þ
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
o
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
Delaware
|
20-0467835
|
|
(State or other jurisdiction
of incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
|
5320 Legacy Drive,
Plano, TX
|
75024
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s telephone number, including area code: (972) 673-2000
|
Large accelerated filer þ
|
Accelerated filer o
|
Non-accelerated filer o
|
Smaller reporting company o
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(Do not check if a smaller reporting company)
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Class
|
Outstanding at October 31, 2012
|
|
Common Stock, $.001 par value
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386,996,454
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Page
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3
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4
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5
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6
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20
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40
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42
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43
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43
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43
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45
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46
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Exhibit 3(a) | ||||
Exhibit 10(a) | ||||
Exhibit 31(a) | ||||
Exhibit 31(b) | ||||
Exhibit 32 |
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par value and share data)
|
September 30,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 24,034 | $ | 18,693 | ||||
Accrued production receivable
|
290,805 | 294,689 | ||||||
Trade and other receivables, net
|
149,096 | 164,446 | ||||||
Short-term investments
|
— | 86,682 | ||||||
Derivative assets
|
16,820 | 47,402 | ||||||
Deferred tax assets
|
18,168 | 50,156 | ||||||
Other current assets
|
9,845 | 22,045 | ||||||
Total current assets
|
508,768 | 684,113 | ||||||
Property and equipment
|
||||||||
Oil and natural gas properties (using full cost accounting)
|
||||||||
Proved
|
8,230,939 | 7,026,579 | ||||||
Unevaluated
|
807,064 | 1,157,106 | ||||||
CO2 properties
|
687,890 | 596,003 | ||||||
Pipelines and plants
|
1,933,807 | 1,701,756 | ||||||
Other property and equipment
|
402,908 | 157,674 | ||||||
Less accumulated depletion, depreciation, amortization, and impairment
|
(3,080,957 | ) | (2,627,493 | ) | ||||
Net property and equipment
|
8,981,651 | 8,011,625 | ||||||
Derivative assets
|
12,820 | 29 | ||||||
Goodwill
|
1,363,547 | 1,236,318 | ||||||
Other assets
|
239,160 | 252,339 | ||||||
Total assets
|
$ | 11,105,946 | $ | 10,184,424 | ||||
Liabilities and Stockholders' Equity
|
||||||||
Current liabilities
|
||||||||
Accounts payable and accrued liabilities
|
$ | 403,396 | $ | 429,336 | ||||
Oil and gas production payable
|
200,184 | 197,092 | ||||||
Derivative liabilities
|
2,395 | 26,523 | ||||||
Current maturities of long-term debt
|
36,635 | 8,316 | ||||||
Total current liabilities
|
642,610 | 661,267 | ||||||
Long-term liabilities
|
||||||||
Long-term debt, net of current portion
|
3,038,865 | 2,669,729 | ||||||
Asset retirement obligations
|
88,189 | 88,726 | ||||||
Derivative liabilities
|
1,999 | 18,872 | ||||||
Deferred taxes
|
2,095,850 | 1,918,576 | ||||||
Other liabilities
|
19,213 | 20,756 | ||||||
Total long-term liabilities
|
5,244,116 | 4,716,659 | ||||||
Commitments and contingencies (Note 7)
|
||||||||
Stockholders' equity
|
||||||||
Preferred stock, $.001 par value, 25,000,000 shares authorized, none issued and outstanding
|
— | — | ||||||
Common stock, $.001 par value, 600,000,000 shares authorized; 405,399,728 and 402,946,070 shares issued, respectively
|
405 | 403 | ||||||
Paid-in capital in excess of par
|
3,132,342 | 3,090,374 | ||||||
Retained earnings
|
2,320,174 | 1,909,475 | ||||||
Accumulated other comprehensive loss
|
(366 | ) | (418 | ) | ||||
Treasury stock, at cost, 16,282,108 and 13,965,673 shares, respectively
|
(233,335 | ) | (193,336 | ) | ||||
Total stockholders' equity
|
5,219,220 | 4,806,498 | ||||||
Total liabilities and stockholders' equity
|
$ | 11,105,946 | $ | 10,184,424 | ||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. |
Denbury Resources Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Revenues and other income
|
|
|
|
|
||||||||||||
Oil, natural gas, and related product sales
|
$ | 588,156 | $ | 565,523 | $ | 1,813,798 | $ | 1,662,814 | ||||||||
CO2 sales and transportation fees
|
7,160 | 6,541 | 19,256 | 16,808 | ||||||||||||
Interest income and other income
|
5,055 | 4,441 | 14,214 | 12,445 | ||||||||||||
Total revenues and other income
|
600,371 | 576,505 | 1,847,268 | 1,692,067 | ||||||||||||
|
||||||||||||||||
Expenses
|
||||||||||||||||
Lease operating expenses
|
130,485 | 133,285 | 392,960 | 383,167 | ||||||||||||
Marketing expenses
|
14,728 | 6,416 | 37,776 | 17,989 | ||||||||||||
CO2 discovery and operating expenses
|
1,176 | 1,250 | 8,443 | 4,889 | ||||||||||||
Taxes other than income
|
40,012 | 36,180 | 122,518 | 108,295 | ||||||||||||
General and administrative
|
38,198 | 26,613 | 109,631 | 97,641 | ||||||||||||
Interest, net of amounts capitalized of $19,437, $17,853, $57,357 and $42,004, respectively
|
37,827 | 37,617 | 115,745 | 128,643 | ||||||||||||
Depletion, depreciation, and amortization
|
136,935 | 101,978 | 390,119 | 299,067 | ||||||||||||
Derivatives expense (income)
|
61,631 | (210,154 | ) | (32,203 | ) | (212,308 | ) | |||||||||
Loss on early extinguishment of debt
|
— | — | — | 16,131 | ||||||||||||
Impairment of assets
|
— | — | 17,515 | — | ||||||||||||
Other expenses
|
— | — | 23,272 | 4,377 | ||||||||||||
Total expenses
|
460,992 | 133,185 | 1,185,776 | 847,891 | ||||||||||||
|
||||||||||||||||
Income before income taxes
|
139,379 | 443,320 | 661,492 | 844,176 | ||||||||||||
|
||||||||||||||||
Income tax provision
|
54,012 | 167,650 | 250,793 | 323,450 | ||||||||||||
|
||||||||||||||||
Net income
|
$ | 85,367 | $ | 275,670 | $ | 410,699 | $ | 520,726 | ||||||||
|
||||||||||||||||
Net income per common share – basic
|
$ | 0.22 | $ | 0.69 | $ | 1.06 | $ | 1.31 | ||||||||
