Denbury Resources Inc. (NYSE:DNR) (“Denbury” or the “Company”)
today announced net income of $14 million, or $0.04 per diluted
share, for the second quarter of 2017. Excluding special
items, the Company reported adjusted net income(1) (a non-GAAP
measure) for the quarter of $1 million, or $0.00(1)(2) per diluted
share. Adjusted net income(1) for the second quarter of 2017
differs from the quarter’s GAAP net income due to the exclusion of
a $22 million ($14 million after tax) gain from noncash fair value
adjustments on commodity derivatives(1) (a non-GAAP measure), with
the GAAP and non-GAAP measures reconciled in tables beginning on
page 7.
Sequential and year-over-year comparisons of
selected quarterly financial items are shown in the following
table:
|
|
Quarter Ended |
($ in
millions, except per-share and unit data) |
|
June 30, 2017 |
|
March 31, 2017 |
|
June 30, 2016 |
Net income (loss) |
|
$ |
14 |
|
|
$ |
22 |
|
|
$ |
(381 |
) |
Adjusted net income
(loss)(1) (non-GAAP measure) |
|
1 |
|
|
(7 |
) |
|
29 |
|
Net income (loss) per
diluted share |
|
0.04 |
|
|
0.05 |
|
|
(1.03 |
) |
Adjusted net income
(loss) per diluted share(1)(2) (non-GAAP measure) |
|
0.00 |
|
|
(0.02 |
) |
|
0.08 |
|
Cash flows from
operations |
|
53 |
|
|
24 |
|
|
61 |
|
Adjusted cash flows
from operations(1) (non-GAAP measure) |
|
65 |
|
|
62 |
|
|
93 |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
257 |
|
|
$ |
272 |
|
|
$ |
253 |
|
Receipt (payment) on
settlements of commodity derivatives |
|
(12 |
) |
|
(27 |
) |
|
52 |
|
Revenues
and commodity derivative settlements combined |
|
$ |
245 |
|
|
$ |
245 |
|
|
$ |
305 |
|
|
|
|
|
|
|
|
Average realized oil
price per barrel (excluding derivative settlements) |
|
$ |
47.16 |
|
|
$ |
50.31 |
|
|
$ |
43.38 |
|
Average realized oil
price per barrel (including derivative settlements) |
|
44.92 |
|
|
45.17 |
|
|
52.61 |
|
|
|
|
|
|
|
|
Total continuing
production (BOE/d)(3) |
|
59,774 |
|
|
59,933 |
|
|
62,976 |
|
(1) A non-GAAP measure. See accompanying schedules that
reconcile GAAP to non-GAAP measures along with a statement
indicating why the Company believes the non-GAAP measures provide
useful information for investors.(2) Calculated using weighted
average diluted shares outstanding of 391.8 million, 389.4 million,
and 372.4 million for the three months ended June 30, 2017, March
31, 2017 and June 30, 2016, respectively.(3) Total continuing
production excludes production from the Williston Basin sold during
the third quarter of 2016 and other minor property
divestitures.
MANAGEMENT COMMENT
Chris Kendall, Denbury’s President and CEO,
commented, “I am excited to have the opportunity to lead Denbury,
and I believe we are moving this unique company in the right
direction. Our second quarter results demonstrate this, with
production on target, cash costs reduced from the first quarter,
the successful startup of our Hastings redevelopment project, and
closing the Salt Creek acquisition. The effectiveness of our
capital projects and field optimization over the first half of the
year enabled us to reduce capital from $300 million to $250 million
while still projecting to meet or exceed the midpoint of our
original 2017 production guidance, excluding the Salt Creek
acquisition. Considering the addition of Salt Creek, we are
raising our full-year guidance to 60,000 to 62,000 barrels of oil
equivalent per day.
“We will continue to pursue every reasonable
option that improves our profitability and sustainability at the
current oil price levels. While we have made improvements in
our cost structure over the past few years, I still see significant
opportunities for more cost reductions, and we are currently
working toward implementing those measures.
“In the second half of 2017, we expect to
complete development of Phase 5 at Bell Creek and expansion of the
recycle facility at Oyster Bayou. We will continue to
progress the Grieve and West Yellow Creek developments, as well as
our exploitation program. The investments being deferred are
still great projects in the current price environment, but we can
easily slide them into 2018.
“I believe that Denbury holds significant value
not recognized by the market, ranging from our vast CO2 supply and
distribution network, exploitation opportunities in existing fields
across the portfolio, potential tertiary development of our giant
Cedar Creek Anticline assets in Montana and North Dakota, and even
our nonproducing surface land ownership in the Houston area.
