Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2012

Policy Text Block [Abstract]

Interim Financial Statements - Basis of Accounting

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, 2011. Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company,” or “Denbury,” refer to Denbury Resources Inc. and its subsidiaries.

Interim Financial Statements - Use of Estimates

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 March 31, 2012,ourconsolidated results of operations for thethree months ended March 31, 2012 and 2011, and our consolidated cash flows for the three months ended March 31, 2012 and 2011. Certain prior period items have been reclassified to make the classification consistent with the classification in the most recent quarter. On the Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2011, “Taxes other than income”is a new line item and includes oil and natural gas ad valorem taxes, which were reclassified from “Lease operating expenses,”franchise taxes and property taxes on buildings, which were reclassified from “General and administrative,” oil and natural gas production taxes, which were reclassified from “Production taxes and marketing expenses” used in prior reports and CO2 property ad valorem and production taxes, which were classified from “CO2 discovery and operating expenses.” Such reclassifications had no impact on our reported total expenses or net income.

Restricted Cash

Restricted Cash

Restricted cash consists of proceeds from the sale of oil and gas properties in February 2012 that are held by aqualified intermediary and are restricted for the pending acquisition of Thompson Field (see Note 8, Subsequent Events) to facilitate an anticipatedlike-kind exchange transaction.

Net Income Per Common Share

Net Income Per Common Share

Basic net income per common share is computed by dividing net income attributable to common 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 to net income and common shares of the potential dilution from stock options, stock appreciation rights (“SARs”), nonvested restricted stock, and nonvested performance equity awards. For thethree months ended March 31, 2012 and 2011, there were no adjustments to net income for purposes of calculating diluted net income per common share.

Basic weighted average common shares excludes 3.9million and 3.7million sharesof nonvested restricted stockduring the three months ended March 31, 2012 and 2011, respectively. 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, the nonvested 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.

Short-term Investments

Short-Term Investments

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 December 31, 2011, 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 Encore Energy Partners LP to a subsidiary of Vanguard on December 31, 2010. We received distributions of $1.8millionon the Vanguard common units we owned for the three months ended March 31, 2011, which are included in “Interest income and other income” on our Unaudited Condensed Consolidated Statements of Operations. During January 2012, the Company sold its investment in Vanguard for cash consideration of $83.5million, net of related transaction fees. The Company recognized a pretax loss on the sale of $3.1million, which is included in “Other expenses” on our Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2012.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Comprehensive Income.In June 2011, the Financial Accounting Standards Board (“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 was effective for Denbury beginning January 1, 2012. Since ASU 2011-05 only amended presentation requirements, it did not have a material effect on our consolidated financial statements.

Fair Value. 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 Financial Accounting Standards Board Codification (“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 was effective for Denbury beginning January 1, 2012. The adoption of ASU 2011-04 did not have a material effect on our consolidated financial statements, but did require additional disclosures. See Note 5, Fair Value Measurements.

Derivatives, Policy

We do not apply hedge accounting treatment to our oil and natural gas derivative contracts; 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” in our Unaudited Condensed Consolidated Statements of Operations.

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. We currently employ a strategy to hedge a portion of our forecasted production approximately 12 to 18 months in advance, 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 and commodity price volatility.

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. We only enter into commodity derivative contracts with parties that are lenders under our BankCredit Agreement.

Fair Value of Financial Instruments, Policy

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). We utilize 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. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We are 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.

•       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. Instruments in this category include non-exchange-traded oil and natural gas derivatives that are based on NYMEX pricing. The Company's costless-collars are valued using the Black-Scholes model, an industry standard option valuation model, that takes into account inputs such as contractual prices for the underlying instruments, including maturity, quoted forward prices for commodities, interest rates, volatility factors and credit worthiness, 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 management's best estimate of fair value. Instruments in this category include non-exchange-traded natural gas derivatives swaps that are based on regional pricing other than NYMEX (i.e., Houston ship channel). The Company's basis swaps are estimated using discounted cash flow calculations based upon forward commodity price curves.Significant increases or decreases in forward commodity price curves would result in a significantly higher or lower fair value measurement.

We adjust the valuations from the valuation model for nonperformance risk, using our estimate of the counterparty's credit quality for asset positions and Denbury's credit quality for liability positions. Denbury uses multiple sources of third-party credit data in determining counterparty nonperformance risk, including credit default swaps.