Net income per common share – diluted
|
$ | 0.22 | $ | 0.68 | $ | 1.05 | $ | 1.29 | ||||||||
|
||||||||||||||||
Weighted average common shares outstanding
|
||||||||||||||||
Basic
|
387,512 | 399,040 | 387,015 | 398,371 | ||||||||||||
Diluted
|
390,909 | 403,311 | 390,854 | 403,575 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. |
Unaudited Condensed Consolidated Statements of Comprehensive Operations
(In thousands)
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
September 30,
|
September 30,
|
||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Net income
|
$ | 85,367 | $ | 275,670 | $ | 410,699 | $ | 520,726 | ||||||||
Other comprehensive income (loss), net of income tax:
|
||||||||||||||||
Net unrealized loss on available-for-sale securities, net of tax benefit of $2,420 and $4,244, respectively
|
— | (3,949 | ) | — | (6,925 | ) | ||||||||||
Interest rate lock derivative contracts reclassified to income, net of tax of $11, $11, $32 and $32, respectively
|
17 | 17 | 52 | 52 | ||||||||||||
Total other comprehensive income (loss)
|
17 | (3,932 | ) | 52 | (6,873 | ) | ||||||||||
Comprehensive income
|
$ | 85,384 | $ | 271,738 | $ | 410,751 | $ | 513,853 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. |
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
|
Nine Months Ended
|
||||||||
September 30,
|
||||||||
2012
|
2011
|
|||||||
Cash flows from operating activities
|
||||||||
Net income
|
$ | 410,699 | $ | 520,726 | ||||
Adjustments needed to reconcile to net cash flow provided by operations:
|
||||||||
Depletion, depreciation, and amortization
|
390,119 | 299,067 | ||||||
Deferred income taxes
|
216,959 | 317,601 | ||||||
Stock-based compensation
|
22,662 | 27,520 | ||||||
Noncash fair value derivative adjustments
|
(19,757 | ) | (217,008 | ) | ||||
Loss on early extinguishment of debt
|
— | 16,131 | ||||||
Amortization of debt issuance costs and discounts
|
11,021 | 13,280 | ||||||
Impairment of assets
|
17,515 | — | ||||||
Other, net
|
15,087 | (4,340 | ) | |||||
Changes in operating assets and liabilities:
|
||||||||
Accrued production receivable
|
3,221 | (45,017 | ) | |||||
Trade and other receivables
|
11,010 | (38,607 | ) | |||||
Other current and long-term assets
|
8,218 | (11,587 | ) | |||||
Accounts payable and accrued liabilities
|
(30,127 | ) | (65,407 | ) | ||||
Oil and natural gas production payable
|
5,014 | 40,819 | ||||||
Other liabilities
|
(35,515 | ) | (14,086 | ) | ||||
Net cash provided by operating activities
|
1,026,126 | 839,092 | ||||||
Cash flows from investing activities:
|
||||||||
Oil and natural gas capital expenditures
|
(848,618 | ) | (741,256 | ) | ||||
Acquisitions of oil and natural gas properties
|
(155,636 | ) | (34,291 | ) | ||||
Cash paid in Riley Ridge acquisition
|
— | (199,233 | ) | |||||
CO2 capital expenditures
|
(93,945 | ) | (62,546 | ) | ||||
Pipelines and plants capital expenditures
|
(231,459 | ) | (142,406 | ) | ||||
Purchases of other assets
|
(18,666 | ) | (25,211 | ) | ||||
Net proceeds from sales of oil and natural gas properties and equipment
|
33,973 | 47,598 | ||||||
Proceeds from sale of short-term investments
|
83,545 | — | ||||||
Other
|
(7,166 | ) | (907 | ) | ||||
Net cash used for investing activities
|
(1,237,972 | ) | (1,158,252 | ) | ||||
Cash flows from financing activities:
|
||||||||
Bank repayments
|
(970,000 | ) | (255,000 | ) | ||||
Bank borrowings
|
1,210,000 | 365,000 | ||||||
Repayment of senior subordinated notes
|
— | (525,000 | ) | |||||
Premium paid on repayment of senior subordinated notes
|
— | (13,137 | ) | |||||
Net proceeds from issuance of senior subordinated notes
|
— | 400,000 | ||||||
Net proceeds from issuance of common stock
|
12,579 | 12,348 | ||||||
Costs of debt financing
|
(17 | ) | (13,104 | ) | ||||
Common stock repurchase program
|
(16,747 | ) | — | |||||
Other
|
(18,628 | ) | (9,453 | ) | ||||
Net cash provided by (used for) financing activities
|
217,187 | (38,346 | ) | |||||
Net increase (decrease) in cash and cash equivalents
|
5,341 | (357,506 | ) | |||||
Cash and cash equivalents at beginning of period
|
18,693 | 381,869 | ||||||
Cash and cash equivalents at end of period
|
$ | 24,034 | $ | 24,363 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. |
Notes to Unaudited Condensed Consolidated Financial Statements
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
September 30,
|
September 30,
|
||||||||||||||
In thousands
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Basic weighted average common shares
|
387,512 | 399,040 | 387,015 | 398,371 | ||||||||||||
Potentially dilutive securities:
|
||||||||||||||||
Stock options and SARs
|
2,302 | 2,954 | 2,759 | 3,818 | ||||||||||||
Performance equity awards
|
78 | 41 | 75 | 22 | ||||||||||||
Restricted stock
|
1,017 | 1,276 | 1,005 | 1,364 | ||||||||||||
Diluted weighted average common shares
|
390,909 | 403,311 | 390,854 | 403,575 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
In thousands
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Stock options and SARs
|
5,375 | 4,731 | 4,140 | 3,108 | ||||||||||||
Restricted stock
|
69 | 139 | 63 | 56 |
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
Nine Months Ended
|
||||
In thousands
|
September 30, 2012
|
|||
Balance, beginning of period
|
$ | 1,236,318 | ||
Goodwill related to the acquisition of interests in Thompson Field(1)
|
127,229 | |||
Balance, end of period
|
$ | 1,363,547 |
(1)
|
See Note 2, Acquisitions and Divestitures, for additional information regarding goodwill associated with Thompson Field.
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
In thousands
|
||||
Consideration:
|
||||
Cash payment(1)
|
$ | 366,178 | ||
Less: Fair value of assets acquired and liabilities assumed:(2)
|
||||
Oil and natural gas properties
|
||||
Proved
|
232,467 | |||
Unevaluated
|
4,151 | |||
Pipelines and plants
|
2,000 | |||
Other assets
|
3,637 | |||
Asset retirement obligations
|
(3,306 | ) | ||
238,949 | ||||
Goodwill
|
$ | 127,229 |
(1)
|
See Divestitures below for additional information regarding restricted cash and the like-kind exchange transaction utilized to fund the purchase.
|
(2)
|
Fair value of the assets acquired and liabilities assumed is preliminary, pending final closing adjustments and further evaluation of reserves and asset retirement obligations.
