward-looking statements made by us or on our behalf. Among the
factors that could cause actual results to differ materially are: fluctuations of the prices
received or demand for our oil and natural gas; unexpected difficulties in integrating the
operations of Denbury and Encore; effects of our indebtedness; success of our risk management
techniques; inaccurate cost estimates; availability of and fluctuations in the prices of goods and
services; the uncertainty of drilling results and reserve estimates; operating hazards; disruption
of operations and damages from hurricanes or tropical storms; acquisition risks; requirements for
capital or its availability; conditions in the financial and credit markets; general economic
conditions; competition and government regulations; and unexpected delays, as well as the risks and
uncertainties inherent in oil and natural gas drilling and production activities or which are
otherwise discussed in this quarterly report, including, without limitation, the portions
referenced above, and the uncertainties set forth from time to time in our other public reports,
filings and public statements.
50
DENBURY RESOURCES INC.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
Long-Term Debt and Interest Rate Sensitivity
We finance some of our acquisitions and other expenditures with fixed and variable rate debt.
These debt agreements expose us to market risk related to changes in interest rates. We had $1.05
billion of bank debt outstanding as of March 31, 2010. The carrying value of our bank debt is
approximately fair value based on the fact that it is subject to short-term floating interest rates
that approximate the rates available to us for those periods. We adjusted the estimated fair value
measurements of our bank debt at March 31, 2010, for estimated nonperformance risk of approximately
$26.4 million, which was determined utilizing industry credit default swaps. None of our existing
debt has any triggers or covenants regarding our debt ratings with rating agencies. The fair value
of the subordinated debt is based on quoted market prices. The following table presents the
carrying and fair values of our debt, along with average interest rates at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Dates |
|
Carrying |
|
Fair |
In thousands, except percentages |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2020 |
|
Value |
|
Value |
Variable rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Agreement (weighted average interest
rate of 2.7% at March 31, 2010) |
|
$ |
|
|
|
$ |
|
|
|
$ |
800,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
800,000 |
|
|
$ |
778,358 |
|
OLLC Credit
Agreement (weighted average interest rate of 2.7% at March 31, 2010) |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
245,269 |
|
Fixed rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5% Senior Subordinated Notes due 2013 |
|
|
|
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,417 |
|
|
|
228,084 |
|
6.25% Senior Subordinated Notes due 2014 |
|
|
|
|
|
|
|
|
|
|
41,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,296 |
|
|
|
41,575 |
|
6.0% Senior Subordinated Notes due 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,583 |
|
|
|
31,472 |
|
7.5% Senior Subordinated Notes due 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,492 |
|
|
|
308,925 |
|
9.5% Senior Subordinated Notes due 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
241,647 |
|
|
|
242,719 |
|
9.75% Senior Subordinated Notes due 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426,350 |
|
|
|
|
|
|
|
|
|
|
|
400,998 |
|
|
|
471,117 |
|
7.25% Senior Subordinated Notes due 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,485 |
|
|
|
|
|
|
|
26,813 |
|
|
|
26,750 |
|
8.25% Senior Subordinated Notes due 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
1,062,500 |
|
At this level of floating rate debt, if LIBOR increased by 10 percent, we would incur an
additional $2.5 million of interest expense per year on revolving credit facilities, and if LIBOR
decreased by 10 percent, we would incur $2.5 million less. Additionally, if the discount rates on
our senior notes increased by 10 percent, we estimate the fair value of our fixed rate debt at
March 31, 2010 would increase by approximately $13.8 million, and if the discount rates on our
senior notes decreased by 10 percent, we estimate the fair value would decrease by approximately
$13.8 million.
As of March 31, 2010, the fair market value of ENPs interest rate swaps was a net liability
of approximately $3.6 million. If the Eurodollar rate increased by 10 percent, we estimate the
liability would decrease to approximately $3.4 million, and if the Eurodollar rate decreased by 10
percent, we estimate the liability would increase to approximately $3.7 million.
Please read Note 5 to the Unaudited Condensed Consolidated Financial Statements for details
regarding our long-term debt.
