Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 7. Commitments and Contingencies

We are involved in various lawsuits, claims and other regulatory proceedings incidental to our businesses.  While we currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations or cash flows, litigation is subject to inherent uncertainties.  If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our net income in the period in which the ruling occurs.  We provide accruals for litigation and claims if we determine that a loss is probable and the amount can be reasonably estimated.  We are also subject to audits for sales and use taxes and severance taxes in the various states in which we operate, and from time to time receive assessments for potential taxes that we may owe.

Delhi Field Release

In June 2013, a release of well fluids, consisting of a mixture of carbon dioxide, saltwater, natural gas and a small percentage of oil, was discovered and reported within the Denbury-operated Delhi Field located in northern Louisiana.  Denbury immediately took remedial action to stop the release and contain and recover well fluids in the affected area. We continue to actively work with government and local officials and agencies to determine the best course of remediation. Currently, we believe the origin of the release to be one or more wells in the affected area of the field that had been previously plugged and abandoned. We currently estimate that we will incur a minimum of $70.0 million to stop the release and remediate the affected area. Accordingly, during the second quarter of 2013, we recorded $70.0 million of lease operating expense related to the release in our Unaudited Condensed Consolidated Statement of Operations and a corresponding liability classified as Accounts payable and accrued liabilities in our Unaudited Condensed Consolidated Balance Sheet. This estimate is based on costs incurred through July 31, 2013 of approximately $45.0 million, plus the Company's estimate of the minimum level of future costs based on our current understanding of the environmental impact of the release and methods available to remediate impacted properties. Since the area is still in the process of being remediated and final restoration plans have not yet been agreed upon with regulatory agencies, we are currently unable to reliably estimate the full extent of the costs that may ultimately be incurred by the Company related to this release. The Company maintains insurance coverage which we believe covers certain of the costs and damages related to the release, and we currently estimate that one-third to two-thirds of our minimum cost estimate may be recoverable under our insurance policies. However, we have not reached any agreement with our insurance carriers as to recoverable amounts, and given the uncertainties concerning our ultimate insurance recoveries, we have not recognized any such recoveries in our financial statements as of June 30, 2013. Insurance recoveries will be recognized in our financial statements during the period received or at the time receipt is determined to be virtually certain.