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

Denbury Resources Inc. 2009 Annual Report 25Item 1A. Risk FactorsRisks Related To Our BusinessOur level of indebtedness may adversely affect operations and limit our growth.GeneralIf we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments onour indebtedness or if we otherwise fail to comply with the various covenants in such indebtedness, includingcovenants in our senior secured credit facilities, we would be in default under our debt instruments. This default wouldpermit the holders of such indebtedness to accelerate the maturity of such indebtedness and could cause defaultsunder other indebtedness or result in our bankruptcy. Our ability to meet our obligations will depend upon our futureperformance, which will be subject to prevailing economic conditions, commodity prices, and to financial, businessand other factors, including factors beyond our control.Denbury Stand-AloneAs of February 15, 2010, we had outstanding $525 million (principal amount) of 7.5% subordinated notes, $426.4million (principal amount) of 9.75% Senior Subordinated Notes, $1.0 billion of 8.25% Senior Subordinated Notes (held inescrow pending completion of the Merger and tender of Encore notes), and $125 million of bank debt. At that time, wehad approximately $625 million available on our bank credit line. We currently have a bank borrowing base of $900million, with a commitment amount of $750 million. The borrowing base represents the amount that can be borrowedfrom a credit standpoint, while the commitment amount is the amount the banks have committed to fund pursuant tothe terms of the credit agreement. The next semi-annual redetermination of the borrowing base for our bank creditfacility will be on April 1, 2010, assuming the Merger is not completed. Our bank borrowing base is adjusted at thebanks’ discretion and is based in part upon external factors, such as commodity prices, over which we have no control.If our then redetermined borrowing base is less than our outstanding borrowings under the facility, we will be requiredto repay the deficit over a period of six months.We may incur additional indebtedness in the future under our bank credit facility (which we anticipate being a $1.6 billionfacility if the Encore Merger closes), in connection with our acquisition, development, exploitation and exploration ofoil and natural gas producing properties. Our projected 2010 capital expenditures, excluding acquisitions and capitalexpenditures related to the Encore acquisition, are expected to be between $150 million and $250 million higher than ourprojected 2010 cash flow from operations. Further, our cash flow from operations is highly dependent on the pricesthat we receive for oil and natural gas. If oil and natural gas prices again decrease, and remain at depressed levels for anextended period of time, our degree of leverage could increase substantially. The level of our indebtedness could haveimportant consequences, including but not limited to the following:• a substantial portion of our cash flows from operations may be dedicated to servicing our indebtedness and wouldnot be available for other purposes;• as a result of the discretionary nature of the setting of our bank borrowing base and its being highly dependent oncurrent commodity prices, if commodity prices were to substantially decrease, our banks could reduce our borrowingbase so that we could not borrow additional funds or to a level below our outstanding debt that would require us torepay any deficit (between the borrowing base and the outstanding bank debt) over a four month period;• our business may not generate sufficient cash flow from operations to enable us to continue to meet ourobligations under our indebtedness;• our level of indebtedness may impair our ability to obtain additional financing in the future for working capital,capital expenditures, acquisitions or general corporate and other purposes;• our interest expense may increase in the event of increases in interest rates, because certain of our borrowings areat variable rates of interest;• our vulnerability to general adverse economic and industry conditions may be greater as a result of our level ofindebtedness, and increases in interest rates thereon, potentially restricting us from making acquisitions,introducing new technologies or exploiting business opportunities;Form 10-K Part I