Commodity Derivative Contracts and Commodity Price Sensitivity
From time to time, we enter into various oil and natural gas derivative contracts to provide
an economic hedge of our exposure to commodity price risk associated with anticipated future oil
and natural gas production. We do not hold or issue derivative financial instruments for trading
purposes. These contracts have consisted of price floors, collars, and fixed price swaps. The
production that we hedge has varied from year to year depending on our levels of debt and financial
strength and expectation of future commodity prices. In early 2009, we began to employ a strategy
to hedge a portion of our production looking out 12 to 15 months from each quarter, as we believe
it is important to protect our future cash flow to provide a level of assurance for our capital
spending in those future periods in light of current worldwide economic uncertainties. However, as
a result of our acquisition of Encore and the higher debt levels necessary to finance the Merger,
we entered into costless collars in November 2009 and
March 2010, to hedge a significant portion of our forecasted production through 2011. Assuming that our pending sale of the Southern Assets closes as expected, we currently plan to return to our strategy initiated during early 2009 whereby we hedge a portion of our production for the next 12 to 15 months, as discussed above.
Please
read Notes 6 and 7 to
51
DENBURY RESOURCES INC.
the Unaudited Condensed Consolidated Financial Statements for additional information regarding our
commodity derivative contracts.
All of the mark-to-market valuations used for our oil and natural gas derivatives are provided
by external sources and are based on prices that are actively quoted. We manage and control market
and counterparty credit risk through established internal control procedures that are reviewed on
an ongoing basis. We attempt to minimize credit risk exposure to counterparties through formal
credit policies, monitoring procedures, and diversification. All of our commodity derivative
contracts are with parties that are lenders under our revolving credit agreement and all of ENPs
commodity derivative contracts are with parties that are lenders under its revolving credit
agreement. We have included an estimate of nonperformance risk in the fair value measurement of
our oil and natural gas derivative contracts. We have measured nonperformance risk based upon
credit default swaps or credit spreads. At March 31, 2010 and December 31, 2009, the net liability
of our open oil and natural gas derivative contracts was reduced by $0.2 million and $0.8 million,
respectively, for estimated nonperformance risk.
For accounting purposes, we do not apply hedge accounting to our oil and natural gas
derivative contracts. This means that any changes in the fair value of these derivative contracts
will be charged to earnings on a quarterly basis instead of charging the effective portion to other
comprehensive income and the ineffective portion to earnings.
At March 31, 2010, our derivative contracts were recorded at their fair value, which was a net
liability of approximately $15.5 million, a significant change from the $128.7 million fair value
liability recorded at December 31, 2009. This change is primarily related to the expiration of oil
derivative contracts during the first quarter of 2010 and to the oil and natural gas futures prices
as of March 31, 2010 in relation to the new commodity derivative contracts for 2010 and 2011 that
we entered into during the first quarter of 2010.
Based on NYMEX crude oil and natural gas futures prices as of March 31, 2010, and assuming
both a 10 percent increase and decrease thereon, we would expect to make or receive payments on our
crude oil and natural gas derivative contracts as seen in the following table:
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
Natural Gas |
|
|
Derivative |
|
Derivative |
|
|
Contracts |
|
Contracts |
In thousands |
|
(Payment) |
|
Receipt |
Based on: |
|
|
|
|
|
|
|
|
NYMEX futures prices as of March 31, 2010: |
|
$ |
(83,595 |
) |
|
$ |
74,306 |
|
10% increase in prices |
|
|
(175,007 |
) |
|
|
47,785 |
|
10% decrease in prices |
|
|
(10,694 |
) |
|
|
100,953 |
|
|
|
|
Item 4. |
|
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
consisting of internal controls designed to ensure that information required to be disclosed in our
filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms and that such information is
accumulated and communicated to management, including our Chief Executive Officer and our Chief
Financial Officer. Our Chief Executive Officer and Chief Financial Officer have evaluated our
disclosure controls and procedures as of the end of the period covered by this quarterly report on
Form 10-Q and have determined that such disclosure controls and procedures are effective in
ensuring that material information required to be disclosed in this quarterly report is accumulated
and communicated to them and our management to allow timely decisions regarding required
disclosure.
Evaluation of Changes in Internal Control Over Financial Reporting. There have been no
changes in our internal control over financial reporting during the most recently completed quarter
that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
52
DENBURY RESOURCES INC.
