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

56 Denbury Resources Inc. 2009 Annual ReportGeneral and Administrative ExpensesDuring the last three years, general and administrative (“G&A”) expenses have increased on both a gross basis andon a per BOE basis as outlined in the following table:Year Ended December 31,In thousands, except per BOE data and employees 2009 2008 2007Gross cash G&A expense $ 143,886 $ 121,209 $ 103,334Employee stock-based compensation 24,322 16,243 12,185Founder’s retirement 10,000 — —Incentive compensation for Genesis management 14,212 — —Acquisition expenses 8,921 527 —State franchise taxes 4,703 3,415 2,915Operator labor and overhead recovery charges (76,044) (68,556) (59,145)Capitalized exploration and development costs (13,905) (12,464) (10,317)Net G&A expense $ 116,095 $ 60,374 $ 48,972G&A per BOE:Net cash G&A expense $ 3.27 $ 2.58 $ 2.30Net stock-based compensation 1.16 0.75 0.56Founder’s retirement 0.57 — —Incentive compensation for Genesis management 0.81 — —Acquisition expenses 0.51 0.03 —State franchise tax 0.27 0.20 0.18Net G&A expense $ 6.59 $ 3.56 $ 3.04Employees as of December 31 830 797 686Gross cash G&A expenses increased $22.7 million, or 19% between 2008 and 2009, and $17.9 million, or 17%,between 2007 and 2008. The increases are primarily due to higher compensation and personnel related costs causedby an increase in the number of employees and higher wages, which we consider necessary in order to remaincompetitive in our industry. During 2008, we increased our employee count by 16%, and we further increased ouremployee count 4% during 2009, although our employee count was higher for part of 2009 before the sale of a portionof our Barnett Shale properties in mid-2009. Stock compensation expense reflected in gross G&A was $24.3 millionduring 2009, $16.2 million during 2008 and $12.2 million during 2007, due primarily to the increase in employees andchanges in the mix of compensation awarded to employees. As discussed above in “Overview – Mid-Year ManagementChanges,” we also expensed $10.0 million in the second quarter of 2009 related to a Founder’s Retirement Agreementfor Gareth Roberts, as he retired as CEO and President of the Company on June 30, 2009.Also adding to the increase in net G&A expense for 2009 was a charge relating to incentive compensation awards forthe management of Genesis of $14.2 million. As incentive compensation for Genesis’ management, our formersubsidiary which is the general partner of Genesis Energy, LP, awarded management the right to earn an interest in theincentive distributions we receive. These awards were subject to vesting over four years and achieving future levels ofcash available before reserves on a per unit basis, among other conditions. As discussed above under “Overview –Sale of Interests in General Partner of Genesis Energy, L.P.”, Denbury sold its interest in the general partner of Genesison February 5, 2010. As such, the change in control provision of each member’s compensation agreement wastriggered and the awards were settled for $14.9 million in cash in February 2010. See also Note 15, “SubsequentEvents” to the Consolidated Financial Statements for further information regarding these incentive compensationawards and the sale of our Class A interest in the Genesis general partner.In addition to the increased compensation and other personnel related costs discussed above, an $8.4 millionincrease in acquisition related expenses also contributed to the increase in net G&A expense between 2008 and 2009.FASC “Business Combinations” topic requires that all transaction related costs (legal, accounting, due diligence, etc.)be expensed as incurred. As such, Denbury has recognized a total of $8.9 million of G&A expense in 2009 relatedprimarily to transaction costs associated with the Encore acquisition.Form 10-K Part IIManagement’s Discussion and Analysis of Financial Condition and Results of Operations