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
September 30,
|
December 31,
|
||||||
In thousands
|
2012
|
2011
|
||||||
Bank Credit Facility
|
$ | 625,000 | $ | 385,000 | ||||
9½% Senior Subordinated Notes due 2016, including premium of $9,802 and $11,854, respectively
|
234,722 | 236,774 | ||||||
9¾% Senior Subordinated Notes due 2016, including discount of $14,640 and $17,854, respectively
|
411,710 | 408,496 | ||||||
8¼% Senior Subordinated Notes due 2020
|
996,273 | 996,273 | ||||||
6⅜% Senior Subordinated Notes due 2021
|
400,000 | 400,000 | ||||||
Other Subordinated Notes, including premium of $27 and $33, respectively
|
3,834 | 3,840 | ||||||
NEJD Pipeline financing
|
160,684 | 163,677 | ||||||
Free State Pipeline financing
|
77,830 | 79,597 | ||||||
Capital lease obligations
|
165,447 | 4,388 | ||||||
Total
|
3,075,500 | 2,678,045 | ||||||
Less current obligations
|
(36,635 | ) | (8,316 | ) | ||||
Long-term debt and capital lease obligations
|
$ | 3,038,865 | $ | 2,669,729 |
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
In thousands
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Oil
|
||||||||||||||||
Payment on settlements of derivative contracts
|
$ | 641 | $ | 1,857 | $ | 9,580 | $ | 23,857 | ||||||||
Fair value adjustments to derivative contracts – expense (income)
|
60,726 | (205,355 | ) | (37,752 | ) | (225,485 | ) | |||||||||
Total derivatives expense (income) – oil
|
61,367 | (203,498 | ) | (28,172 | ) | (201,628 | ) | |||||||||
Natural Gas
|
||||||||||||||||
Receipt on settlements of derivative contracts
|
(6,910 | ) | (6,427 | ) | (21,941 | ) | (19,073 | ) | ||||||||
Fair value adjustments to derivative contracts – expense (income)
|
7,174 | (229 | ) | 17,910 | 8,393 | |||||||||||
Total derivatives expense (income) – natural gas
|
264 | (6,656 | ) | (4,031 | ) | (10,680 | ) | |||||||||
Derivatives expense (income)
|
$ | 61,631 | $ | (210,154 | ) | $ | (32,203 | ) | $ | (212,308 | ) |
Contract Prices(2)
|
||||||||||||||||||||
Type of
|
Weighted Average Price
|
|||||||||||||||||||
Year
|
Months
|
Contract
|
Volume(1)
|
Range
|
Swap
|
Floor
|
Ceiling
|
|||||||||||||
Oil Contracts:
|
||||||||||||||||||||
2012
|
Oct – Dec
|
Swap
|
625
|
$
|
80.28 – 81.75
|
$
|
81.04
|
$
|
—
|
$
|
—
|
|||||||||
Collar
|
53,000
|
80.00 – 140.65
|
—
|
80.00
|
128.57
|
|||||||||||||||
Put
|
625
|
65.00 – 65.00
|
—
|
65.00
|
—
|
|||||||||||||||
Total Oct – Dec 2012
|
54,250
|
|||||||||||||||||||
2013
|
Jan – Mar
|
Collar
|
55,000
|
$
|
70.00 – 113.00
|
$
|
—
|
$
|
78.91
|
$
|
108.01
|
|||||||||
Apr – June
|
Collar
|
56,000
|
75.00 – 121.50
|
—
|
79.64
|
108.61
|
||||||||||||||
July – Sept
|
Collar
|
56,000
|
75.00 – 133.10
|
—
|
79.64
|
109.15
|
||||||||||||||
Oct – Dec
|
Collar
|
54,000
|
80.00 – 127.50
|
—
|
80.00
|
117.53
|
||||||||||||||
2014
|
Jan – Mar
|
Collar
|
46,000
|
$
|
80.00 – 104.50
|
$
|
—
|
$
|
80.00
|
$
|
103.13
|
|||||||||
Apr – June
|
Collar
|
46,000
|
80.00 – 104.50
|
—
|
80.00
|
103.13
|
||||||||||||||
Natural Gas Contracts:
|
||||||||||||||||||||
2012
|
Oct – Dec
|
Swap
|
20,000
|
$
|
6.30 – 6.85
|
$
|
6.53
|
$
|
—
|
$
|
—
|
(1)
|
Contract volumes are stated in Bbl/d and MMBtu/d for oil and natural gas contracts, respectively.
|
|||||||||||||||||||
(2)
|
Contract prices are stated in $/Bbl and $/MMBtu for oil and natural gas contracts, respectively.
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
Estimated Fair Value
|
|||||||||
|
Asset (Liability)
|
|||||||||
|
September 30,
|
December 31,
|
||||||||
Type of Contract
|
Balance Sheet Location
|
2012
|
2011
|
|||||||
In thousands
|
||||||||||
Derivatives not designated as hedging instruments: | ||||||||||
Derivative asset
|
|
|
|
|||||||
Crude oil contracts
|
Derivative assets – current
|
$ | 10,780 | $ | 23,452 | |||||
Natural gas contracts
|
Derivative assets – current
|
6,040 | 23,950 | |||||||
Crude oil contracts
|
Derivative assets – long-term
|
12,820 | 29 | |||||||
|
||||||||||
Derivative liability
|
|
|||||||||
Crude oil contracts
|
Derivative liabilities – current
|
(1,680 | ) | (22,610 | ) | |||||
Deferred premiums(1)
|
Derivative liabilities – current
|
(715 | ) | (3,913 | ) | |||||
Crude oil contracts
|
Derivative liabilities – long-term
|
(1,999 | ) | (18,702 | ) | |||||
Deferred premiums(1)
|
Derivative liabilities – long-term
|
— | (170 | ) | ||||||
Total derivatives not designated as hedging instruments | $ | 25,246 | $ | 2,036 |
(1)
|
Deferred premiums payable relate to various oil floor contracts and are payable on a monthly basis through January 2013.
|
|
•
|
Level 1 – Quoted prices in active markets for identical assets or liabilities as of the reporting date.
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
•
|
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.
|
Fair Value Measurements Using:
|
||||||||||||||||
In thousands
|
Quoted Prices
in Active
Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
September 30, 2012
|
||||||||||||||||
Assets
|
||||||||||||||||
Oil and natural gas derivative contracts
|
$ | — | $ | 23,600 | $ | 6,040 | $ | 29,640 | ||||||||
Liabilities
|
||||||||||||||||
Oil and natural gas derivative contracts
|
— | (3,679 | ) | — | (3,679 | ) | ||||||||||
Total
|
$ | — | $ | 19,921 | $ | 6,040 | $ | 25,961 | ||||||||
December 31, 2011
|
||||||||||||||||
Assets
|
||||||||||||||||
Short-term investments
|
$ | 86,682 | $ | — | $ | — | $ | 86,682 | ||||||||
Oil and natural gas derivative contracts
|
— | 23,481 | 23,950 | 47,431 | ||||||||||||
Liabilities
|
||||||||||||||||
Oil and natural gas derivative contracts
|
— | (41,312 | ) | — | (41,312 | ) | ||||||||||
Total
|
$ | 86,682 | $ | (17,831 | ) | $ | 23,950 | $ | 92,801 |
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
In thousands
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Balance, beginning of period
|
$ | 13,214 | $ | 6,638 | $ | 23,950 | $ | 16,478 | ||||||||
Unrealized gains (losses) on commodity derivative contracts included in earnings
|
(264 | ) | 1,717 | 4,031 | (5,359 | ) | ||||||||||
Receipts on settlement of commodity derivative contracts
|
(6,910 | ) | (1,378 | ) | (21,941 | ) | (4,142 | ) | ||||||||
Balance, end of period
|
$ | 6,040 | $ | 6,977 | $ | 6,040 | $ | 6,977 |
In thousands
|
Fair Value at 9/30/2012
|
Valuation Technique
|
Unobservable Input
|
Range
|
||||||
Natural gas derivative contracts
|
$
|
6,040
|
Discounted Cash Flow
|
Forward commodity price curve
|
(a)
|
|||||
(a)
|
The derivative instruments detailed in this category include non-exchange-traded natural gas derivatives swaps that are valued based on regional pricing other than NYMEX. The regional pricing sources utilized for these instruments include the following (forward pricing ranges represent the high and low price expected to be received within the settlement period):
|
|||||||||
Pricing Index
|
Settlement Period
|
Forward Pricing Range
|
||||||||
TETCO M1
|
10/1/2012 – 12/31/2012
|
$2.92/MMBtu – $3.55/MMBtu
|
||||||||
Houston Ship Channel
|
10/1/2012 – 12/31/2012
|
$2.98/MMBtu – $3.56/MMBtu
|
||||||||
Natural Gas – Midcontinent
|
10/1/2012 – 12/31/2012
|
$2.77/MMBtu – $3.53/MMBtu
|
Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
·
|
$430 million allocated for tertiary oil field expenditures;
|
·
|
$480 million for development of our Bakken properties;
|
·
|
$290 million for pipeline construction;
|
·
|
$200 million to be spent on CO2sources; and
|
·
|
$100 million to be spent in all other areas.