PART II. OTHER INFORMATION
|
|
|
Item 1. Legal Proceedings |
|
|
Information
with respect to this item is incorporated by reference from our Annual
Report on Form 10-K for the year ended December 31, 2009. There have
been no material developments in such legal proceedings since the
filing of such Form 10-K. Confirmatory discovery supporting the
February 2010 Memorandum of Understanding with the plaintiffs in the
Israni and Scott cases agreeing in principle to settlement of those lawsuits has been completed, and we expect the settlement to be finalized in due course, followed by seeking Court approval of the settlement. The settlement amount agreed upon with the plaintiffs is immaterial to us.
Information with respect to the risk factors has been incorporated by reference from Item 1A
of our Annual Report on Form 10-K for the year ended December 31, 2009. There have been no
material changes to the risk factors since the filing of such Form 10-K.
|
|
|
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
The following table summarizes purchases of our common stock during the first quarter of 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Approximate Dollar |
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased |
|
|
Value of Shares |
|
|
|
Number of |
|
|
Average |
|
|
as Part of Publicly |
|
|
that May Yet Be |
|
|
|
Shares |
|
|
Price Paid |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
Month |
|
Purchased |
|
|
per Share |
|
|
Programs |
|
|
Plans or Programs |
|
January 2010 |
|
|
86,575 |
|
|
$ |
14.25 |
|
|
|
|
|
|
|
|
|
February 2010 |
|
|
1,457 |
|
|
|
14.79 |
|
|
|
|
|
|
|
|
|
March 2010 |
|
|
178,810 |
|
|
|
16.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
266,842 |
|
|
|
16.00 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These shares were purchased from our employees who delivered shares to us to satisfy their
minimum tax withholding requirements related to the vesting of restricted shares.
|
|
|
Exhibit |
|
Description |
2.1
|
|
Agreement and Plan of Merger dated as of October 31, 2009, by and between Encore Acquisition
Company and Denbury Resources, Inc. (incorporated by reference to Exhibit 2.1 of our Current
Report on Form 8-K, filed with the SEC on November 5, 2009). |
|
|
|
4.1.1
|
|
Indenture, dated as of April 2, 2004, among Encore Acquisition Company, the subsidiary
guarantors party thereto and Wells Fargo Bank, National Association, with respect to the 6.25%
Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.1.1 of our Current
Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.1.2
|
|
First Supplemental Indenture, dated as of January 2, 2008, among Encore Acquisition Company,
the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, with
respect to the 6.25% Senior Subordinated Notes due 2014 (incorporated by reference to Exhibit
4.1.2 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.1.3
|
|
Second Supplemental Indenture, dated as of January 27, 2010, among Encore Acquisition
Company, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association,
with respect to the 6.25% Senior Subordinated Notes due 2014 (incorporated by reference to
Exhibit 4.1.3 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
53
DENBURY RESOURCES INC.
|
|
|
Exhibit |
|
Description |
4.1.4
|
|
Third Supplemental Indenture, dated as of March 10, 2010, among Denbury Resources Inc., as
successor in interest to Encore Acquisition Company, the subsidiary guarantors party thereto,
and Wells Fargo Bank, National Association, with respect to the 6.25% Senior Subordinated
Notes due 2014 (incorporated by reference to Exhibit 4.1.4 of our Current Report on Form 8-K,
filed with the SEC on March 12, 2010). |
|
|
|
4.2.1
|
|
Indenture, dated as of July 13, 2005, among Encore Acquisition Company, the subsidiary
guarantors party thereto, and Wells Fargo Bank, National Association, with respect to the 6.0%
Senior Subordinated Notes due 2015 (incorporated by reference to Exhibit 4.2.1 of our Current
Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.2.2
|
|
First Supplemental Indenture, dated as of January 2, 2008, among Encore Acquisition Company,
the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, with
respect to the 6.0% Senior Subordinated Notes due 2015 (incorporated by reference to Exhibit
4.2.2 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.2.3
|
|
Second Supplemental Indenture, dated as of January 27, 2010, among Encore Acquisition
