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

More documents

Recommendations

Info

40 Denbury Resources Inc. 2009 Annual Report2.0698 and 2.6336 shares of Denbury common stock for each of their shares of Encore common stock, but not higheror lower than these share amounts if Denbury common stock trades outside this range. If Denbury common stocktrades outside of this range, the value of the shares of Denbury received will represent either more or less than $35 pershare. Based on the number of shares of Encore common stock outstanding as of February 3, 2010, we wouldissue to Encore stockholders between 115 million and 146 million shares of our common stock in the Merger, which willrepresent an increase in our aggregate shares outstanding of between 44% and 56%.The Merger Agreement contains customary covenants by each party to the Merger Agreement and consummation ofthe Merger is subject to customary conditions. The Merger Agreement also contains certain termination rights for bothus and Encore, including, among others, if the Merger has not occurred on or before May 31, 2010 with terminationfees in varying amounts payable by us or by Encore based upon specified reasons for termination. See “Business-Definitive Merger Agreement to Acquire Encore Acquisition Company.”Financing of the MergerWe received a financing commitment from J.P. Morgan, subject to customary conditions, to underwrite a new$1.6 billion senior secured revolving credit facility. We have been advised by the co-arrangers of this new senior securedrevolving credit facility, J.P. Morgan and Bank of America, N.A. that the syndication phase is complete, anddocumentation for this facility is being prepared. Subject to final documentation and satisfaction of closing conditions,we anticipate finalizing this facility prior to the Denbury and Encore stockholder meetings. The newly committedfinancing, coupled with the funds from our recent subordinated debt offering (see next paragraph), will be used to fundthe cash portion of the merger consideration (inclusive of payments due to Encore stock option holders), repayamounts outstanding under our existing $750 million revolving credit facility, which had $125 million outstanding as ofFebruary 15, 2010, potentially retire and replace a portion of up to $825 million of Encore’s senior subordinated notesthat are outstanding, all of which have a change of control put option at 101% of par value, repay amounts outstandingunder Encore’s existing revolving credit facility which had $155 million outstanding as of February 15, 2010, payEncore’s severance costs, pay transaction fees and expenses and provide additional liquidity. The aggregatecommitment of the senior secured lenders is a $1.6 billion facility with a term of four years. The new facility is expectedto be on substantially the same terms as our existing facility, conformed to current market conditions.We also received a financing commitment from J.P. Morgan for a $1.25 billion unsecured bridge loan facility; however,this bridge loan facility has been terminated and will not be utilized to fund the Merger as we have instead issued $1 billionof 8.25% Senior Subordinated Notes due 2020. On February 10, 2010, we sold $1 billion of 8.25% Senior SubordinatedNotes due 2020 at 100% of par in a public offering. The net proceeds from the notes offering were placed in escrowpending the closing of the Merger, subject to mandatory redemption of the notes if the Merger does not close, and partialredemption of the notes to the extent that three series of Encore outstanding senior subordinated notes are notrepurchased. Upon the closing of the Merger, $400 million of the escrowed proceeds will be released to us to finance aportion of the Merger consideration, and the remaining escrowed proceeds will be used to fund repurchases of up to$600 million principal amount of three series of Encore’s outstanding senior subordinated notes (or newly issued 8.25%senior notes to the extent not issued to repurchase Encore notes). On February 8, 2010, we initiated a tender offer forthese Encore subordinated notes, the closing of which is subject to the closing of the Merger.Sale of Interests in General Partner of Genesis Energy, L.P. On February 5, 2010, Denbury and one of itssubsidiaries sold all of the subsidiary’s interests in Genesis Energy, LLC, the general partner of Genesis Energy, L.P., orGenesis, to an affiliate of Quintana Capital Group L.P., for net proceeds of approximately $82 million (including amountsrelated to Genesis management incentive compensation and other selling costs). This sale gives the buyer controlof Genesis’ general partner. The sale of Denbury’s interest in the general partner does not include the sale of itsapproximate 10% ownership of Genesis’ outstanding common units, which Denbury currently still owns and for which aresale registration statement was filed in January 2010.Conroe Field Acquisition. On December 18, 2009, we purchased from Wapiti Energy, LLC, Wapiti Operating, LLCand Wapiti Gathering, LLC (collectively, “Wapiti”), a Houston based privately-owned company, oil and natural gasassets in the Conroe Field for total consideration of $422.9 million (after preliminary purchase price adjustments),consisting of $254.2 million in cash and 11,620,000 shares of Denbury common stock, which for the purpose ofForm 10-K Part IIManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Denbury Resources Inc. 2009 Annual Report 41estimated fair value under FASC “Business Combinations” topic, we utilized the closing stock price on that date of$14.52 per share resulting in a total value of $168.7 million. We also exchanged cash for approximately $15.6 million ofescrow account deposits reserved for plugging and abandonment. We have internally