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Nine Months Ended
|
||||||||
September 30,
|
||||||||
In thousands
|
2012
|
2011
|
||||||
Capital expenditures by project:
|
|
|
||||||
Tertiary oil fields
|
$ | 340,698 | $ | 380,029 | ||||
Bakken
|
338,242 | 297,640 | ||||||
CO2 pipelines
|
114,738 | 81,335 | ||||||
CO2 sources (1)
|
186,836 | 75,209 | ||||||
Other areas
|
114,478 | 167,167 | ||||||
Capital expenditures before acquisitions and capitalized interest
|
1,094,992 | 1,001,380 | ||||||
Less: recoveries from sale/leaseback transactions
|
(35,102 | ) | (42,582 | ) | ||||
Net capital expenditures excluding acquisitions and capitalized interest
|
1,059,890 | 958,798 | ||||||
Acquisitions:
|
||||||||
Property acquisitions (2)
|
369,580 | 34,291 | ||||||
Consideration for August 2011 Riley Ridge acquisition
|
— | 214,554 | ||||||
Capitalized interest
|
57,357 | 42,004 | ||||||
Capital expenditures, net of sale/leaseback transactions
|
$ | 1,486,827 | $ | 1,249,647 |
(1)
|
Includes capital expenditures related to the Riley Ridge gas plant.
|
(2)
|
Includes capital expenditures of $212.5 million that are not reflected as an Investing Activity on our Unaudited Condensed Consolidated Statements of Cash Flows due to the movement of proceeds through a qualified intermediary. See Note 2, Acquisitions and Divestitures to the Unaudited Condensed Consolidated Financial Statements.
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Average Daily Production (Bbls/d)
|
||||||||||||||||||||||||||||
First
|
Second
|
Third
|
Fourth
|
First
|
Second
|
Third
|
||||||||||||||||||||||
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
||||||||||||||||||||||
Tertiary Oil Field
|
2011
|
2011
|
2011
|
2011
|
2012
|
2012
|
2012
|
|||||||||||||||||||||
Phase 1:
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Brookhaven
|
3,664 | 3,213 | 3,030 | 3,121 | 3,014 | 2,779 | 2,460 | |||||||||||||||||||||
McComb area
|
2,161 | 1,983 | 2,005 | 1,843 | 1,746 | 1,902 | 1,769 | |||||||||||||||||||||
Mallalieu area
|
2,925 | 2,646 | 2,620 | 2,587 | 2,585 | 2,461 | 2,181 | |||||||||||||||||||||
Other
|
3,290 | 3,196 | 2,879 | 2,749 | 2,500 | 2,444 | 2,060 | |||||||||||||||||||||
Phase 2:
|
||||||||||||||||||||||||||||
Heidelberg
|
3,374 | 3,548 | 3,141 | 3,728 | 3,583 | 3,823 | 3,716 | |||||||||||||||||||||
Eucutta
|
3,247 | 3,114 | 2,985 | 3,139 | 3,090 | 2,870 | 2,782 | |||||||||||||||||||||
Soso
|
2,582 | 2,317 | 2,331 | 2,162 | 2,063 | 1,947 | 1,923 | |||||||||||||||||||||
Martinville
|
500 | 416 | 453 | 481 | 551 | 480 | 476 | |||||||||||||||||||||
Phase 3:
|
||||||||||||||||||||||||||||
Tinsley
|
6,567 | 6,990 | 7,075 | 6,338 | 7,297 | 8,168 | 8,153 | |||||||||||||||||||||
Phase 4:
|
||||||||||||||||||||||||||||
Cranfield
|
991 | 1,085 | 1,214 | 1,200 | 1,152 | 1,094 | 1,119 | |||||||||||||||||||||
Phase 5:
|
||||||||||||||||||||||||||||
Delhi
|
1,524 | 2,263 | 3,358 | 3,778 | 4,181 | 4,023 | 3,813 | |||||||||||||||||||||
Phase 7:(1)
|
||||||||||||||||||||||||||||
Hastings
|
— | — | — | — | 618 | 1,913 | 2,794 | |||||||||||||||||||||
Phase 8:
|
||||||||||||||||||||||||||||
Oyster Bayou
|
— | — | — | 18 | 877 | 1,304 | 1,540 | |||||||||||||||||||||
Total tertiary oil production (Bbl/d)
|
30,825 | 30,771 | 31,091 | 31,144 | 33,257 | 35,208 | 34,786 | |||||||||||||||||||||
Tertiary lease operating expense per Bbl
|
$ | 24.93 | $ | 22.87 | $ | 24.91 | $ | 23.59 | $ | 26.74 | $ | 22.95 | $ | 23.50 |
(1)
|
As of September 30, 2012, we did not have any tertiary production from our fields in Phase 6, Citronelle Field, which will require an extension to the Free State CO2 Pipeline or another pipeline, depending on the ultimate CO2 source for this field, the timing of which is uncertain.
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
September 30,
|
September 30,
|
||||||||||||||
In thousands, except per share and unit data
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Operating results
|
|
|
|
|
||||||||||||
Net income
|
$ | 85,367 | $ | 275,670 | $ | 410,699 | $ | 520,726 | ||||||||
Net income per common share – basic
|
0.22 | 0.69 | 1.06 | 1.31 | ||||||||||||
Net income per common share – diluted
|
0.22 | 0.68 | 1.05 | 1.29 | ||||||||||||
Net cash provided by operating activities
|
293,506 | 315,739 | 1,026,126 | 839,092 | ||||||||||||
Average daily production volumes
|
||||||||||||||||
Bbls/d
|
67,655 | 61,984 | 67,331 | 60,007 | ||||||||||||
Mcf/d
|
30,724 | 29,079 | 29,318 | 30,736 | ||||||||||||
BOE/d(1)
|
72,776 | 66,830 | 72,217 | 65,129 | ||||||||||||
Operating revenues
|
||||||||||||||||
Oil sales
|
$ | 579,429 | $ | 552,281 | $ | 1,790,326 | $ | 1,621,047 | ||||||||
Natural gas sales
|
8,727 | 13,242 | 23,472 | 41,767 | ||||||||||||
Total oil and natural gas sales
|
$ | 588,156 | $ | 565,523 | $ | 1,813,798 | $ | 1,662,814 | ||||||||
Commodity derivative contracts(2)
|
||||||||||||||||
Cash receipt (payment) on settlement of commodity derivative contracts
|
$ | 6,269 | $ | 4,570 | $ | 12,361 | $ | (4,784 | ) | |||||||
Non-cash fair value adjustment income (expense)
|
(67,900 | ) | 205,584 | 19,842 | 217,092 | |||||||||||
Total income (expense) from commodity derivative contracts
|
$ | (61,631 | ) | $ | 210,154 | $ | 32,203 | $ | 212,308 | |||||||
Unit prices – excluding impact of derivative settlements
|
||||||||||||||||
Oil price per Bbl
|
$ | 93.09 | $ | 96.85 | $ | 97.04 | $ | 98.95 | ||||||||
Natural gas price per Mcf
|
3.09 | 4.95 | 2.92 | 4.98 | ||||||||||||
Unit prices – including impact of derivative settlements(2)
|
||||||||||||||||
Oil price per Bbl
|
$ | 92.99 | $ | 96.52 | $ | 96.52 | $ | 97.50 | ||||||||
Natural gas price per Mcf
|
5.53 | 7.35 | 5.65 | 7.25 | ||||||||||||
Oil and natural gas operating expenses
|
||||||||||||||||
Lease operating expenses
|
$ | 130,485 | $ | 133,285 | $ | 392,960 | $ | 383,167 | ||||||||
Marketing expenses
|
14,728 | 6,416 | 37,776 | 17,989 | ||||||||||||
Taxes other than income(3)
|
40,012 | 36,180 | 122,518 | 108,295 | ||||||||||||
Oil and natural gas operating revenues and expenses per BOE(1)
|
||||||||||||||||
Oil and natural gas revenues
|
$ | 87.84 | $ | 91.98 | $ | 91.66 | $ | 93.52 | ||||||||
Lease operating expenses
|
19.49 | 21.68 | 19.86 | 21.55 | ||||||||||||
Marketing expenses, net of third party purchases
|
1.52 | 1.04 | 1.48 | 1.01 | ||||||||||||
Taxes other than income(4)
|
5.98 | 5.88 | 6.19 | 6.09 | ||||||||||||
Non-tertiary CO2 revenues and expenses:
|
||||||||||||||||
CO2 sales and transportation fees
|
$ | 7,160 | $ | 6,541 | $ | 19,256 | $ | 16,808 | ||||||||
CO2 discovery and operating expenses(5)
|
(1,176 | ) | (1,250 | ) | (8,443 | ) | (4,889 | ) | ||||||||
CO2 revenue and expenses, net
|
$ | 5,984 | $ | 5,291 | $ | 10,813 | $ | 11,919 |
(1)
|
Barrel of oil equivalent using the ratio of one barrel of oil to six Mcf of natural gas ("BOE").
