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

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4 Denbury Resources Inc. 2009 Annual ReportItem 1. BusinessWebsite Access to ReportsWe make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, andamendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of1934, available free of charge on or through our Internet website, www.denbury.com, as soon as reasonablypracticable after we electronically file such material with, or furnish it to, the SEC.The CompanyDenbury Resources Inc. is a Delaware corporation organized under Delaware General Corporation Law (“DGCL”)and is engaged in the acquisition, development, operation and exploration of oil and natural gas properties in the GulfCoast region of the United States, primarily in Mississippi, Louisiana, Texas and Alabama. Our corporate headquartersis located at 5100 Tennyson Parkway, Suite 1200, Plano, Texas 75024, and our phone number is 972-673-2000. AtDecember 31, 2009, we had 830 employees, 492 of whom were employed in field operations or at the field offices. Ouremployee count does not include the approximately 675 employees of Genesis Energy, LLC as of December 31, 2009,as its employees exclusively carry out the business activities of Genesis Energy, L.P., which we do not consolidate inour financial statements. On February 5, 2010, we sold our interest in Genesis Energy, LLC, the general partner of GenesisEnergy, L.P. (see Notes 1 and 15 to the Consolidated Financial Statements). On October 31, 2009, we signed a definitivemerger agreement to acquire Encore Acquisition Company (“Encore”) in a merger, which merger is subject to approval byshareholders of Denbury and Encore and other conditions, is scheduled to close on or about March 9, 2010.Incorporation and OrganizationDenbury was originally incorporated in Canada in 1951. In 1992, we acquired all of the shares of a United Statesoperating company, Denbury Management, Inc. (“DMI”), and subsequent to the merger we sold all of its Canadianassets. Since that time, all of our operations have been in the United States.In April 1999, our stockholders approved a move of our corporate domicile from Canada to the United States as aDelaware corporation. Along with the move, our wholly owned subsidiary, DMI, was merged into the new Delawareparent company, Denbury Resources Inc. This move of domicile did not have any effect on our operations or assets.Effective December 29, 2003, Denbury Resources Inc. changed its corporate structure to a holding company format.As part of this restructure, Denbury Resources Inc. (predecessor entity) merged into a newly formed limited liabilitycompany, and survived as Denbury Onshore, LLC, a Delaware limited liability company and an indirect subsidiary of thenewly formed holding company, Denbury Holdings, Inc. Denbury Holdings, Inc. subsequently assumed the nameDenbury Resources Inc. Stockholders’ ownership interests in the business did not change as a result of the newstructure and shares of the Company continue to trade publicly under the same symbol (DNR) on the New YorkStock Exchange.Business StrategyAs part of our corporate strategy, we believe in the following fundamental principles:• remain focused in specific regions where we either have, or believe we can create, a competitive advantage asa result of our ownership or use of CO 2 reserves, oil fields and CO 2 infrastructure;• acquire properties where we believe additional value can be created through tertiary recovery operations and acombination of other exploitation, development, exploration and marketing techniques;• acquire properties that give us a majority working interest and operational control or where we believe we canultimately obtain it;• maximize the value of our properties by increasing production and reserves while controlling cost; and• maintain a highly competitive team of experienced and incentivized personnel.Form 10-K Part I
