90 <strong>Denbury</strong> <strong>Resources</strong> Inc. <strong>2009</strong> <strong>Annual</strong> <strong>Report</strong>The $150 million of 2015 Notes issued on December 21, 2005 were priced at par, and we used the $148.0 million ofnet proceeds from the offering to fund a portion of the $250 million oil and natural gas property acquisition, which closedin January 2006. The 2015 Notes mature on December 15, 2015, and interest on the 2015 Notes is payable each June 15and December 15. We may redeem the 2015 Notes at our option beginning December 15, 2010, at the followingredemption prices: 103.75% after December 15, 2010, 102.5% after December 15, 2011, 101.25% after December 15,2012, and 100% after December 15, 2013. The indenture contains certain restrictions on our ability to incur additionaldebt, pay dividends on our common stock, make investments, create liens on our assets, engage in transactions withour affiliates, transfer or sell assets, consolidate or merge, or sell substantially all of our assets. The 2015 Notes are notsubject to any sinking fund requirements. All of our significant subsidiaries fully and unconditionally guarantee this debt.7.5% Senior Subordinated Notes due 2013On March 25, 2003, we issued $225 million of 7.5% Senior Subordinated Notes due 2013 (“2013 Notes”). The 2013Notes were priced at 99.135% of par. The 2013 Notes mature on April 1, 2013, and interest on the 2013 Notes ispayable each April 1 and October 1. We may redeem the 2013 Notes at our option beginning April 1, 2008, at thefollowing remaining redemption prices: 102.5% after April 1, <strong>2009</strong>, 101.25% after April 1, 2010, and 100% after April 1,2011, and thereafter. The indenture contains certain restrictions on our ability to incur additional debt, pay dividends onour common stock, make investments, create liens on our assets, engage in transactions with our affiliates, transferor sell assets, consolidate or merge, or sell substantially all of our assets. The 2013 Notes are not subject to any sinkingfund requirements. All of our significant subsidiaries fully and unconditionally guarantee this debt.Issuance of 8.25% Senior Subordinated Notes Due 2020On February 10, 2010, we issued $1 billion of 8.25% Senior Subordinated Notes due 2020. (See Note 15,“Subsequent Events”).Senior Bank LoanTo clarify that <strong>Denbury</strong> entities are allowed to guarantee obligations of other <strong>Denbury</strong> entities, in May <strong>2009</strong> weamended our Sixth Amended and Restated Credit Agreement, the instrument governing our Senior Bank Loan, toexplicitly permit these guarantees and waive any possible previous technical violations of this provision.In June and December <strong>2009</strong>, we again amended our Senior Bank Loan agreement. The June <strong>2009</strong> amendment wasmade in conjunction with the sale of our Barnett Shale natural gas properties, and (i) reduced our borrowing basefrom $1.0 billion to $900 million, and (ii) allowed for an additional percentage of our forecasted production to be hedgedthrough June 30, <strong>2009</strong>. The June amendment did not impact the banks’ commitment amount, which remained at$750 million. The December <strong>2009</strong> amendment was made in conjunction with our acquisition of Conroe Field and thesale of our remaining interests in the Barnett Shale natural gas properties. This December amendment (i) allowed forthe consummation of the Conroe-Barnett transactions, and (ii) allowed for an additional percentage of our forecastedproduction to be hedged through May 31, 2010. Our borrowing base of $900 million did not change as a result of thisDecember amendment.With regard to our bank credit facility, the borrowing base represents the amount that can be borrowed from a creditstandpoint based on our mortgaged assets, as confirmed by the banks, while the commitment amount is the amountthe banks have committed to fund pursuant to the terms of the credit agreement. The banks have the option to participatein any borrowing request by us in excess of the commitment amount ($750 million), up to the borrowing base limit ($900million), although the banks are not obligated to fund any amount in excess of the commitment amount.The bank credit facility is secured by substantially