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
(2)
|
See also Item 3. Quantitative and Qualitative Disclosures about Market Risk below for information concerning the Company's derivative transactions.
|
(3)
|
Includes ad valorem, production and franchise taxes.
|
(4)
|
Includes $0.39, $0.37, $0.39 and $0.34, respectively, of franchise and other taxes not related to our oil and gas producing assets.
|
(5)
|
Includes $4.8 million of exploratory drilling costs during the nine months ended September 30, 2012. We incurred no exploratory drilling costs during the three months ended September 30, 2012 nor the three and nine months ended September 30, 2011.
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Average Daily Production (BOE/d)
|
||||||||||||||||||||||||||||
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
||||||||||||||||||||||
Operating Area
|
2011
|
2011
|
2011
|
2011
|
2012
|
2012
|
2012
|
|||||||||||||||||||||
Gulf Coast region:
|
||||||||||||||||||||||||||||
Tertiary oil fields
|
30,825 | 30,771 | 31,091 | 31,144 | 33,257 | 35,208 | 34,786 | |||||||||||||||||||||
Non-tertiary fields:
|
||||||||||||||||||||||||||||
Mississippi
|
5,930 | 5,642 | 5,636 | 4,746 | 4,573 | 4,095 | 3,401 | |||||||||||||||||||||
Texas
|
4,371 | 4,202 | 4,096 | 3,868 | 3,674 | 4,573 | 5,173 | |||||||||||||||||||||
Louisiana
|
511 | 454 | 47 | 141 | 191 | 189 | 144 | |||||||||||||||||||||
Alabama and other
|
1,020 | 1,079 | 1,064 | 1,031 | 1,090 | 1,117 | 993 | |||||||||||||||||||||
Total Gulf Coast region
|
42,657 | 42,148 | 41,934 | 40,930 | 42,785 | 45,182 | 44,497 | |||||||||||||||||||||
Rocky Mountain region:
|
||||||||||||||||||||||||||||
Cedar Creek Anticline
|
9,163 | 8,925 | 8,930 | 8,858 | 8,496 | 8,535 | 8,490 | |||||||||||||||||||||
Bell Creek
|
890 | 936 | 889 | 840 | 859 | 816 | 777 | |||||||||||||||||||||
Other
|
2,134 | 2,147 | 2,204 | 2,135 | 2,404 | 2,314 | 2,361 | |||||||||||||||||||||
Total Rocky Mountain region
|
12,187 | 12,008 | 12,023 | 11,833 | 11,759 | 11,665 | 11,628 | |||||||||||||||||||||
Production excluding properties disposed or to be disposed
|
54,844 | 54,156 | 53,957 | 52,763 | 54,544 | 56,847 | 56,125 | |||||||||||||||||||||
Properties disposed or to be disposed:
|
||||||||||||||||||||||||||||
Bakken area assets (1)
|
6,207 | 8,172 | 10,461 | 12,141 | 15,226 | 15,433 | 16,651 | |||||||||||||||||||||
Gulf Coast assets (2)
|
1,918 | 1,901 | 1,732 | 1,677 | 1,054 | — | — | |||||||||||||||||||||
Paradox assets (3)
|
635 | 690 | 680 | 653 | 708 | 57 | — | |||||||||||||||||||||
Total Production
|
63,604 | 64,919 | 66,830 | 67,234 | 71,532 | 72,337 | 72,776 |
(1)
|
Includes production from certain Bakken area assets pending sale around the end of November 2012.
|
(2)
|
Includes production from certain non-core Gulf Coast assets sold in late February 2012.
|
(3)
|
Includes production from certain non-operated assets in the Greater Aneth Field in the Paradox Basin of Utah sold in April 2012.
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||
September 30,
|
September 30,
|
|||||||||||
2012 vs. 2011
|
2012 vs. 2011
|
|||||||||||
In thousands
|
Increase (Decrease) in Revenues
|
Percentage Increase (Decrease) in Revenues
|
Increase (Decrease) in Revenues
|
Percentage Increase (Decrease) in Revenues
|
||||||||
Change in oil and natural gas revenues due to:
|
||||||||||||
Increase in production
|
$
|
50,317
|
9%
|
$
|
187,707
|
11%
|
||||||
Decrease in commodity prices
|
(27,684)
|
-5%
|
(36,723)
|
-2%
|
||||||||
Total increase in oil and natural gas revenues
|
$
|
22,633
|
4%
|
$
|
150,984
|
9%
|
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Three Months Ended
|
Three Months Ended
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||
March 31,
|
June 30,
|
September 30,
|
September 30,
|
|||||||||||||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||||||||||
Net Realized Prices:
|
||||||||||||||||||||||||||||||||
Oil price per Bbl
|
$ | 102.52 | $ | 93.67 | $ | 95.63 | $ | 106.30 | $ | 93.09 | $ | 96.85 | $ | 97.04 | $ | 98.95 | ||||||||||||||||
Natural gas price per Mcf
|
3.84 | 4.81 | 1.87 | 5.16 | 3.09 | 4.95 | 2.92 | 4.98 | ||||||||||||||||||||||||
Price per BOE
|
97.32 | 88.42 | 89.96 | 100.06 | 87.84 | 91.98 | 91.66 | 93.52 | ||||||||||||||||||||||||
NYMEX Differentials:
|
||||||||||||||||||||||||||||||||
Oil per Bbl
|
$ | (0.37 | ) | $ | (0.59 | ) | $ | 2.14 | $ | 3.72 | $ | 0.80 | $ | 7.25 | $ | 0.84 | $ | 3.49 | ||||||||||||||
Natural gas per Mcf
|
1.32 | 0.61 | (0.49 | ) | 0.78 | 0.20 | 0.89 | 0.33 | 0.77 |
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Three Months Ended September 30, | ||||||||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||||
In thousands
|
Oil
Derivative Contracts
|
Natural Gas
Derivative Contracts
|
Total Commodity
Derivative Contracts
|
|||||||||||||||||||||
Non-cash fair value gain (loss)
|
$ | (60,726 | ) | $ | 205,355 | $ | (7,174 | ) | $ | 229 | $ | (67,900 | ) | $ | 205,584 | |||||||||
Cash settlement receipts (payments)
|
(641 | ) | (1,857 | ) | 6,910 | 6,427 | 6,269 | 4,570 | ||||||||||||||||
Total
|
$ | (61,367 | ) | $ | 203,498 | $ | (264 | ) | $ | 6,656 | $ | (61,631 | ) | $ | 210,154 |
Nine Months Ended September 30, | ||||||||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||||
In thousands
|
Oil
Derivative Contracts
|
Natural Gas
Derivative Contracts
|
Total Commodity
Derivative Contracts
|
|||||||||||||||||||||
Non-cash fair value gain (loss)
|
$ | 37,752 | $ | 225,485 | $ | (17,910 | ) | $ | (8,393 | ) | $ | 19,842 | $ | 217,092 | ||||||||||
Cash settlement receipts (payments)
|
(9,580 | ) | (23,857 | ) | 21,941 | 19,073 | 12,361 | (4,784 | ) | |||||||||||||||
Total
|
$ | 28,172 | $ | 201,628 | $ | 4,031 | $ | 10,680 | $ | 32,203 | $ | 212,308 |
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
In thousands, except per BOE data and employees
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Administrative costs
|
$ | 76,192 | $ | 56,661 | $ | 221,991 | $ | 183,605 | ||||||||