A key focus for the Company is bringing this unrecognized value to
light.
“Looking forward, I believe Denbury can deliver
significant appreciation in value through operational enhancements,
our unique portfolio of low-decline oil production, our talented
and dedicated team, and continued progress in unlocking additional
value from our broad asset base.”
REVIEW OF OPERATING AND FINANCIAL
RESULTS
Denbury’s production averaged 59,774 barrels of
oil equivalent (“BOE”) per day (“BOE/d”) during the second quarter
of 2017, with 97% of production being oil, and with tertiary
properties accounting for 61% of overall production. On a
sequential-quarter basis, production was flat with the first
quarter of 2017 level. The Company expects production from
the recently completed Salt Creek Field acquisition should add
slightly more than 2,000 BOE/d to the Company’s production for the
second half of 2017. Further production information is
provided on page 11 of this press release.
Denbury’s average realized oil price per barrel
(“Bbl”), excluding derivative settlements, was $47.16 in the second
quarter of 2017, compared to $50.31 in the first quarter of 2017,
and $43.38 in the prior-year second quarter. Including
derivative settlements, Denbury’s average realized oil price per
Bbl was $44.92 in the second quarter of 2017, compared to $45.17 in
the first quarter of 2017, and $52.61 in the prior-year second
quarter. The Company’s realized oil price in the second
quarter of 2017 was $1.16 per Bbl below NYMEX prices, compared to
$1.64 per Bbl below NYMEX in the first quarter of 2017, and $2.18
per Bbl below NYMEX in the second quarter of 2016.
Payments on settlements of commodity derivative
contracts were $12 million in the second quarter of 2017, compared
to payments of $27 million in the first quarter of 2017, and
receipts of $52 million in the second quarter of 2016. These
settlements resulted in a decrease in average net realized prices
of $2.16 per BOE in the second quarter of 2017, compared to a
decrease of $5.00 per BOE in the first quarter of 2017, and an
increase of $8.86 per BOE in the second quarter of 2016.
The Company’s total lease operating expenses in
the second quarter of 2017 were $111 million, a decrease of $3
million, or 2%, on an absolute-dollar basis when compared to those
in the first quarter of 2017, and an increase of $11 million, or
11%, when compared to the second quarter of 2016. The
increase when compared to the second quarter of 2016 was due
primarily to higher power and fuel costs as well as increased
workover and other repair activity at certain fields, as workover
activity was significantly curtailed during 2016 due to the lower
oil price environment. Lease operating expenses were impacted
to a smaller degree by incremental operating costs related to the
newly operating Delhi NGL plant. During the second quarter of
2017, the Company’s CO2 use averaged 608 million cubic feet per
day, an increase of 33% when compared to the second quarter of 2016
and an increase of 6% when compared to that in the first quarter of
2017, primarily due to the Hastings redevelopment project.
General and administrative expenses were $26
million in the second quarter of 2017, decreasing $2 million from
the first quarter of 2017 and increasing $3 million from the
prior-year second quarter, with most of the changes related to
compensation items that are variable or performance related.
Interest expense, net of capitalized interest,
decreased to $24 million in the second quarter of 2017, compared to
$36 million in the second quarter of 2016. As a result of the
Company’s debt exchange transactions completed in May 2016,
interest expense in the second quarter of 2017 excludes
approximately $13 million of interest on the Company’s 9% Senior
Secured Second Lien Notes due 2021, compared to $7 million in the
second quarter of 2016, which was recorded as debt for financial
reporting purposes and is therefore not reflected as interest
expense. A reconciliation of interest expense is included on
page 13 of this press release.
Depletion, depreciation, and amortization
(“DD&A”) decreased to $51 million in the second quarter of
2017, compared to $67 million in the second quarter of 2016.
This decrease was primarily driven by a reduction in depletable
costs resulting from the full cost pool ceiling test write-downs
recognized during 2016. On a sequential-quarter basis, the
Company’s DD&A was relatively unchanged from the first quarter
of 2017.
Denbury’s effective tax rate for the second
quarter of 2017 was 42% – higher than the Company’s statutory rate
of 38% – primarily due to the impact of alternative minimum tax
credit usage during the quarter, which also contributed to the $6
million current income tax benefit in the second quarter of
2017.
PROVED RESERVES ADDITIONS
During the second quarter of 2017, the Company
added approximately 19 million barrels (“MMBbls”) of proved oil
reserves from properties acquired during the first half of
2017. These reserve additions include approximately 17
MMBbls associated with the Company’s 23% non-operated working
interest in Salt Creek Field in Wyoming, and approximately 2 MMBbls
associated with the Company’s 48% non-operated working interest in
West Yellow Creek Field in Mississippi. On a combined basis,
the proved reserves recorded at these fields replace approximately
a year’s worth of the Company’s crude oil production.