all of our producing oil and natural gas properties, and containsseveral restrictions including, among others: (i) a prohibition on the payment of dividends, (ii) a requirement to maintainpositive working capital, as defined, (iii) a minimum interest coverage test, and (iv) a prohibition of most debt andcorporate guarantees. Additionally, there is a limitation on the aggregate amount of forecasted production that can beeconomically hedged with oil or natural gas derivative contracts. We were in compliance with all of our bank covenantsas of December 31, <strong>2009</strong>. Borrowings under the credit facility are generally in tranches that can have maturitiesup to one year. Interest on any borrowings is based on the Prime Rate or LIBOR rate plus an applicable margin asdetermined by the borrowings outstanding. The facility matures in September 2011.Form 10-K Part IINotes to Consolidated Financial Statements
<strong>Denbury</strong> <strong>Resources</strong> Inc. <strong>2009</strong> <strong>Annual</strong> <strong>Report</strong> 91As of December 31, <strong>2009</strong>, we had $125 million of outstanding borrowings under the facility and $10.5 million in lettersof credit secured by the facility. The weighted average interest rate on these outstanding borrowings was 1.49% atDecember 31, <strong>2009</strong>. The next scheduled redetermination of the borrowing base will be as of April 1, 2010, based onDecember 31, <strong>2009</strong> assets and proved reserves. Our bank debt borrowing base is adjusted at the banks’ discretionand is based in part upon external factors over which we have no control. If our borrowing base were to be less thanour outstanding borrowings under the facility, we will be required to repay the deficit over a period of six months.Newly Committed Bank Revolving Credit AgreementOn November 1, <strong>2009</strong>, <strong>Denbury</strong> and Encore Acquisition Company announced they had entered into a definitivemerger agreement pursuant to which <strong>Denbury</strong> will acquire Encore in a stock and cash transaction. In November <strong>2009</strong>,we received commitments for a new $1.6 billion, 4-year revolving credit facility. (See Note 15, “Subsequent Events”).Indebtedness Repayment ScheduleAt December 31, <strong>2009</strong>, our indebtedness, excluding the discount and premium on our senior subordinated debt, isrepayable over the next five years and thereafter as follows:In thousands2010 $ 5,3082011 132,4492012 7,7922013 233,2032014 9,158Thereafter 945,008Total indebtedness $ 1,332,918Note 7. Income TaxesOur income tax provision (benefit) is as follows:Year Ended December 31,In thousands <strong>2009</strong> 2008 2007Current income tax expense (benefit)Federal $ 7,090 $ 32,475 $ 21,948State (2,479) 8,337 8,126Total current income tax expense 4,611 40,812 30,074Deferred income tax expense (benefit)Federal (50,457) 184,630 113,868State (1,187) 10,390 (3,675)Total deferred income tax expense (benefit) (51,644) 195,020 110,193Total income tax expense (benefit) $ (47,033) $ 235,832 $ 140,267At December 31, <strong>2009</strong>, we had tax effected state net operating loss carryforwards (“NOLs”) totaling $4.4 million andan estimated $38.9 million of enhanced oil recovery credits to carry forward related to our tertiary operations. Our stateNOLs expire in 2024. Our enhanced oil recovery credits will begin to expire in 2024.During the third quarter of 2008, we obtained approval from the Internal Revenue Service (“IRS”) to change ourmethod of tax accounting for certain assets used in our tertiary oilfield recovery operations. Previously, we hadcapitalized and depreciated these costs, but now we can deduct these costs once the assets are placed into service.As a result, we expect to receive tax refunds of approximately $10.6 million for tax years through 2007, along with othertax benefits, and we have reduced our current income tax expense and increased our deferred income tax expense in2008 to adjust for the impact of this change. This change is not expected to have a significant impact on our overall taxrate; however, it will allow for a quicker deduction of costs for tax purposes.Notes to Consolidated Financial StatementsForm 10-K Part II
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