Stock-based compensation
|
9,247 | 11,154 | 29,205 | 32,178 | ||||||||||||
Operator labor and overhead recovery charges
|
(34,659 | ) | (32,166 | ) | (104,665 | ) | (92,859 | ) | ||||||||
Capitalized exploration and development costs
|
(12,582 | ) | (9,036 | ) | (36,900 | ) | (25,283 | ) | ||||||||
Net G&A expense
|
$ | 38,198 | $ | 26,613 | $ | 109,631 | $ | 97,641 | ||||||||
G&A per BOE:
|
||||||||||||||||
Administrative costs, net
|
$ | 4.70 | $ | 2.88 | $ | 4.50 | $ | 4.07 | ||||||||
Stock-based compensation, net
|
1.01 | 1.45 | 1.04 | 1.42 | ||||||||||||
Net G&A expense
|
$ | 5.71 | $ | 4.33 | $ | 5.54 | $ | 5.49 | ||||||||
Employees as of September 30
|
1,423 | 1,274 |
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Interest and Financing Expenses
|
||||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
In thousands, except per BOE data and interest rates
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Cash interest expense
|
$ | 53,569 | $ | 51,540 | $ | 161,978 | $ | 156,255 | ||||||||
Non-cash interest expense
|
3,695 | 3,930 | 11,124 | 14,392 | ||||||||||||
Less: capitalized interest
|
(19,437 | ) | (17,853 | ) | (57,357 | ) | (42,004 | ) | ||||||||
Interest expense
|
$ | 37,827 | $ | 37,617 | $ | 115,745 | $ | 128,643 | ||||||||
Interest income and other income
|
$ | 5,055 | $ | 4,441 | $ | 14,214 | $ | 12,445 | ||||||||
Net cash interest expense and other income per BOE (1)
|
$ | 4.34 | $ | 4.80 | $ | 4.57 | $ | 5.79 | ||||||||
Average debt outstanding
|
$ | 3,073,450 | $ | 2,426,820 | $ | 2,874,146 | $ | 2,415,193 | ||||||||
Average interest rate (2)
|
7.0 | % | 8.5 | % | 7.5 | % | 8.6 | % |
(1)
|
Cash interest expense less capitalized interest less interest and other income on BOE basis.
|
(2)
|
Includes commitment fees but excludes debt issue costs and amortization of discount and premium.
|
Depletion, Depreciation, and Amortization ("DD&A")
|
||||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
In thousands, except per BOE data
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Depletion and depreciation of oil and natural gas properties
|
$ | 112,617 | $ | 90,241 | $ | 328,952 | $ | 264,288 | ||||||||
Depletion and depreciation of CO2 properties
|
5,829 | 4,625 | 16,365 | 13,803 | ||||||||||||
Asset retirement obligations
|
1,992 | 1,456 | 5,516 | 4,715 | ||||||||||||
Depreciation of other fixed assets
|
16,497 | 5,656 | 39,286 | 16,261 | ||||||||||||
Total DD&A
|
$ | 136,935 | $ | 101,978 | $ | 390,119 | $ | 299,067 | ||||||||
DD&A per BOE:
|
||||||||||||||||
Oil and natural gas properties
|
$ | 17.12 | $ | 14.91 | $ | 16.90 | $ | 15.13 | ||||||||
CO2 and other fixed assets
|
3.33 | 1.68 | 2.82 | 1.69 | ||||||||||||
Total DD&A cost per BOE
|
$ | 20.45 | $ | 16.59 | $ | 19.72 | $ | 16.82 |
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Income Taxes
|
||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
In thousands, except per BOE amounts and tax rates
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Current income tax expense (benefit)
|
$ | 4,342 | $ | (5,331 | ) | $ | 33,834 | $ | 5,849 | |||||||
Deferred income tax expense
|
49,670 | 172,981 | 216,959 | 317,601 | ||||||||||||
Total income tax expense
|
$ | 54,012 | $ | 167,650 | $ | 250,793 | $ | 323,450 | ||||||||
Average income tax expense per BOE
|
$ | 8.07 | $ | 27.27 | $ | 12.67 | $ | 18.19 | ||||||||
Effective tax rate
|
38.8 | % | 37.8 | % | 37.9 | % | 38.3 | % |
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
Per BOE data
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Oil and natural gas revenues
|
$ | 87.84 | $ | 91.98 | $ | 91.66 | $ | 93.52 | ||||||||
Gain on settlements of derivative contracts
|
0.93 | 0.74 | 0.63 | (0.27 | ) | |||||||||||
Lease operating expenses
|
(19.49 | ) | (21.68 | ) | (19.86 | ) | (21.55 | ) | ||||||||
Production and ad valorem taxes
|
(5.59 | ) | (5.51 | ) | (5.80 | ) | (5.75 | ) | ||||||||
Marketing expenses, net of third party purchases
|
(1.52 | ) | (1.04 | ) | (1.48 | ) | (1.01 | ) | ||||||||
Production netback
|
62.17 | 64.49 | 65.15 | 64.94 | ||||||||||||
CO2 sales, net of operating expenses
|
0.89 | 0.86 | 0.54 | 0.67 | ||||||||||||
General and administrative expenses
|
(5.71 | ) | (4.33 | ) | (5.54 | ) | (5.49 | ) | ||||||||
Net cash interest expense and other income
|
(4.34 | ) | (4.80 | ) | (4.57 | ) | (5.79 | ) | ||||||||
Other
|
(0.70 | ) | 1.96 | (1.79 | ) | 0.38 | ||||||||||
Changes in assets and liabilities relating to operations
|
(8.47 | ) | (6.83 | ) | (1.93 | ) | (7.52 | ) | ||||||||
Cash flow from operations
|
43.84 | 51.35 | 51.86 | 47.19 | ||||||||||||
DD&A
|
(20.45 | ) | (16.59 | ) | (19.72 | ) | (16.82 | ) | ||||||||
Deferred income taxes
|
(7.42 | ) | (28.13 | ) | (10.96 | ) | (17.86 | ) | ||||||||
Loss on early extinguishment of debt
|
— | — | — | (0.91 | ) | |||||||||||
Non-cash commodity derivative adjustments
|
(10.13 | ) | 33.44 | 1.00 | 12.21 | |||||||||||
Impairment of assets
|
— | — | (0.89 | ) | — | |||||||||||
Other non-cash items
|
6.91 | 4.77 | (0.53 | ) | 5.48 | |||||||||||
Net income
|
$ | 12.75 | $ | 44.84 | $ | 20.76 | $ | 29.29 |
Denbury Resources Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
In thousands, except percentages
|
2014
|
2015
|
2016
|
2017
|
2020
|
2021
|
||||||||||||||||||
Variable rate debt:
|
|
|
|
|
|
|||||||||||||||||||
Bank Credit Facility (weighted average interest rate of 2.00% at September 30, 2012)
|
$ | — | $ | — | $ | 625,000 | $ | — | $ | — | $ | — | ||||||||||||
Fixed rate debt:
|
||||||||||||||||||||||||
9½% Senior Subordinated Notes due 2016
|
— | — | 224,920 | — | — | — | ||||||||||||||||||
9¾% Senior Subordinated Notes due 2016
|
— | — | 426,350 | — | — | — | ||||||||||||||||||
8¼% Senior Subordinated Notes due 2020
|
— | — | — | — | 996,273 | — | ||||||||||||||||||
6⅜% Senior Subordinated Notes due 2021
|
— | — | — | — | — | 400,000 | ||||||||||||||||||
Other Subordinated Notes
|
1,072 | 485 | — | 2,250 | — | — |
Denbury Resources Inc.