Company, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association,
with respect to the 6.0% Senior Subordinated Notes due 2015 (incorporated by reference to
Exhibit 4.2.3 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.2.4
|
|
Third Supplemental Indenture, dated as of March 10, 2010, among Denbury Resources Inc., as
successor in interest to Encore Acquisition Company, the subsidiary guarantors party thereto,
and Wells Fargo Bank, National Association, with respect to the 6.0% Senior Subordinated Notes
due 2015 (incorporated by reference to Exhibit 4.2.4 of our Current Report on Form 8-K, filed
with the SEC on March 12, 2010). |
|
|
|
4.3.1
|
|
Indenture, dated as of November 16, 2005, among Encore Acquisition Company, the subsidiary
guarantors party thereto, and Wells Fargo Bank, National Association with respect to
Subordinated Debt Securities (incorporated by reference to Exhibit 4.3.1 of our Current Report
on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.3.2
|
|
First Supplemental Indenture, dated as of November 16, 2005, among Encore Acquisition
Company, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association,
with respect to the 7.25% Senior Subordinated Notes due 2017 (incorporated by reference to
Exhibit 4.3.2 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.3.3
|
|
Second Supplemental Indenture, dated as of January 2, 2008, among Encore Acquisition
Company, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association,
with respect to the 7.25% Senior Subordinated Notes due 2017 (incorporated by reference to
Exhibit 4.3.3 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.3.4
|
|
Third Supplemental Indenture, dated as of April 27, 2009, among Encore Acquisition Company,
the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, with
respect to the 9.50% Senior Subordinated Notes due 2016 (incorporated by reference to Exhibit
4.3.4 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.3.5
|
|
Fourth Supplemental Indenture, dated as of January 27, 2010, among Encore Acquisition
Company, the subsidiary guarantors party thereto, and Wells Fargo Bank, National Association,
with respect to the 7.25% Senior Subordinated Notes due 2017 and the 9.5% Senior Subordinated
Notes due 2016 (incorporated by reference to Exhibit 4.3.5 of our Form 8-K, filed with the SEC
on March 12, 2010). |
|
|
|
4.3.6
|
|
Fifth Supplemental Indenture, dated as of March 10, 2010, among Denbury Resources Inc., as
successor in interest to Encore Acquisition Company, the subsidiary guarantors party thereto,
and Wells Fargo Bank, National Association, with respect to the 7.25% Senior Subordinated
Notes due 2017, and $225 million of 9.5% Senior Subordinated Notes due 2016 (incorporated by
reference to Exhibit 4.3.6 of our Current Report on Form 8-K, filed with the SEC on March 12,
2010). |
|
|
|
4.4
|
|
Third Supplemental Indenture, dated as of March 9, 2010, among Denbury Resources Inc., the
subsidiary guarantors party thereto, and The Bank of New York Mellon Trust Company, N.A., with
respect to $225 million of 71/2% Senior Subordinated Notes due 2013 (incorporated by reference
to Exhibit 4.4 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
54
DENBURY RESOURCES INC.
|
|
|
Exhibit |
|
Description |
4.5
|
|
Third Supplemental Indenture, dated as of March 9, 2010, among Denbury Resources Inc., the
subsidiary guarantors party thereto, and The Bank of New York Mellon Trust Company, N.A., with
respect to $300 million of 71/2% Senior Subordinated Notes due 2015 (incorporated by reference
to Exhibit 4.5 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
4.6
|
|
Second Supplemental Indenture, dated as of March 9, 2010, among Denbury Resources Inc., the
subsidiary guarantors party thereto, and The Bank of New York Mellon Trust Company, N.A., with
respect to $426.35 million of 9.75% Senior Subordinated Notes due 2016 (incorporated by
reference to Exhibit 4.6 of our Current Report on Form 8-K, filed with the SEC on March 12,
2010). |
|
|
|
4.7.1
|
|
Indenture, dated as of February 12, 2010, among Denbury Resources Inc., the subsidiary
guarantors party thereto and Wells Fargo Bank, National Association, with respect to
$1 billion of 81/4% Senior Subordinated Notes due 2020 (incorporated by reference to Exhibit 4.1
of our Current Report on Form 8-K filed with the SEC on February 12, 2010). |
|
|
|
4.7.2
|
|
First Supplemental Indenture, dated as of March 9, 2010, among Denbury Resources Inc., the
