54 <strong>Denbury</strong> <strong>Resources</strong> Inc. <strong>2009</strong> <strong>Annual</strong> <strong>Report</strong>Oil and Natural Gas Revenues: Fluctuating commodity prices resulted in an increase in our oil and natural gasrevenues between 2007 and 2008, but a decline between 2008 and <strong>2009</strong>. Our increasing production added to therevenue increase between 2007 and 2008, and partially offset the revenue decrease from commodity prices between2008 and <strong>2009</strong>. These changes in revenues, excluding any impact of our derivative contracts, are reflected in thefollowing table.Year Ended December 31,<strong>2009</strong> vs. 2008 2008 vs. 2007PercentagePercentageIncrease Increase Increase Increase(Decrease) (Decrease) (Decrease) (Decrease)In thousands in Revenues in Revenues in Revenues in RevenuesChange in revenues due to:Increase in production $ 53,051 4% $ 50,845 5%Increase (decrease) in commodity prices (533,352) (40%) 343,377 36%Total increase (decrease) in revenues $ (480,301) (36%) $ 394,222 41%Excluding any impact of our derivative contracts, our net realized commodity prices and NYMEX differentials were asfollows during <strong>2009</strong>, 2008 and 2007:Year ended December 31,<strong>2009</strong> 2008 2007Net Realized Prices:Oil price per Bbl $ 57.75 $ 92.73 $ 69.80Natural gas price per Mcf 3.54 8.56 6.81Price per BOE 49.16 79.42 59.17NYMEX Differentials:Oil per Bbl $ (4.21) $ (7.02) $ (2.65)Natural gas per Mcf (0.63) (0.33) (0.28)Our Company-wide oil NYMEX differential improved during <strong>2009</strong> over our differential in 2008 primarily due to theoverall decrease in oil prices during <strong>2009</strong>. Likewise, our oil NYMEX differential widened during 2008 as compared to2007, due to the overall increase in oil prices, with a peak in our differential during the second quarter of 2008,corresponding with the peak in oil prices. Our oil NYMEX differential was also positively impacted during <strong>2009</strong> due toreduced natural gas liquids production as a result of the sale of our Barnett Shale properties, which historically havea significantly higher differential to NYMEXOur natural gas NYMEX differentials are generally caused by movement in the NYMEX natural gas prices during themonth, as most of our natural gas is sold on an index price that is set near the first of each month. While thepercentage change in NYMEX natural gas differentials can be quite large, these differentials are very seldom more thana dollar above or below NYMEX prices.Oil and Natural Gas Derivative Contracts: The following table summarizes the impact our oil and natural gasderivative contracts had on our operating results for <strong>2009</strong>, 2008 and 2007.Form 10-K Part IIManagement’s Discussion and Analysis of Financial Condition and Results of Operations
<strong>Denbury</strong> <strong>Resources</strong> Inc. <strong>2009</strong> <strong>Annual</strong> <strong>Report</strong> 55Non-Cash Fair ValueGain/(Loss)Cash SettlementsReceipt/(Payment)In thousands <strong>2009</strong> 2008 2007 <strong>2009</strong> 2008 2007Crude oil derivative contracts:First quarter $ (95,861) $ 2,638 $ (2,802) $ 85,836 $ (7,392) $ 126Second quarter (189,318) (7,557) (905) 42,002 (12,131) (1,108)Third quarter (20,850) 22,652 (2,481) 18,527 (11,186) (3,018)Fourth quarter (69,721) 242,156 (8,289) 369 (260) (5,834)December year-to-date $ (375,750) $ 259,889 $ (14,477) $ 146,734 $ (30,969) $ (9,834)Natural gas derivative contracts:First quarter $ (10,490) $ (41,371) $ (32,356) $ — $ (656) $ 8,125Second quarter (5,473) (22,666) 14,235 — (16,463) 2,827Third quarter (1,434) 63,427 (2,960) — (12,886) 12,432Fourth quarter 10,187 (1,673) (3,519) — 3,421 6,930December year-to-date $ (7,210) $ (2,283) $ (24,600) $ — $ (26,584) $ 30,314Total derivative contracts:First quarter $ (106,351) $ (38,733) $ (35,158) $ 85,836 $ (8,048) $ 8,251Second quarter (194,791) (30,223) 13,330 42,002 (28,594) 1,719Third quarter (22,284) 86,079 (5,441) 18,527 (24,072) 9,414Fourth quarter (59,534) 240,483 (11,808) 369 3,161 1,096December year-to-date $ (382,960) $ 257,606 $ (39,077) $ 146,734 $ (57,553) $ 20,480Changes in commodity prices and the expiration of contracts cause fluctuations in the estimated fair value of our oiland natural gas derivative contracts. Because we do not utilize hedge accounting for our commodity derivative contracts,the changes in fair value of these contracts, as outlined above, are recognized currently in our income statement.Production Expenses: Our lease operating expenses have increased each year on both a per BOE basis and inabsolute dollars primarily as a result of (i) our increasing emphasis on tertiary operations and additional tertiary fieldsmoving into the productive phase (see discussion of those expenses under “CO 2 Operations” above), (ii) the acquisitionof Hastings Field in February <strong>2009</strong>, which has a higher operating cost per BOE than most of our other properties,(iii) increased personnel and related costs, (iv) higher electrical costs to operate our properties due primarily to theexpansion of our tertiary operations, (v) increasing lease payments due to incremental leasing of certain equipmentin our tertiary operating facilities, and (vi) on a per BOE basis for <strong>2009</strong>, the mid-year sale of our Barnett Shale naturalgas properties, as these properties had a lower per unit operating cost.Company-wide lease operating expense per BOE averaged $18.50 per BOE, $18.13 per BOE and $14.34 per BOEduring <strong>2009</strong>, 2008 and 2007, respectively. On a pro forma basis, after adjusting our operating results to remove theBarnett Shale production and operating expenses, Company-wide lease operating expenses would have been $21.94 perBOE during <strong>2009</strong>, $23.02 per BOE during 2008 and $17.07 per BOE during 2007. Our tertiary operating costs, which havehistorically been higher than our company-wide operating costs, averaged $21.67 per BOE during <strong>2009</strong>, $23.57 per BOEduring 2008 and $19.77 per BOE during 2007 (see “Results of Operations – CO 2 Operations” for a more detaileddiscussion). As our tertiary operations become a larger percentage of our total operations, we expect that our operatingcosts on a per BOE basis will become closer to our tertiary operating costs, or higher as much of our conventional oilproduction, which is in decline, is at a higher per barrel cost than our tertiary operations. Costs of electricity and utilities tooperate our properties have increased due primarily to the expansion of our tertiary operations. We expect our tertiaryoperating costs to partially correlate with oil prices, as the price we pay for CO 2 is partially tied to oil prices.Production taxes and marketing expenses generally change in proportion to commodity prices and productionvolumes, and as such, decreased 33% between 2008 and <strong>2009</strong>, correlating with the 36% decrease in total revenuesbetween the two years and increased between 2007 and 2008 as a result of higher commodity prices. Transportationand plant processing fees were approximately $3.6 million lower in <strong>2009</strong> than 2008 primarily due to the sale of BarnettShale properties in mid-<strong>2009</strong>, and were $8.4 million higher in 2008 than 2007 due to incremental Barnett Shaleproduction and plant processing fees in 2008.Management’s Discussion and Analysis of Financial Condition and Results of OperationsForm 10-K Part II
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