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

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110 Denbury Resources Inc. 2009 Annual ReportEstimated Quantities of ReservesYear Ended December 31,2009 2008 2007Oil Gas Oil Gas Oil Gas(MBbl) (MMcf) (MBbl) (MMcf) (MBbl) (MMcf)Balance at beginning of year 179,126 427,955 134,978 358,608 126,185 288,826Revisions of previous estimates (69) (1,298) 1,348 10,291 (1,601) 1,478Revisions due to price changes 4,557 (2,079) (13,320) (2,915) 1,538 (355)Extensions and discoveries 334 11,785 5,037 107,020 6,887 131,451Improved recovery (1) 13,875 — 59,317 — 12,376 —Production (13,495) (24,764) (11,505) (32,736) (10,193) (35,456)Acquisition of minerals in place 28,379 2,317 3,653 79 405 1,935Sales of minerals in place (19,828) (325,941) (382) (12,392) (619) (29,271)Balance at end of year 192,879 87,975 179,126 427,955 134,978 358,608Proved Developed Reserves:Balance at beginning of year 96,746 298,114 97,005 226,271 83,703 176,648Balance at end of year 116,192 69,513 96,746 298,114 97,005 226,271(1) Improved recovery additions result from the application of secondary recovery methods such as water-flooding or tertiary recovery methods such as CO 2 flooding.Acquisitions of minerals in place during 2009 were primarily from the Conroe Field and Hastings Field acquisitions.The sales of minerals in place during 2009 were primarily due to the sale of our Barnett Shale assets. We added17.6 MMBbls of tertiary related proved oil reserves during 2009, primarily initial proved tertiary oil reserves at CranfieldField in Phase 4, plus additional reserves at Tinsley, Heidelberg and Eucutta Fields. In order to recognize proved tertiaryoil reserves, we must either have an oil production response to CO 2 injections or the field must be analogous toan existing tertiary flood. The magnitude of proved reserves that we can book in any given year will depend on ourprogress with new floods and the timing of the production response.Standardized Measure of Discounted Future Net Cash Flows and Changes ThereinRelating to Proved Oil and Natural Gas ReservesThe Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil andNatural Gas Reserves (“Standardized Measure”) does not purport to present the fair market value of our oil and naturalgas properties. An estimate of such value should consider, among other factors, anticipated future prices of oiland natural gas, the probability of recoveries in excess of existing proved reserves, the value of probable reserves andacreage prospects, and perhaps different discount rates. It should be noted that estimates of reserve quantities,especially from new discoveries, are inherently imprecise and subject to substantial revision.Under the Standardized Measure, 2009 future cash inflows were estimated by applying a first-day-of-the-month12-month average price to the estimated future production of year-end proved reserves. Prior to 2009, future cashinflows were estimated by applying year-end prices to the estimated future production of year-end proved reserves. Theproduct prices used in calculating these reserves have varied widely during the three-year period. These prices have asignificant impact on both the quantities and value of the proved reserves as reductions in oil and gas prices can causewells to reach the end of their economic life much sooner and can make certain proved undeveloped locationsuneconomical, both of which reduce the reserves. The following representative oil and natural gas prices were used inthe Standardized Measure. These prices were adjusted by field to arrive at the appropriate corporate net price.December 31,2009 2008 2007Oil (NYMEX) $ 61.18 $ 44.60 $ 95.98Natural Gas (Henry Hub) 3.87 5.71 6.80Form 10-K Part IINotes to Consolidated Financial Statements
Denbury Resources Inc. 2009 Annual Report 111Future cash inflows were reduced by estimated future production, development and abandonment costs based oncurrent cost with no escalation to determine pre-tax cash inflows. Future income taxes were computed by applying thestatutory tax rate to the excess of pre-tax cash inflows over our tax basis in the associated proved oil and natural gasproperties. Tax credits and net operating loss carryforwards were also considered in the future income tax calculation.Future net cash inflows after income taxes were discounted using a 10% annual discount rate to arrive at theStandardized Measure.December 31,In thousands 2009 2008 2007Future cash inflows $ 11,579,159 $ 9,024,224 $ 14,082,865Future production costs (5,034,393) (4,039,898) (3,687,197)Future development costs (836,455) (944,716) (605,638)Future income taxes (1,257,844) (1,071,939) (3,283,702)Future net cash flows 4,450,467 2,967,671 6,506,32810% annual discount for estimated timing of cash flows (1,993,082) (1,552,173) (2,966,711)Standardized measure of discounted future net cash flows $ 2,457,385 $ 1,415,498 $ 3,539,617The following table sets forth an analysis of changes in the Standardized Measure of Discounted Future Net CashFlows from proved oil and natural gas reserves:December 31,In thousands 2009 2008 2007Beginning of year $ 1,415,498 $ 3,539,617 $ 1,837,341Sales of oil and natural gas produced, net of production costs (498,093) (975,708) (672,765)Net changes in sales prices 1,263,346 (3,296,580) 2,346,008Extensions and discoveries, less applicable future developmentand production costs 6,735 142,199 344,615Improved recovery (1) 202,145 338,313 513,840Previously estimated development costs incurred 98,659 157,321 192,696Revisions of previous estimates, including revised estimates ofdevelopment costs, reserves and rates of production (63,044) (321,733) (214,994)Accretion of discount 192,686 538,512 269,520Acquisition of minerals in place 365,771 12,764 32,212Sales of minerals in place (419,601) (53,356) (121,209)Net change in income taxes (106,717) 1,334,149 (987,647)End of year $ 2,457,385 $ 1,415,498 $ 3,539,617(1) Improved recovery additions result from the application of secondary recovery methods such as water flooding or tertiary recovery methods such as CO 2 flooding.CO 2 ReservesBased on engineering reports prepared by DeGolyer and MacNaughton, our CO 2 reserves, on a 100% workinginterest basis, were estimated at approximately 6.3 Tcf at December 31, 2009 (includes 127.1 Bcf of reserves dedicatedto three volumetric production payments with Genesis), 5.6 Tcf at December 31, 2008 (includes 153.8 Bcf of reservesdedicated to three volumetric production payments with Genesis), and 5.6 Tcf at December 31, 2007 (includes 182.3Bcf of reserves dedicated to three volumetric production payments with Genesis). We make reference to the grossamount of proved reserves as that is the amount that is available both for Denbury’s tertiary recovery programs and forindustrial users who are customers of Denbury and others, as we are responsible for distributing the entire CO 2production stream for both of these purposes.Notes to Consolidated Financial StatementsForm 10-K Part II
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