Interactive 2009 Annual Report (PDF 7.56 MB) - Denbury Resources ...

66 Denbury Resources Inc. 2009 Annual ReportWe recognize the stock-based compensation expense on a straight-line basis over the requisite service period forthe entire award. The expense we recognize is net of estimated forfeitures. We estimate our forfeiture rate based onprior experience and true it up for actual results as the awards vest. As of December 31, 2009, there was $18.8 millionof total compensation cost to be recognized in future periods related to non-vested stock options and SARs. The costis expected to be recognized over a weighted-average period of 2.5 years.Asset Retirement ObligationsWe have significant obligations related to the plugging and abandonment of our oil, natural gas and CO 2 wells, theremoval of equipment and facilities from leased acreage, and land restoration. The FASC asset retirement topic requiresthat we estimate the future cost of this obligation, discount it to its present value, and record a corresponding assetand liability in our Consolidated Balance Sheets. The values ultimately derived are based on many significant estimates,including the ultimate expected cost of the obligation, the expected future date of the required cash payment, andinterest and inflation rates. Revisions to these estimates may be required based on changes to cost estimates, thetiming of settlement, and changes in legal requirements. Any such changes that result in upward or downward revisionsin the estimated obligation will result in an adjustment to the related capitalized asset and corresponding liability on aprospective basis and an adjustment in our DD&A expense in future periods. See Note 4 to our Consolidated FinancialStatements for further discussion regarding our asset retirement obligations.Use of EstimatesThe preparation of financial statements requires us to make other estimates and assumptions that affect the reportedamounts of certain assets, liabilities, revenues and expenses during each reporting period. We believe that ourestimates and assumptions are reasonable and reliable, and believe that the ultimate actual results will not differsignificantly from those reported; however, such estimates and assumptions are subject to a number of risks anduncertainties, and such risks and uncertainties could cause the actual results to differ materially from our estimates.Recent Accounting PronouncementsTransfers of Financial Assets. In June 2009, the FASB issued guidance related to the accounting for transfers offinancial assets. The guidance removes the concept of a qualifying special-purpose entity (“QSPE”) from FASC topic,“Transfers and Servicing”, creates a new unit of account definition that must be met for transfers of portions of financialassets to be eligible for sale accounting, clarifies the de-recognition criteria for a transfer to be accounted for as asale, changes the amount of recognized gains or losses on the transfer of financial assets accounted for as a sale whenbeneficial interests are received by the transferor and introduces new disclosure requirements. The new guidanceis effective for us beginning January 1, 2010. The adoption did not have a material impact on our financial condition orresults of operations.Consolidation of Variable Interest Entities. In June 2009, the FASB issued guidance to eliminate the exemption inthe “Consolidation” topic of the FASC for QSPEs, introduce a new approach for determining who should consolidate avariable interest entity and change the requirement as to when it is necessary to reassess who should consolidate avariable interest entity. We adopted the standard on January 1, 2010. The adoption did not have a material impact onour financial condition or results of operations.Fair Value Disclosures. In January 2010, the FASB issued guidance in the “Fair Value Measurements andDisclosures” topic of the FASC to enhance disclosures surrounding the transfers of assets in and out of level 1 and level2, to present more detail surrounding asset activity for level 3 assets and to clarify existing disclosure requirements.The new guidance is effective for the Company beginning January 1, 2010, and will not have any impact on our financialposition or statement of operations.Form 10-K Part IIManagement’s Discussion and Analysis of Financial Condition and Results of Operations