BANK CREDIT FACILITY
The Company had a total of $490 million of
borrowings outstanding under its $1.05 billion senior secured bank
credit facility (the “Facility”) as of June 30, 2017, compared to
$301 million outstanding as of December 31, 2016. The $189
million increase in borrowings is partly due to the Company’s
capital expenditure levels, including $89 million of oil and
natural gas property acquisitions in the first six months of 2017,
with the remaining portion due to $50 million of cash outflows for
working capital changes, and repayments of other non-bank debt of
$39 million. After consideration of $62 million of
outstanding letters of credit, this leaves the Company with
significant borrowing capacity as of June 30, 2017. Assuming
oil prices remain in the upper $40’s per Bbl for the remainder of
2017, and based on currently-projected cash flows and capital
spending levels, the Company anticipates that its bank debt at the
end of 2017 should be in the range of $425 to $475 million, which
would provide more than $500 million of available liquidity under
the Company’s bank line.
2017 CAPITAL BUDGET AND ESTIMATED
PRODUCTION
In response to lower than anticipated oil prices
in the first half of 2017 and to better align the Company’s
estimated 2017 cash flow and capital expenditures, the Company
today announced that it is reducing its estimated 2017 capital
budget, excluding acquisitions and capitalized interest, from $300
million to approximately $250 million. The capital budget
consists of approximately $195 million of tertiary, non-tertiary,
and CO2 supply and pipeline projects, plus approximately $55
million of estimated capitalized costs (including capitalized
internal acquisition, exploration and development costs and
pre-production tertiary startup costs). Of this combined
capital expenditure amount, approximately $125 million (50%) has
been incurred through the second quarter of 2017. Despite
this reduction in the capital budget, and as a result of the
Company’s successful execution of its capital projects in the first
half of this year, the Company currently anticipates its 2017
production being on target to meet or exceed the midpoint of its
original guidance of 58,000 to 62,000 BOE/d and the 2016 exit rate
of roughly 60,000 BOE/d, excluding acquired properties. With
the recent acquisition of Salt Creek Field, the Company has revised
its full-year 2017 production guidance to an expected range of
60,000 to 62,000 BOE/d.
CONFERENCE CALL INFORMATION
Denbury management will host a conference call
to review and discuss second quarter 2017 financial and operating
results, as well as financial and operating guidance for 2017,
today, Tuesday, August 8, at 10:00 A.M. (Central).
Additionally, Denbury has published presentation materials on its
website which will be referenced during the conference call.
Individuals who would like to participate should dial 800.230.1093
or 612.332.0226 ten minutes before the scheduled start time.
To access a live webcast of the conference call and accompanying
slide presentation, please visit the investor relations section of
the Company’s website at www.denbury.com. The webcast will be
archived on the website, and a telephonic replay will be accessible
for at least one month after the call by dialing 800.475.6701 or
320.365.3844 and entering confirmation number 361973.
Denbury is an independent oil and natural gas
company with operations focused in two key operating areas: the
Gulf Coast and Rocky Mountain regions. The Company’s goal is
to increase the value of its properties through a combination of
exploitation, drilling and proven engineering extraction practices,
with the most significant emphasis relating to CO2 enhanced oil
recovery operations. For more information about Denbury,
please visit www.denbury.com.
This press release, other than historical
financial information, contains forward-looking statements that
involve risks and uncertainties including estimated 2017 production
and capital expenditures and other risks and uncertainties detailed
in the Company’s filings with the Securities and Exchange
Commission, including Denbury’s most recent report on Form
10-K. These risks and uncertainties are incorporated by this
reference as though fully set forth herein. These statements
are based on engineering, geological, financial and operating
assumptions that management believes are reasonable based on
currently available information; however, management’s assumptions
and the Company’s future performance are both subject to a wide
range of business risks, and there is no assurance that these goals
and projections can or will be met. Actual results may vary
materially. In addition, any forward-looking statements
represent the Company’s estimates only as of today and should not
be relied upon as representing its estimates as of any future
date. Denbury assumes no obligation to update its
forward-looking statements.
FINANCIAL AND STATISTICAL DATA TABLES
AND RECONCILIATION SCHEDULES
Following are unaudited financial highlights for
the comparative three and six month periods ended June 30, 2017 and
2016 and the three month period ended March 31, 2017. All
production volumes and dollars are expressed on a net revenue
interest basis with gas volumes converted to equivalent barrels at
6:1.
