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

Denbury Resources Inc. 2009 Annual Report 57The increase in gross G&A expense in each of the last three years was offset in part by an increase in operatoroverhead recovery charges. Our well operating agreements allow us, when we are the operator, to charge a well with aspecified overhead rate during the drilling phase and also to charge a monthly fixed overhead rate for each producingwell. As a result of additional operated wells from acquisitions, additional tertiary operations, drilling activity during thepast year, and increased compensation expense, the amount we recovered as operator labor and overhead chargesincreased by 11% between 2008 and 2009, and 16% between 2007 and 2008. Capitalized exploration anddevelopment costs also increased each year, primarily due to additional personnel and increased compensation costs.The net effect of the increases in gross G&A expenses, operator overhead recoveries and capitalized explorationcosts was a 92% increase in net G&A expense between 2008 and 2009, and a 23% increase in net G&A expensebetween 2007 and 2008. On a per BOE basis, net G&A expense also increased each year, but at a lower percentagerate due to increased production, with an 85% increase in G&A per BOE in 2009 as compared 2008, and a 17%increase in 2008 as compared to 2007.Interest and Financing ExpensesYear Ended December 31,In thousands, except per BOE data and interest rates 2009 2008 2007Cash interest expense $ 108,629 $ 59,955 $ 49,205Non-cash interest expense 7,397 1,802 2,010Less: Capitalized interest (68,596) (29,161) (20,385)Interest expense $ 47,430 $ 32,596 $ 30,830Interest income and other $ 2,362 $ 4,834 $ 6,642Net cash interest expense and other income per BOE (1) $ 2.14 $ 1.59 $ 1.43Average debt outstanding $ 1,265,142 $ 735,288 $ 672,376Average interest rate (2) 8.6% 8.2% 7.3%(1) Cash interest expense less capitalized interest less interest and other income on BOE basis.(2) Includes commitment fees but excludes debt issue costs and amortization of discount and premium.Interest expense increased $14.8 million, or 46%, between 2009 and 2008 and $1.8 million, or 6%, between 2007and 2008. The increase in interest expense between 2008 and 2009 is due primarily to the February 2009 issuance of$420 million of 9.75% Senior Subordinated Notes due 2016, and to a full year of interest expense recognized during2009 on the pipeline dropdown transactions with Genesis, as compared to only seven months of interest recognizedon the dropdowns during 2008. This increase in interest expense between 2008 and 2009 was largely offset by a$39.4 million increase in capitalized interest, primarily relating to interest capitalized on our Green Pipeline currentlyunder construction. The increase in interest expense between 2007 and 2008 was due primarily to the pipelinedropdown transactions with Genesis mid-2008, which were recorded as capital leases.The increase in our average debt outstanding in 2009 as compared to 2008 is due the issuance of $420 millionSenior Subordinated Notes due 2016, the pipeline dropdown transactions with Genesis, and to increased bankborrowings, primarily to fund our acquisitions.Management’s Discussion and Analysis of Financial Condition and Results of OperationsForm 10-K Part II