Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 7. Commitments and Contingencies

Commitments

In the second quarter of 2016, we amended our CO₂ offtake agreement with Mississippi Power Company (“MSPC”), which amendment included increasing our offtake percentage from 70% to 100% of CO₂ quantities produced and lowering the base price related to the cost of CO₂, deliveries of which are currently expected to begin in late 2016 or early 2017. Based on the amended terms in the agreement, we concluded for accounting purposes that the agreement contains an embedded lease related to the pipeline owned by MSPC used to transport CO₂ to Denbury. We currently plan to record a capital lease on the balance sheet of approximately $110 million upon lease commencement.

Litigation

We are involved in various lawsuits, claims and regulatory proceedings incidental to our businesses.  We are also subject to audits for various taxes (income, sales and use, and severance) in the various states in which we operate, and from time to time receive assessments for potential taxes that we may owe. 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.  Although a single or multiple adverse rulings or settlements could possibly have a material adverse effect on our finances, we only accrue for losses from litigation and claims if we determine that a loss is probable and the amount can be reasonably estimated.

Settlement of NGS Sub Corp., Evolution, et al v. Denbury Onshore, LLC

During the second quarter of 2016, we settled the case brought by Evolution Petroleum Corporation (together with its subsidiaries, “Evolution”) involving the Delhi Field in northeastern Louisiana, resolving all outstanding disputes and claims the parties had or may have had against each other, including pending litigation claims.

Under the terms of the settlement agreement, (1) we paid Evolution $27.5 million in cash on June 30, 2016; (2) effective July 1, 2016, Denbury conveyed to Evolution 25% of the interests in the Mengel Sand Interval, a separate interval within the Delhi Unit which we purchased for approximately $6.5 million in late 2014, and which interval is not currently producing; (3) effective July 1, 2016, we were credited with an additional 0.2226% overriding royalty interest in the Holt-Bryant interval (the currently producing interval of the Delhi Unit); (4) the parties reached agreement as to the ownership of certain field assets, and established future CO₂ pipeline transportation charges following the end of the current ten-year fixed price arrangement set to expire in 2019; (5) Evolution waived and released any claims it may have to any insurance proceeds that may be received as a result of existing claims made by Denbury with respect to the June 2013 incident at Delhi Field; and (6) on July 11, 2016, the Court dismissed with prejudice the pending Delhi Field litigation between the parties. The cash payment was recorded to “Other expenses” in our Unaudited Condensed Consolidated Statements of Operations in the second quarter of 2016.