|
Receipt / (Payment)
|
||||||||
In thousands
|
Crude Oil
Derivative
Contracts
|
Natural Gas
Derivative
Contracts
|
||||||
Based on:
|
||||||||
NYMEX futures prices as of September 30, 2012
|
$ | (664 | ) | $ | 6,073 | |||
10% increase in prices
|
(1,393 | ) | 5,478 | |||||
10% decrease in prices
|
(131 | ) | 6,665 |
Approximate Dollar
|
|||||||||||
Total Number of
|
Value of Shares
|
||||||||||
Total
|
Shares Purchased
|
that May Yet Be
|
|||||||||
Number of
|
Average
|
as Part of Publicly
|
Purchased Under the
|
||||||||
Shares
|
Price Paid
|
Announced Plans or
|
Plans or Programs
|
||||||||
Month
|
Purchased
|
per Share
|
Programs
|
(in millions)
|
|||||||
July 2012
|
4,378
|
$
|
14.62
|
—
|
$
|
—
|
|||||
August 2012
|
15,468
|
15.63
|
—
|
—
|
|||||||
September 2012
|
2,503,765
|
16.48
|
2,493,435
|
263.7 (1)
|
|||||||
Total
|
2,523,611
|
16.47
|
2,493,435
|
$
|
263.7
|
(1)
|
Amounts shown do not give effect to the repurchase of an additional 2,133,910 shares of Denbury common stock in October 2012 under the share repurchase program for $34.9 million, or $16.35 per share. From the time the $500 million share repurchase program commenced in October 2011 through October 2012, we have purchased a total of $271.2 million of common stock under the program, and thus are authorized to spend an additional $228.8 million under this repurchase program.
|
Exhibit |
Description
|
|
2(a)
|
Exchange Agreement by and among Denbury Onshore, LLC, XTO Energy Inc., and Exxon Mobil Corporation dated as of September 19, 2012 (incorporated by reference from Exhibit 2.1 of our Form 8-K filed on September 25, 2012).
|
|
3(a)*
|
Second Restated Certificate of Incorporation of Denbury Resources Inc.
|
|
3(b)
|
Amended and Restated Bylaws of Denbury Resources Inc. (incorporated by reference from Exhibit 3.2 of our Form 8-K filed on May 21, 2012).
|
|
10(a)*
|
Ninth Amendment to Credit Agreement dated as of March 9, 2010, dated as of November 2, 2012, among Denbury Resources Inc., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the financial institutions party thereto.
|
|
31(a)*
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31(b)*
|
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.
|
|
101*
|
Interactive Data Files.
|
*
|
Included herewith.
|
DENBURY RESOURCES INC.
|
||
Date: November 8, 2012
|
/s/ Mark C. Allen
|
|
Mark C. Allen
|
||
Senior Vice President and Chief Financial Officer
|
||
Date: November 8, 2012
|
/s/ Alan Rhoades
|
|
Alan Rhoades
|
||
Vice President and Chief Accounting Officer
|
Denbury Resources Inc.
|
Exhibit
|
Description
|
|
2(a)
|
Exchange Agreement by and among Denbury Onshore, LLC, XTO Energy Inc., and Exxon Mobil Corporation dated as of September 19, 2012 (incorporated by reference from Exhibit 2.1 of our Form 8-K filed on September 25, 2012).
|
|
3(a)*
|
Second Restated Certificate of Incorporation of Denbury Resources Inc.
|
|
3(b)
|
Amended and Restated Bylaws of Denbury Resources Inc. (incorporated by reference from Exhibit 3.2 of our Form 8-K filed on May 21, 2012).
|
|
10(a)*
|
Ninth Amendment to Credit Agreement dated as of March 9, 2010, dated as of November 2, 2012, among Denbury Resources Inc., as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the financial institutions party thereto.
|
|
31(a)*
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31(b)*
|
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.
|
|
101*
|
Interactive Data Files.
|
*
|
Included herewith.
|
- 47 - |
BORROWER:
|
||
DENBURY RESOURCES INC.,
a Delaware corporation
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
DENBURY GATHERING & MARKETING, INC.,
a Delaware corporation
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
DENBURY HOLDINGS, INC.,
a Delaware corporation (f/k/a Denbury Encore Holdings Inc.)
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
DENBURY OPERATING COMPANY,
a Delaware corporation (f/k/a EAP Properties, Inc. and successor-by-merger to a previous “Denbury Operating Company”)
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
DENBURY ONSHORE, LLC,
a Delaware limited liability company
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
DENBURY PIPELINE HOLDINGS, LLC,
a Delaware limited liability company
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
DENBURY GREEN PIPELINE-TEXAS, LLC,
a Delaware limited liability company
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
DENBURY GULF COAST PIPELINES, LLC,
a Delaware limited liability company
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
GREENCORE PIPELINE COMPANY LLC,
a Delaware limited liability company
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
DENBURY AIR, LLC,
a Delaware limited liability company (f/k/a EAP Operating, LLC)
|
||
By:
|
/s/ James S. Matthews
|
|
James S. Matthews,
Vice President and General Counsel
|
ADMINISTRATIVE AGENT/BANK:
|
||
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent and a Bank
|
||
By:
|
/s/ Mark E. Olson
|
|
Mark E. Olson,
Authorized Officer
|
BANKS:
|
||
BANK OF AMERICA, N.A.
|
||
By:
|
/s/ Margaret Niekrash
|
|
Name:
|
Margaret Niekrash
|
|
Title:
|
Vice President
|
BANKS:
|
||
WELLS FARGO BANK, N.A.
|
||
By:
|
/s/ Tom K. Martin
|
|
Name:
|
Tom K. Martin
|
|
Title:
|
Director
|
BANKS:
|
||
THE BANK OF NOVA SCOTIA
|
||
By:
|
/s/ Terry Donovan
|
|
Name:
|
Terry Donovan
|
|
Title:
|
Managing Director
|
BANKS:
|
||
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH
|
||
By:
|
/s/ Doreen Barr
|
|
Name:
|
Doreen Barr
|
|
Title:
|
Director
|
By:
|
/s/ Michael D. Spaight
|
|
Name:
|
Michael D. Spaight
|
|
Title:
|
Associate
|
BANKS:
|
||
ROYAL BANK OF CANADA
|
||
By:
|
/s/ Jay T. Sartain
|
|
Name:
|
Jay T. Sartain
|
|
Title:
|
Authorized Signatory
|
BANKS:
|
||
UBS AG, STAMFORD BRANCH
|
||
By:
|
/s/ Irja R. Otsa
|
|
Name:
|
Irja R. Otsa
|
|
Title:
|
Associate Director
|
By:
|
/s/ Joselin Fernandes
|
|
Name:
|
Joselin Fernandes
|
|
Title:
|
Associate Director
|
BANKS:
|
||
UNION BANK, N.A.