estimated that the Conroe Fieldinterests have significant estimated net reserve potential from CO 2 tertiary recovery, the largest EOR potential of ourGulf Coast oil fields. The acquired Conroe Field interests have estimated proved conventional reserves of approximately18.5 MMBbls at December 31, 2009, nearly all of which are proved developed. The Conroe Field assets are currentlyproducing around 2,500 BOE/d net to our acquired interest.We have recorded the acquisition of Conroe Field in accordance with the Financial Accounting Standards Board(“FASB”) Accounting Standards Codification TM (“FASC”) “Business Combinations” topic, which became effectivefor acquisitions after December 31, 2008. Based on these new rules, we have allocated $304.3 million of the$438.5 million adjusted purchase price (includes escrow deposits) to proved properties, $93.6 million to unevaluatedproperties, approximately $15.6 million to other assets, $5.7 million to asset retirement obligations and thenet remaining $30.7 million to goodwill. See further discussion on this acquisition in Note 2 to the ConsolidatedFinancial Statements.Sale of Barnett Shale Natural Gas Assets. In May 2009, we entered into an agreement to sell 60% of ourBarnett Shale assets to Talon Oil and Gas LLC (“Talon”), a privately held company, for $270 million (before closingadjustments). On June 30, 2009, we completed approximately three-quarters of the sale, and closed the remainingportion of the sale on July 15, 2009. Net proceeds were $259.8 million (after closing adjustments, and net of$8.1 million paid to Talon for natural gas swaps transferred in the sale). We did not record a gain or loss on the sale inaccordance with the full cost method of accounting.On December 30, 2009, we sold our remaining 40% interest in our Barnett Shale natural gas assets to Talon for$210 million in cash, subject to closing adjustments. The proceeds of the sale were used to reduce outstanding bankdebt. The sale was structured as a deferred like-kind exchange in conjunction with Denbury’s purchase of ConroeField that closed on December 18, 2009.Mid-Year Management Changes. On June 30, 2009, under a management succession plan adopted by our Boardof Directors and announced on February 5, 2009, Gareth Roberts, the Company’s founder, relinquished his position asPresident and CEO and became Co-Chairman of the Board of Directors and assumed a non-officer role as theCompany’s Chief Strategist. Phil Rykhoek, previously Senior Vice President and Chief Financial Officer, became ChiefExecutive Officer; Tracy Evans, previously Senior Vice President – Reservoir Engineering, became President and ChiefOperating Officer; and Mark Allen, previously Vice President and Chief Accounting Officer, became Senior VicePresident and Chief Financial Officer.In connection with Mr. Roberts’ retirement as CEO and President of the Company, Mr. Roberts and the Companyentered into a Founder’s Retirement Agreement (the “Agreement”). Under this Agreement, Mr. Roberts received$3.65 million in cash and the Company issued to him $6.35 million of the Company’s 9.75% Senior Subordinated Notesdue 2016. As part of the Agreement, there are restrictions that prohibit Mr. Roberts from trading these notes for two years,and he has entered into a non-compete arrangement with the Company through 2013. Mr. Roberts will continue toprovide services to the Company as Co-Chairman of the Board of Directors and in a non-officer role as Chief Strategist.Purchase of Hastings Field. On February 2, 2009, we closed the acquisition of Hastings Field located near Houston,Texas, for approximately $201 million in cash. Hastings Field is a significant potential tertiary oil flood that we planto flood with CO 2 delivered from Jackson Dome using our Green Pipeline, which is currently under construction. Weoriginally entered into an agreement in November 2006 with a subsidiary of Venoco, Inc., that gave us the optionto purchase its interest in the Hastings Field. As consideration for the purchase option, we made total payments of$50 million which makes our aggregate purchase price $251 million. The seller retained a 2% override and reversionaryinterest of approximately 25% following payout, as defined in the purchase agreement. We plan to commence floodingthe field with CO 2 beginning in 2011, after completion of our Green Pipeline and construction of field recycling facilities.Under the purchase agreement, we are required to make net capital expenditures in this field totaling $179 million overthe next five years, including our first obligation of $26.8 million during 2010, and are committed to begin CO 2 injectionsManagement’s Discussion and Analysis of Financial Condition and Results of OperationsForm 10-K Part II
Page 1:
2009 ANNUAL REPORTDenbury Resources
Page 5 and 6:
Denbury Resources Inc. 2009 Annual
Page 7 and 8:
Page 10 and 11:
Annual Report 201102Profile ofAbeng
Page 14 and 15:
12 Denbury Resources Inc. 2009 Annu
Page 17:
Step 3:CO 2Enhanced Oil Recovery &
Page 21:
Page 25 and 26: Denbury Resources Inc. 2009 Annual
Page 31 and 32: Growth rings are the result ofnew g
Page 37 and 38: UNITED STATES SECURITIES AND EXCHAN
Page 51: Denbury Resources Inc. 2009 Annual
Page 54 and 55: 18 Denbury Resources Inc. 2009 Annu
Page 126 and 127:
Page 128 and 129:
Page 130 and 131:
Page 132 and 133:
Page 134 and 135:
Page 136 and 137:
100 Denbury Resources Inc. 2009 Ann
Page 138 and 139:
Page 140 and 141:
Page 142 and 143:
Page 144 and 145:
Page 146 and 147:
Page 148 and 149:
Page 150 and 151:
Page 152 and 153:
Page 154 and 155:
Page 156 and 157:
Page 158 and 159:
Page 160 and 161:
Page 162:
Denbury Resources Inc.5100 Tennyson
show all

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

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?