subsidiary guarantors party thereto, and Wells Fargo Bank, National Association, with respect
to $1 billion of 81/4% Senior Subordinated Notes due 2020 (incorporated by reference to Exhibit
4.7 of our Current Report on Form 8-K, filed with the SEC on March 12, 2010). |
|
|
|
10.1
|
|
Credit Agreement among Denbury Resources Inc., as Borrower, the financial institutions listed
on Schedule 1.1 thereto, as Banks, JPMorgan Chase Bank, N.A., as Administrative Agent, Banc of
America Securities LLC, as Syndication Agent, and BNP Paribas, The Bank of Nova Scotia, and
Credit Suisse Securities (USA) LLC, as Co-Documentation Agents, dated as of March 9, 2010
(incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed with the
SEC on March 12, 2010). |
|
|
|
10.2
|
|
Credit Agreement dated by and among Encore Energy Partners Operating LLC, Encore Energy
Partners LP, Bank of America, N.A., as administrative agent and L/C Issuer, Banc of America
Securities LLC, as sole lead arranger and sole book manager, and other lenders dated as of
March 7, 2007 (incorporated by reference to Exhibit 10.2 of Encores Current Report on Form
8-K, filed with the SEC on March 13, 2007). |
|
|
|
10.2.1
|
|
First Amendment to Credit Agreement, by and among Encore Energy Partners Operating LLC,
Encore Energy Partner LP, Bank of America, N.A., as administrative agent and L/C Issuer, Banc
of America Securities LLC, as sole lead arranger and sole book manager, and other lenders
dated as of August 22, 2007 (incorporated by reference to Exhibit 10.2 to Amendment No. 4 to
ENPs Registration Statement on Form S-1, filed with the SEC on August 28, 2007). |
|
|
|
10.2.2
|
|
Second Amendment to Credit Agreement by and among Encore Energy Partners Operating LLC,
Encore Energy Partners LP, Bank of America, N.A., as administrative agent and L/C issuer, and
the lenders party thereto, dated as of March 10, 2009 (incorporated by reference to Exhibit
10.1 of ENPs Current Report on Form 8-K, filed with the SEC on March 11, 2009). |
10.2.3
|
|
Third Amendment to Credit Agreement, dated as of August 11, 2009, by and among Encore Energy
Partners Operating LLC, Encore Energy Partners LP, Bank of America, N.A., as the
administrative agent and L/C issuer, and the lenders party thereto (incorporated by reference
to Exhibit 10.1 of ENPs Current Report on Form 8-K, filed with the SEC on August 13, 2009). |
|
|
|
10.2.4
|
|
Fourth Amendment to Credit Agreement, dated as of November 24, 2009, by and among Encore
Energy Partners Operating LLC, Encore Energy Partners LP, Bank of America, N.A., as the
administrative agent and L/C issuer, and the lenders party thereto (incorporated by reference
to Exhibit 10.1 of ENPs Current Report on Form 8-K, filed with the SEC on December 1, 2009). |
|
|
|
10.3*+
|
|
Encore Acquisition Company 2008 Incentive Stock Plan as established effective May 6, 2008 (covering Encore restricted shares which were converted to Denbury restricted shares in the Merger). |
|
|
|
10.3.1*+
|
|
Amendment to the Encore Acquisition Company 2008 Incentive Stock Plan dated effective
March 9, 2010. |
|
|
|
10.3.2*+
|
|
Form of Restricted Stock Agreement Executive. |
|
|
|
10.4*+
|
|
Encore Acquisition Company Employee Severance Protection Plan. |
|
|
|
10.4.1*+
|
|
First Amendment to Encore Acquisition Company Employee Severance Protection Plan (as Amended and Restated Effective May 6, 2008), dated as of September 29, 2009. |
|
|
|
10.5*
|
|
Amended and Restated Administrative Services Agreement, dated as of September 17, 2007, by
and among Encore Energy Partners GP LLC, Encore Energy Partners LP, Encore Energy Partners
Operating LLC, Encore Acquisition Company, and Encore Operating, L.P. |
55
DENBURY RESOURCES INC.
|
|
|
Exhibit |
|
Description |
10.6*
|
|
Purchase and Sale Agreement, dated March 31, 2010, effective May 1, 2010, by and between Encore Operating, L.P. and
Quantum Resources Management, LLC. |
|
|
|
31.1*
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
31.2*
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32*
|
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Filed herewith. |
|
+ |
|
Compensatory arrangement. |
56
DENBURY RESOURCES INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
DENBURY RESOURCES INC.
|
|
|
By: |
/s/ Mark C. Allen
|
|
|
|
Mark C. Allen |
|
|
|
Senior Vice President, Chief Financial Officer,
Treasurer, and Assistant Secretary |
|
|
|
|
|
|
By: |
/s/ Alan Rhoades
|
|
|
|
Alan Rhoades |
|
|
|
Vice President, Accounting |
|
|
Date: May 10, 2010
57