|
||
By:
|
/s/ David Carter
|
|
Name:
|
David Carter
|
|
Title:
|
Investment Banking Officer
|
BANKS:
|
||
CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK (f/k/a CALYON NEW YORK BRANCH)
|
||
By:
|
/s/ Dixon Schultz
|
|
Name:
|
Dixon Schultz
|
|
Title:
|
Managing Director
|
By:
|
/s/ Sharada Manne
|
|
Name:
|
Sharada Manne
|
|
Title:
|
Managing Director
|
BANKS:
|
||
BANK OF SCOTLAND plc
|
||
By:
|
/s/ Julia R. Franklin
|
|
Name:
|
Julia R. Franklin
|
|
Title:
|
Vice President
|
BANKS:
|
||
COMPASS BANK
|
||
By:
|
/s/ Umar Hassan
|
|
Name:
|
Umar Hassan
|
|
Title:
|
Vice President
|
BANKS:
|
||
CAPITAL ONE NATIONAL ASSOCIATION, formerly known as Capital One, N.A.
|
||
By:
|
/s/ Peter Shen
|
|
Name:
|
Peter Shen
|
|
Title:
|
Vice President
|
|
BANKS:
|
||
COMERICA BANK
|
||
By:
|
/s/ John S. Lesikar
|
|
Name:
|
John S. Lesikar
|
|
Title:
|
Vice President
|
BANKS:
|
||
ING CAPITAL LLC
|
||
By:
|
/s/ Charles Hall
|
|
Name:
|
Charles Hall
|
|
Title:
|
Managing Director
|
BANKS:
|
||
SUNTRUST BANK
|
||
By:
|
/s/ Yann Pirio
|
|
Name:
|
Yann Pirio
|
|
Title:
|
Director
|
BANKS:
|
||
CIBC, INC.
|
||
By:
|
/s/ Trudy Nelson
|
|
Name:
|
Trudy Nelson
|
|
Title:
|
Authorized Signatory
|
By:
|
/s/ Richard Antl
|
|
Name:
|
Richard Antl
|
|
Title:
|
Authorized Signatory
|
BANKS:
|
||
KEYBANK NATIONAL ASSOCIATION
|
||
By:
|
/s/ Chulley Bogle
|
|
Name:
|
Chulley Bogle
|
|
Title:
|
Vice President
|
BANKS:
|
||
U.S. BANK NATIONAL ASSOCIATION
|
||
By:
|
/s/ Daria Mahoney
|
|
Name:
|
Daria Mahoney
|
|
Title:
|
Vice President
|
BANKS:
|
||
SUMITOMO MITSUI BANKING CORPORATION
|
||
By:
|
/s/ Shuji Yabe
|
|
Name:
|
Shuji Yabe
|
|
Title:
|
Managing Director
|
BANKS:
|
||
FIFTH THIRD BANK
|
||
By:
|
/s/ Richard C. Butler
|
|
Name:
|
Richard C. Butler
|
|
Title:
|
Senior Vice President
|
BANKS:
|
||
COMERICA BANK, successor by merger with
STERLING BANK, a Texas banking association, as a Lender
|
||
By:
|
/s/ John Lesikar
|
|
Name:
|
John Lesikar
|
|
Title:
|
Vice President
|
BANKS:
|
||
GOLDMAN SACHS LENDING
PARTNERS LLC
|
||
By:
|
/s/ Jennifer Dokish
|
|
Name:
|
Jennifer Dokish
|
|
Title:
|
Authorized Signatory
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Denbury Resources Inc. (the “registrant”);
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
November 8, 2012
|
/s/ Phil Rykhoek
|
||||||
Phil Rykhoek
|
|||||||
Chief Executive Officer
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Denbury Resources Inc. (the “registrant”);
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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November 8, 2012
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/s/ Mark C. Allen
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Mark C. Allen
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Senior Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Denbury.
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Dated: November 8, 2012
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/s/ Phil Rykhoek
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Phil Rykhoek
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Chief Executive Officer
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Dated: November 8, 2012
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/s/ Mark C. Allen
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Mark C. Allen
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Senior Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary
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Derivative Instruments and Hedging Activities (Summary of Derivative Income/Expense) (Details) (USD $)
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3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
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Sep. 30, 2011
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Sep. 30, 2012
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Sep. 30, 2011
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Derivative Instruments, Gain (Loss) [Line Items] | ||||
Derivatives expense (income) | $ 61,631,000 | $ (210,154,000) | $ (32,203,000) | $ (212,308,000) |
Crude Oil Contracts [Member]
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Derivative Instruments, Gain (Loss) [Line Items] | ||||
Payment (receipt) on settlements of derivative contracts | 641,000 | 1,857,000 | 9,580,000 | 23,857,000 |
Fair value adjustments to derivative contracts - expense (income) | 60,726,000 | (205,355,000) | (37,752,000) | (225,485,000) |
Total derivatives expense (income) - oil & natural gas | 61,367,000 | (203,498,000) | (28,172,000) | (201,628,000) |
Natural Gas Contracts [Member]
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Derivative Instruments, Gain (Loss) [Line Items] | ||||
Payment (receipt) on settlements of derivative contracts | (6,910,000) | (6,427,000) | (21,941,000) | (19,073,000) |
Fair value adjustments to derivative contracts - expense (income) | 7,174,000 | (229,000) | 17,910,000 | 8,393,000 |
Total derivatives expense (income) - oil & natural gas | $ 264,000 | $ (6,656,000) | $ (4,031,000) | $ (10,680,000) |
Basis of Presentation (Anti-dilutive Securities Excluded From Diluted Net EPS) (Details)
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3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
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Sep. 30, 2011
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Sep. 30, 2012
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Sep. 30, 2011
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Stock Option And Stock Appreciation Rights [Member]
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Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Total | 5,375,000 | 4,731,000 | 4,140,000 | 3,108,000 |
Restricted stock [Member]
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Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Total | 69,000 | 139,000 | 63,000 | 56,000 |
Basis of Presentation
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Sep. 30, 2012
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Significant Accounting Policies | Note 1. Basis of Presentation
Organization and Nature of Operations
Denbury Resources Inc., a Delaware corporation, is a growing independent oil and natural gas company. We are the largest combined 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 our acquired properties through a combination of exploitation, drilling and proven engineering extraction practices, with our most significant emphasis on our CO2 tertiary recovery operations.
Interim Financial Statements
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.
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, 2012, our consolidated results of operations for the three and nine months ended September 30, 2012 and 2011, and our consolidated cash flows for the nine months ended September 30, 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 and nine months ended September 30, 2011, “Taxes other than income” is a new line item and includes (i) oil and natural gas ad valorem taxes, which were reclassified from “Lease operating expenses,” (ii) franchise taxes and property taxes on buildings, which were reclassified from “General and administrative,” (iii) oil and natural gas production taxes, which were reclassified from “Production taxes and marketing expenses” used in prior reports and (iv) 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. 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 includes the effect of potentially dilutive securities. Potentially dilutive securities consist of stock options, stock appreciation rights (“SARs”), nonvested restricted stock, and nonvested performance equity awards. For the three and nine months ended September 30, 2012 and 2011, there were no adjustments to net income for purposes of calculating diluted net income per common share. The following is a reconciliation of the weighted average shares used in the basic and diluted net income per common share calculations for the periods indicated:
Basic weighted average common shares excludes 3.6 million and 3.7 million shares for the three and nine months ended September 30, 2012, respectively, and 3.4 million and 3.5 million shares for the three and nine months ended September 30, 2011, respectively, of nonvested 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, 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.
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 antidilutive:
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 $1.8 million and $5.3 million on the Vanguard common units we owned during the three and nine months ended September 30, 2011, respectively, 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 $83.5 million, net of related transaction fees. The Company recognized a pretax loss on the sale of $3.1 million, which is included in “Other expenses” on our Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2012. Goodwill
The following table summarizes the changes in Denbury's goodwill for the period indicated:
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 6, Fair Value Measurements. |