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

Denbury Resources Inc. 2009 Annual Report 29capital intensive. We may not be able to make the necessary capital investment to maintain or expand our oil andnatural gas reserves if our cash flows from operations are reduced, due to lower oil or natural gas prices or otherwise,or if external sources of capital become limited or unavailable. Further, the process of using CO 2 for tertiary recoveryand the related infrastructure requires significant capital investment, up to four or five years prior to any resultingproduction and cash flows from these projects, heightening potential capital constraints. If we do not continue to makesignificant capital expenditures, or if outside capital resources become limited, we may not be able to maintain ourgrowth rate or meet expectations. In addition, certain of our operating activities are subject to numerous risks, includingthe risk that no commercially productive oil or natural gas reserves will be produced.During the last few years, we have acquired several fields at a significant cost because we believe that they havesignificant additional potential through tertiary flooding and we paid a premium price for these properties based on thatassumption. In addition, we plan to continue acquiring other old oil fields that we believe are tertiary flood candidates,likely at a premium price. We are investing significant amounts of capital as part of this strategy. If we are unable tosuccessfully develop the potential oil in these acquired fields, it would negatively affect the return on our investment onthese acquisitions and could severely reduce our ability to obtain additional capital for the future, fund futureacquisitions, and negatively affect our financial results to a significant degree.We face competition from other oil and natural gas companies in all aspects of our business, including acquisition ofproducing properties and oil and gas leases. Many of our competitors have substantially larger financial and otherresources. Other factors that affect our ability to acquire producing properties include available funds, availableinformation about prospective properties and our standards established for minimum projected return on investment.Oil and natural gas drilling and producing operations involve various risks.Drilling activities are subject to many risks, including the risk that no commercially productive reservoirs will bediscovered. There can be no assurance that new wells drilled by us will be productive or that we will recover all or anyportion of our investment in such wells. Drilling for oil and natural gas may involve unprofitable efforts, not only from drywells but also from wells that are productive but do not produce sufficient net reserves to return a profit after deductingdrilling, operating and other costs. The seismic data and other technologies used by us do not provide conclusiveknowledge, prior to drilling a well, that oil or natural gas is present or may be produced economically. The cost ofdrilling, completing and operating a well is often uncertain, and cost factors can adversely affect the economics of aproject. Further, our drilling operations may be curtailed, delayed or canceled as a result of numerous factors, including:• unexpected drilling conditions;• title problems;• pressure or irregularities in formations;• equipment failures or accidents;• adverse weather conditions, including hurricanes and tropical storms in and around the Gulf of Mexico that candamage oil and natural gas facilities and delivering systems and disrupt operations;• compliance with environmental and other governmental requirements; and• cost of, or shortages or delays in the availability of, drilling rigs, equipment and services.Our operations are subject to all the risks normally incident to the operation and development of oil and natural gasproperties and the drilling of oil and natural gas wells, including encountering well blowouts, cratering and explosions,pipe failure, fires, formations with abnormal pressures, uncontrollable flows of oil, natural gas, brine or well fluids,release of contaminants into the environment and other environmental hazards and risks.The nature of these risks is such that some liabilities could exceed our insurance policy limits, or, as in the case ofenvironmental fines and penalties, cannot be insured. We could incur significant costs, related to these risks that couldhave a material adverse effect on our results of operations, financial condition and cash flows.Our CO 2 tertiary recovery projects require a significant amount of electricity to operate the facilities. If these costswere to increase significantly, it could have an adverse effect upon the profitability of these operations.Form 10-K Part I