DENBURY RESOURCES
INC.CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following information is based on GAAP
reported earnings (along with additional required disclosures)
included or to be included in the Company’s periodic reports:
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
March 31, |
|
June 30, |
In
thousands, except per-share data |
|
2017 |
|
2016 |
|
2017 |
|
2017 |
|
2016 |
Revenues and
other income |
|
|
|
|
|
|
|
|
|
|
Oil
sales |
|
$ |
248,317 |
|
|
$ |
244,572 |
|
|
$ |
263,974 |
|
|
$ |
512,291 |
|
|
$ |
429,388 |
|
Natural
gas sales |
|
2,563 |
|
|
2,096 |
|
|
2,204 |
|
|
4,767 |
|
|
5,083 |
|
CO2 sales
and transportation fees |
|
6,555 |
|
|
6,622 |
|
|
5,388 |
|
|
11,943 |
|
|
12,894 |
|
Interest
income and other income |
|
3,749 |
|
|
1,858 |
|
|
3,888 |
|
|
7,637 |
|
|
2,627 |
|
Total
revenues and other income |
|
261,184 |
|
|
255,148 |
|
|
275,454 |
|
|
536,638 |
|
|
449,992 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
Lease
operating expenses |
|
111,318 |
|
|
100,019 |
|
|
113,840 |
|
|
225,158 |
|
|
202,466 |
|
Marketing
and plant operating expenses |
|
13,877 |
|
|
12,999 |
|
|
14,065 |
|
|
27,942 |
|
|
26,193 |
|
CO2
discovery and operating expenses |
|
513 |
|
|
1,071 |
|
|
593 |
|
|
1,106 |
|
|
1,678 |
|
Taxes
other than income |
|
20,175 |
|
|
19,504 |
|
|
22,440 |
|
|
42,615 |
|
|
39,596 |
|
General
and administrative expenses |
|
25,789 |
|
|
22,545 |
|
|
28,241 |
|
|
54,030 |
|
|
56,446 |
|
Interest,
net of amounts capitalized of $8,147, $6,289, $4,654, $12,801 and
$12,069, respectively |
|
24,061 |
|
|
36,058 |
|
|
27,178 |
|
|
51,239 |
|
|
78,229 |
|
Depletion, depreciation, and amortization |
|
51,152 |
|
|
66,541 |
|
|
51,195 |
|
|
102,347 |
|
|
143,907 |
|
Commodity
derivatives expense (income) |
|
(10,373 |
) |
|
98,209 |
|
|
(24,602 |
) |
|
(34,975 |
) |
|
121,035 |
|
Gain on
debt extinguishment |
|
— |
|
|
(12,278 |
) |
|
— |
|
|
— |
|
|
(107,269 |
) |
Write-down of oil and natural gas properties |
|
— |
|
|
479,400 |
|
|
— |
|
|
— |
|
|
735,400 |
|
Other
expenses |
|
— |
|
|
34,688 |
|
|
— |
|
|
— |
|
|
36,232 |
|
Total
expenses |
|
236,512 |
|
|
858,756 |
|
|
232,950 |
|
|
469,462 |
|
|
1,333,913 |
|
Income (loss)
before income taxes |
|
24,672 |
|
|
(603,608 |
) |
|
42,504 |
|
|
67,176 |
|
|
(883,921 |
) |
Income tax provision
(benefit) |
|
|
|
|
|
|
|
|
|
|
Current
income taxes |
|
(5,965 |
) |
|
— |
|
|
(13,935 |
) |
|
(19,900 |
) |
|
(5 |
) |
Deferred
income taxes |
|
16,238 |
|
|
(222,940 |
) |
|
34,909 |
|
|
51,147 |
|
|
(318,055 |
) |
Net income
(loss) |
|
$ |
14,399 |
|
|
$ |
(380,668 |
) |
|
$ |
21,530 |
|
|
$ |
35,929 |
|
|
$ |
(565,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) per common share |
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.04 |
|
|
$ |
(1.03 |
) |
|
$ |
0.06 |
|
|
$ |
0.09 |
|
|
$ |
(1.58 |
) |
Diluted |
|
$ |
0.04 |
|
|
$ |
(1.03 |
) |
|
$ |
0.05 |
|
|
$ |
0.09 |
|
|
$ |
(1.58 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
Basic |
|
389,904 |
|
|
370,566 |
|
|
389,397 |
|
|
389,652 |
|
|
358,901 |
|
Diluted |
|
391,827 |
|
|
370,566 |
|
|
392,997 |
|
|
392,414 |
|
|
358,901 |
|
DENBURY RESOURCES
INC.SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Reconciliation of net income (loss) (GAAP
measure) to adjusted net income (loss) (non-GAAP measure)
Adjusted net income (loss) is a non-GAAP measure
provided as a supplement to present an alternative net income
(loss) measure which excludes expense and income items (and their
related tax effects) not directly related to the Company’s ongoing
operations. Management believes that adjusted net income
(loss) may be helpful to investors by eliminating the impact of
noncash and/or special or unusual items not indicative of the
Company’s performance from period to period, and is widely used by
the investment community, while also being used by management, in
evaluating the comparability of the Company’s ongoing operational
results and trends. Adjusted net income (loss) should not be
considered in isolation, as a substitute for, or more meaningful
than, net income (loss) or any other measure reported in accordance
with GAAP, but rather to provide additional information useful in
evaluating the Company’s operational trends and performance.