Denbury Resources Inc. 2009 Annual Report 5Definitive Merger Agreement to Acquire Encore Acquisition Company.On November 1, 2009, Denbury and Encore Acquisition Company (NYSE: EAC) (“Encore”) announced that we hadentered into a definitive merger agreement providing for Encore to merge with and into Denbury, in a stock andcash transaction valued at approximately $4.5 billion at that time, including the assumption of debt and the value of thenoncontrolling interest in Encore Energy Partners LP (NYSE: ENP) (“Encore MLP”). The combined company willcontinue to be known as Denbury Resources Inc. and will be headquartered in Plano, Texas.The Agreement and Plan of Merger by and between Denbury and Encore dated October 31, 2009 (the “MergerAgreement”) was unanimously approved by the boards of directors of both Denbury and Encore. The MergerAgreement contemplates a merger (the “Merger”) whereby Denbury and Encore have agreed to combine theirbusinesses such that Encore will be merged with and into Denbury, with Denbury surviving the Merger. The Merger issubject to the stockholders of each of Denbury and Encore approving the Merger, including approval by Denbury’sstockholders of the issuance of Denbury common stock to be used as Merger consideration. Each company hasscheduled a special stockholder meeting on March 9, 2010, for stockholders to vote on the Merger.Encore is engaged in the acquisition and development of oil and natural gas reserves from onshore fields in the UnitedStates. Encore’s properties and oil and gas reserves are located in four core areas: the Cedar Creek Anticline in theWilliston Basin in Montana and North Dakota; the Permian Basin in west Texas and southeastern New Mexico; the RockyMountain region, which includes non-Cedar Creek Anticline assets in the Williston, Big Horn and Powder River Basins inWyoming, Montana and North Dakota and the Paradox Basin in southeastern Utah; and the Mid-Continent region,which includes the Arkoma and Anadarko Basins in Oklahoma, the North Louisiana Salt Basin and the East Texas Basin.The acquisition by Denbury of Encore positions the combined company as one of the largest crude oil-focused,independent North American exploration and production companies, with oil constituting approximately 75% of itscombined proved reserves and with future growth predominantly in oil. The acquisition also creates one of the largestCO 2 EOR platforms in both the Gulf Coast and Rocky Mountain regions, complemented by Denbury’s ownership andcontrol of the Jackson Dome CO 2 source in Mississippi and CO 2 supply contracts with potential anthropogenic sourcesof CO 2 in the Gulf Coast, Midwest and Rockies. Denbury expects the combined company’s size and scale, accessto capital and geographic presence to facilitate larger CO 2 projects, additional property acquisitions and opportunitiesto partner with CO 2 emitters, in both the Gulf Coast and Rocky Mountain regions. The combined company will nearlydouble Denbury’s inventory of oil reserves (prior to the Conroe acquisition) potentially recoverable with CO 2 tertiaryoperations. Denbury believes that the longer lead-time of CO 2 project development in the Rocky Mountain region,where Encore’s legacy oil assets are distinguished by their long reserve lives and low decline rates, is well-matchedwith a strong growth profile from low-risk development of unconventional resource plays in Encore’s large acreagepositions in the Bakken oil shale in North Dakota and positions in the Haynesville shale in north Louisiana.For more information regarding Encore, its properties and the reasons for the merger, please see Encore’s 2009Form 10-K filed with the SEC on February 25, 2010, and our joint proxy statement/prospectus dated February 5, 2010.Merger AgreementUnder the Merger Agreement, Encore stockholders will receive $50.00 per share for each share of Encore commonstock, comprised of $15.00 in cash and $35.00 in Denbury common stock, subject to both an election feature and acollar mechanism on the stock portion of the consideration as set forth in more detail below.Exchange RatioIn calculating the exchange ratio range for the collar mechanism, the Denbury common stock was initially valued at$15.10 per share. The collar mechanism is limited to a 12% upward or downward movement in the Denbury share price.The final number of Denbury shares to be issued will be adjusted based on the volume weighted average price of Denburycommon stock on the NYSE for the 20-day trading period ending on the second day prior to closing. Based on thismechanism, if Denbury stock trades between $13.29 and $16.91, the Encore stockholders will receive between 2.0698and 2.6336 shares of Denbury common stock for each of their shares of Encore common stock, but not higher or lowerthan these share amounts if Denbury common stock trades outside this range. If Denbury common stock trades outsideof this range, the value of the shares of Denbury received will represent either more or less than $35 per share.Form 10-K Part I
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Denbury Resources Inc.5100 Tennyson
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