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

84 Denbury Resources Inc. 2009 Annual Reportthe Hastings Field acquisition is also due to the decrease in the NYMEX oil and natural gas futures prices between theeffective date of January 1, 2009, which is the date at which the acquisition price was determined, and the acquisitiondate of February 2, 2009, which is the date at which the assets were valued for accounting purposes. The purchaseagreement provided that the Hastings Field reserves be valued using the NYMEX oil and gas futures prices on theeffective date of January 1, 2009.The fair value of Conroe Field and Hastings Field was based on significant inputs not observable in the market, whichFASC “Fair Value Measurements and Disclosures” topic defines as Level 3 inputs. Key assumptions include (1) NYMEXoil and natural gas futures (this input is observable), (2) projections of the estimated quantities of oil and natural gasreserves, (3) projections of future rates of production, (4) timing and amount of future development and operating costs,(5) projected cost of CO 2 to a market participant, (6) projected recovery factors and, (7) risk adjusted discount rates.Goodwill is deductible for tax purposes. The Conroe Field purchase price allocation is preliminary and subject tochanges resulting from final closing adjustments.Unaudited Pro Forma Information. Had our acquisitions of both Conroe Field and Hastings Fields occurred onJanuary 1, 2009 and January 1, 2008, Denbury’s combined pro forma revenue and net income (loss) would have beenas follows:Year Ended December 31,In thousands 2009 2008Revenues $ 937,986 $ 1,547,776Net income (loss) (71,774) 422,7072009 DispositionsMay 2009 Sale of 60% of Denbury’s Barnett Shale Natural Gas Assets. In May 2009, we entered into anagreement to sell 60% of our Barnett Shale natural gas assets to Talon Oil and Gas LLC (“Talon”), a privately heldcompany, for $270 million (before closing adjustments). We closed on approximately three-quarters of the sale inJune 2009 and closed on the remainder of the sale in July 2009. Net proceeds were $259.8 million (after preliminaryclosing adjustments, and net of $8.1 million for natural gas swaps transferred in the sale). The agreement has aneffective date of June 1, 2009, and consequently operating net revenues after June 1, net of capital expenditures, alongwith any other purchase price adjustments, were adjustments to the selling price. We did not record a gain or loss onthe sale in accordance with the full cost method of accounting.December 2009 Sale of Remaining 40% of Denbury’s Barnett Shale Natural Gas Assets. In December 2009,Denbury closed the sale of its remaining 40% interest in Barnett Shale natural gas assets to Talon for $210 million(before closing adjustments). The effective date under the agreement was December 1, 2009. Denbury did not recorda gain or loss on the sale in accordance with the full cost method of accounting.2007 Acquisitions and DispositionsSale of Louisiana Natural Gas Asset. In October 2007, we entered into an agreement to sell our Louisiana naturalgas assets to a privately held company for approximately $180 million (before closing adjustments) plus we retained anet profits interest in one well. In late December 2007, we closed on approximately 70% of that sale with net proceedsof approximately $108.6 million (including estimated final purchase price adjustments). We closed on the remainingportion of the sale in February 2008 and received net proceeds of approximately $48.9 million. The agreement waseffective August 1, 2007, and consequently operating net revenue after August 1, net of capital expenditures, along withany other minor closing items were adjustments to the purchase price. The potential net profits interest relates to a wellin the South Chauvin field and is only earned if operating income from that well exceeds certain levels. During 2009, webegan receiving revenue payments related to the net profits interest in this well. The operating results of these soldproperties are included in our financial statements through the applicable closing dates of the sold properties. We did notrecord any gain or loss on the sale in accordance with the full cost method of accounting.Purchase of Seabreeze Complex. On March 30, 2007, Denbury completed the acquisition of the SeabreezeComplex, which is composed of two significant fields and four smaller fields in the general area of Houston, Texas. Twoof these fields are future potential CO 2 tertiary flood candidates. Tertiary flooding at one of these fields, Oyster Bayou,Form 10-K Part IINotes to Consolidated Financial Statements