We are a growing independent oil and natural gas company. We are the largest oil and natural gas producer in both 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 Rocky Mountain and Gulf Coast regions. Our goal is to increase the value of acquired properties through a combination of exploitation, drilling and proven engineering extraction practices, with our most significant emphasis on our CO2 tertiary recovery operations.

The accompanying unaudited condensed consolidated financial statements of Denbury Resources Inc. and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by Accounting Principles Generally Accepted in the United States (“U.S. GAAP”) for complete financial statements. These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010. Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” or “Denbury,” refer to Denbury Resources Inc. and its subsidiaries.

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 management's opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of our consolidated financial position as of September 30, 2011, our consolidated results of operations for the three and nine months ended September 30, 2011 and 2010, and our consolidated cash flows for the nine months ended September 30, 2011 and 2010. Certain prior period items have been reclassified to make the classification consistent with the classification in the most recent quarter.

From March 9, 2010 to December 31, 2010, we owned approximately 46% of Encore Energy Partners LP (“ENP”) outstanding common units and 100% of Encore Energy Partners GP LLC (“GP LLC”), which was ENP's general partner. Considering the presumption of control of GP LLC in accordance with the Consolidation topic of the Financial Accounting Standards Board Codification (“FASC”), the results of operations and cash flows of ENP were consolidated with those of Denbury for this period. On December 31, 2010, we sold all of our ownership interests in ENP and, therefore, we did not consolidate ENP in our Unaudited Condensed Consolidated Balance Sheet as of December 31, 2010. As presented in the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010, “Net income attributable to noncontrolling interest” of $2.1 million and $20.4 million, respectively, represents ENP's results of operations attributable to third-party ENP limited partner interest owners, other than Denbury, for the portion of that period for which we consolidated ENP.

Basic net income per common share is computed by dividing net income attributable to our stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is calculated in the same manner, but also considers the impact of the potential dilution from stock options, stock appreciation rights (“SARs”), unvested restricted stock, and unvested performance equity awards. For the three and nine months ended September 30, 2011 and 2010, there were no adjustments to net income attributable to our stockholders for purposes of calculating diluted net income per common share. The following is a reconciliation of the weighted average common shares used in the basic and diluted net income per common share calculations for the periods indicated:

		Three Months Ended		Nine Months Ended
		September 30,		September 30,
In thousands		2011	2010	2011	2010
Basic weighted average common shares		399,040	395,913	398,371	362,241
Potentially dilutive securities:
	Stock options and SARs	2,954	3,647	3,818	3,772
	Performance equity awards	41	292	22	305
	Restricted stock	1,276	1,241	1,364	1,116
Diluted weighted average common shares		403,311	401,093	403,575	367,434

Basic weighted average common shares excludes 3.4 million and 3.5 million shares for the three and nine months ended September 30, 2011, respectively, and 3.4 million and 3.3 million shares for the three and nine months ended September 30, 2010, respectively, of unvested restricted stock. As these restricted shares vest or become retirement eligible, they will be included in the shares outstanding used to calculate basic net income 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 deemed proceeds equal to the average unrecognized compensation during the period, adjusted for any estimated future tax consequences recognized directly in equity.

The following securities could potentially dilute earnings per share in the future, but were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
In thousands	2011	2010	2011	2010
Stock options and SARs	4,731	4,270	3,108	4,613
Restricted stock	139	69	56	298

Short-term investments are available-for-sale securities recorded at fair value with any unrealized gains or losses included in accumulated other comprehensive income. At September 30, 2011 and December 31, 2010, short-term investments consisted entirely of our investment in Vanguard Natural Resources LLC (“Vanguard”) common units obtained as partial consideration for the sale of our interests in ENP to a subsidiary of Vanguard on December 31, 2010. The cost basis of this investment is $93.0 million. We received distributions of $1.8 million and $5.3 million on the Vanguard common units we own for the three and nine months ended September 30, 2011, respectively, which distributions are included in “Interest income and other income” on our Unaudited Condensed Consolidated Statements of Operations. The unrealized loss on our short-term investment of $3.9 million (net of a tax benefit of $2.4 million) and $6.9 million (net of a tax benefit of $4.2 million) for the three and nine months ended September 30, 2011, respectively, is included in our Unaudited Condensed Consolidated Statements of Comprehensive Operations.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment, (“ASU 2011-08”). ASU 2011-08 amends the FASC Intangibles – Goodwill and Other topic by permitting entities to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in the FASC Intangibles – Goodwill and Other topic. We adopted ASU 2011-08 and will apply the guidance prospectively to interim and annual goodwill impairment tests.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either 1) a continuous statement of comprehensive income or 2) two separate but consecutive statements. ASU 2011-05 will be effective for our fiscal year beginning January 1, 2012. Since ASU 2011-05 will only amend presentation requirements, it will not have a material effect on our consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, (“ASU 2011-04”). ASU 2011-04 amends the FASC Fair Value Measurements topic by providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurements and expands the fair value disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 will be effective for our fiscal year beginning January 1, 2012. The adoption of ASU 2011-04 is not expected to have a material effect on our consolidated financial statements, but may require additional disclosures.