86 <strong>Denbury</strong> <strong>Resources</strong> Inc. <strong>2009</strong> <strong>Annual</strong> <strong>Report</strong>Oil Sales and Transportation ServicesWe utilize Genesis’ trucking services and common carrier pipeline to transport certain of our crude oil production tosales points where it is sold to third party purchasers. We expensed $7.9 million in <strong>2009</strong>, $8.0 million in 2008, and $6.0million in 2007 for these transportation services.Transportation LeasesWe have pipeline transportation agreements with Genesis to transport our crude oil from certain of our fields inSouthwest Mississippi, and to transport CO 2 from our main CO 2 pipeline to Brookhaven Field for our tertiaryoperations. We have accounted for these agreements as capital leases. The pipelines held under these capital leasesare classified as property and equipment and are amortized using the straight-line method over the lease terms. Leaseamortization is included in depreciation expense. The related obligations are recorded as debt. At December 31,<strong>2009</strong> and 2008, we had $3.8 million and $4.5 million, respectively, of capital lease obligations with Genesis recorded asliabilities in our Consolidated Balance Sheets.CO 2 Volumetric Production PaymentsDuring 2003 through 2005, we sold 280.5 Bcf of CO 2 to Genesis under three separate volumetric productionpayment agreements. We have recorded the net proceeds of these volumetric production payment sales as deferredrevenue and recognize such revenue as CO 2 is delivered under the volumetric production payments. At December 31,<strong>2009</strong> and 2008, $19.8 million and $24.0 million, respectively, was recorded as deferred revenue of which $4.1 millionwas included in current liabilities at both December 31, <strong>2009</strong> and 2008. We recognized deferred revenue of $4.2million, $4.5 million and $4.4 million for the years ended December 31, <strong>2009</strong>, 2008 and 2007, respectively, for deliveriesunder these volumetric production payments. We provide Genesis with certain processing and transportation servicesin connection with transporting CO 2 to their industrial customers for a fee of approximately $0.20 per Mcf of CO 2 . Forthese services, we recognized revenues of $5.5 million, $5.5 million and $5.2 million for the years ended December 31,<strong>2009</strong>, 2008 and 2007, respectively.Note 4. Asset Retirement ObligationsIn general, our future asset retirement obligations relate to future costs associated with plugging and abandonmentof our oil, natural gas and CO 2 wells, removal of equipment and facilities from leased acreage and land restoration.The fair value of a liability for an asset retirement is recorded in the period in which it is incurred, discounted to itspresent value using our credit adjusted risk-free interest rate, and a corresponding amount capitalized by increasingthe carrying amount of the related long-lived asset. The liability is accreted each period, and the capitalized cost isdepreciated over the useful life of the related asset.The following table summarizes the changes in our asset retirement obligations for the years ended December 31,<strong>2009</strong> and 2008.Year Ended December 31,In thousands <strong>2009</strong> 2008Beginning asset retirement obligation $ 45,064 $ 41,258Liabilities incurred and assumed during period 8,911 1,382Revisions in estimated retirement obligations 2,357 4,456Liabilities settled during period (3,478) (4,711)Accretion expense 3,280 3,048Sales (1,796) (369)Ending asset retirement obligation $ 54,338 $ 45,064At December 31, <strong>2009</strong> and 2008, $1.1 million and $1.7 million, respectively, of our asset retirement obligation wasclassified in “Accounts payable and accrued liabilities” under current liabilities in our Consolidated Balance Sheets.Liabilities incurred and assumed during <strong>2009</strong> are primarily related to the acquisition of Hastings Field and Conroe Field.Liabilities incurred and assumed during 2008 were primarily for new wells drilled. Liabilities sold during <strong>2009</strong> areprimarily related to our Barnett Shale natural gas properties (see Note 2, “Acquisitions and Divestitures”). Liabilities soldForm 10-K Part IINotes to Consolidated Financial Statements
<strong>Denbury</strong> <strong>Resources</strong> Inc. <strong>2009</strong> <strong>Annual</strong> <strong>Report</strong> 87in 2008 were primarily associated with the sale of our Louisiana natural gas properties in February 2008. The reversalof these asset retirement obligations, which were assumed by the purchasers, was recorded as an adjustment to thefull cost pool with no gain or loss recognized, in accordance with the full cost method of accounting. We have escrowaccounts that are legally restricted for certain of our asset retirement obligations. The balances of these escrowaccounts were $22.8 million and $7.4 million at December 31, <strong>2009</strong> and 2008, respectively, and are included in “Otherassets” in our Consolidated Balance Sheets. The increase in the escrow balance is related to escrow accountsacquired in the Conroe Field acquisition.Note 5. Property and EquipmentDecember 31,In thousands <strong>2009</strong> 2008Oil and natural gas propertiesProved properties $ 3,595,726 $ 3,386,606Unevaluated properties 320,356 235,403Total 3,916,082 3,622,009Accumulated depletion and depreciation (1,685,171) (1,481,801)Net oil and natural gas properties 2,230,911 2,140,208CO 2 properties and equipment 438,045 377,711Accumulated depletion and depreciation (79,196) (60,758)Net CO 2 properties 358,849 316,953CO 2 pipelines in service 312,656 119,819CO 2 pipelines under construction 779,080 402,012Accumulated depletion and depreciation (22,426) (16,392)Net CO 2 pipelines 1,069,310 505,439Capital leases 9,857 9,565Accumulated depletion and depreciation (4,787) (3,333)Net capital leases 5,070 6,232Other 72,680 60,763Accumulated depletion and depreciation (33,948) (27,398)Net other 38,732 33,365Net property and equipment $ 3,702,872 $ 3,002,197At December 31, <strong>2009</strong> and 2008, we had $779.1 million and $402.0 million of costs, respectively, related to pipelinesunder construction, and as such, were not being depreciated at December 31, <strong>2009</strong> or December 31, 2008,respectively. Depreciation will commence when the pipelines are placed into service. The Green Pipeline, which had$766.9 million in cost, including capitalized interest, at December 31, <strong>2009</strong>, is expected to be placed into service during2010. The Company capitalizes interest on its CO 2 pipelines during the construction period. Interest capitalized onthese CO 2 pipelines was $54.2 million in <strong>2009</strong> and $11.5 million in 2008.Notes to Consolidated Financial StatementsForm 10-K Part II
Change language