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

42 Denbury Resources Inc. 2009 Annual Reportaveraging 50 MMcf/d by the fourth quarter of 2012. Production from this field averaged 1,956 BOE/d during 2009, all ofwhich was non-tertiary production. At December 31, 2009, the Hastings Field had proved reserves of 8.9 MMBbls.We have recorded the acquisition of Hastings Field in accordance with FASC “Business Combinations” topic, whichbecame effective for acquisitions after December 31, 2008. Based on these new rules, we have allocated $107.6 millionof the $246.8 million adjusted purchase price to proved properties, approximately $2.4 million to land, oilfield equipmentand other related assets, $2.0 million to asset retirement obligations and the net remaining $138.8 million to goodwill.See further discussion regarding this acquisition in Note 2 to the Consolidated Financial Statements.February 2009 Subordinated Debt Issuance. On February 13, 2009, we issued $420 million of 9.75% SeniorSubordinated Notes due 2016 (the “Notes”). The Notes were sold to the public at 92.816% of par, plus accrued interestfrom February 13, 2009, which equates to an effective yield to maturity of approximately 11.25% (before offeringexpenses). Interest on the Notes will be paid on March 1 and September 1 of each year. The Notes will mature onMarch 1, 2016. We used the net proceeds from the offering of approximately $381.4 million to repay most of the thenoutstanding debt on our bank credit facility. We issued an additional $6.35 million of Notes to Mr. Roberts on June 30,2009 (see “Mid-Year Management Changes” above).Capital Resources and LiquidityGeneralDuring 2009, we took several steps to ensure that we had adequate capital resources and liquidity in order to fundour capital expenditure program and to complete two strategic acquisitions, the Hastings Field and the Conroe Field.Those steps included the issuance of $420 million of 9.75% Senior Subordinated Notes in February 2009, the sale of60% of our Barnett Shale assets in mid-2009, and the sale of the remaining 40% of our Barnett Shale assets duringDecember 2009. We used the $381.4 million net proceeds from the February 2009 Notes issuance to repay themajority of our then-outstanding bank debt, and we did the same with the proceeds from our December 2009 BarnettShale sale, freeing up our credit line for future capital needs.Denbury Stand-AloneWe currently estimate our 2010 capital spending will be approximately $650 million, excluding capitalized interestand net of equipment leases, and any expenditures related to the Encore acquisition. Our current 2010 capitalbudget includes approximately $74 million to be spent in the Jackson Dome area, $159 million to be spent on ourCO 2 pipelines and approximately $365 million allocated for tertiary oil field expenditures. This estimate also assumesthat we fund approximately $50 million of budgeted equipment purchases with operating leases, which is dependentupon securing acceptable financing. If we do not enter into a total of $50 million of operating leases during 2010,our net capital expenditures would increase accordingly, and we would anticipate funding those additional capitalexpenditures under our bank credit line. We did not enter into as many operating leases during 2009 as we hadanticipated, leasing approximately $49 million of equipment out of a projected total of $100 million, which resulted ina corresponding net increase in capital expenditures and bank debt. Potentially, during 2010 we could lease all or aportion of this equipment.Based on oil and natural gas commodity futures prices as of late February 2010 and our current 2010 productionforecasts, our stand-alone 2010 capital budget is expected to be $150 million to $250 million greater thanour anticipated cash flow from operations on a stand-alone basis. We plan to fund this shortfall with cashgenerated from the sale of our general partnership interest in Genesis (see “Sale of Interests in General Partner ofGenesis Energy, L.P.” above), the anticipated sale of our limited partnership units in Genesis Energy, L.P., andthe remainder from borrowings under our bank facility. As of February 15, 2010, we had $125 million of bank debtoutstanding on our $750 million committed bank facility, leaving us significant incremental borrowing capacity tofund any shortfall.Form 10-K Part IIManagement’s Discussion and Analysis of Financial Condition and Results of Operations