|
|
Three Months Ended |
|
|
June 30, |
|
March 31, |
|
|
2017 |
|
2016 |
|
2017 |
In
thousands, except per-share data |
|
Amount |
|
Per Diluted Share |
|
Amount |
|
Per Diluted Share |
|
Amount |
|
Per Diluted Share |
Net income
(loss) (GAAP measure) |
|
$ |
14,399 |
|
|
$ |
0.04 |
|
|
$ |
(380,668 |
) |
|
$ |
(1.03 |
) |
|
$ |
21,530 |
|
|
$ |
0.05 |
|
Adjustments to
reconcile to adjusted net income (loss) (non-GAAP measure) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
fair value adjustments on commodity derivatives (1) |
|
(22,140 |
) |
|
(0.06 |
) |
|
150,235 |
|
|
0.40 |
|
|
(51,542 |
) |
|
(0.13 |
) |
Write-down of oil and natural gas properties (2) |
|
— |
|
|
— |
|
|
479,400 |
|
|
1.29 |
|
|
— |
|
|
— |
|
Gain on
debt extinguishment (3) |
|
— |
|
|
— |
|
|
(12,278 |
) |
|
(0.03 |
) |
|
— |
|
|
— |
|
Legal
settlements included in other expenses (4) |
|
— |
|
|
— |
|
|
30,250 |
|
|
0.08 |
|
|
— |
|
|
— |
|
Write-off
of debt issuance costs included in interest expense (5) |
|
— |
|
|
— |
|
|
4,509 |
|
|
0.01 |
|
|
— |
|
|
— |
|
Severance-related payments included in general and administrative
expenses (6) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Transaction costs and other (7) |
|
— |
|
|
— |
|
|
4,531 |
|
|
0.01 |
|
|
— |
|
|
— |
|
Estimated
income taxes on above adjustments to net income (loss) and other
discrete tax items (8) |
|
8,609 |
|
|
0.02 |
|
|
(247,178 |
) |
|
(0.65 |
) |
|
23,159 |
|
|
0.06 |
|
Adjusted net
income (loss) (non-GAAP measure) |
|
$ |
868 |
|
|
$ |
0.00 |
|
|
$ |
28,801 |
|
|
$ |
0.08 |
|
|
$ |
(6,853 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2017 |
|
2016 |
In
thousands, except per-share data |
|
Amount |
|
Per Diluted Share |
|
Amount |
|
Per Diluted Share |
Net income
(loss) (GAAP measure) |
|
$ |
35,929 |
|
|
$ |
0.09 |
|
|
$ |
(565,861 |
) |
|
$ |
(1.58 |
) |
Adjustments to
reconcile to adjusted net income (loss) (non-GAAP measure) |
|
|
|
|
|
|
|
|
Noncash
fair value adjustments on commodity derivatives (1) |
|
(73,682 |
) |
|
(0.19 |
) |
|
245,288 |
|
|
0.68 |
|
Write-down of oil and natural gas properties (2) |
|
— |
|
|
— |
|
|
735,400 |
|
|
2.04 |
|
Gain on
debt extinguishment (3) |
|
— |
|
|
— |
|
|
(107,269 |
) |
|
(0.30 |
) |
Legal
settlements included in other expenses (4) |
|
— |
|
|
— |
|
|
30,250 |
|
|
0.08 |
|
Write-off
of debt issuance costs included in interest expense (5) |
|
— |
|
|
— |
|
|
5,553 |
|
|
0.02 |
|
Severance-related payments included in general and administrative
expenses (6) |
|
— |
|
|
— |
|
|
9,315 |
|
|
0.03 |
|
Transaction costs and other (7) |
|
— |
|
|
— |
|
|
5,638 |
|
|
0.02 |
|
Estimated
income taxes on above adjustments to net income (loss) and other
discrete tax items (8) |
|
31,768 |
|
|
0.08 |
|
|
(338,610 |
) |
|
(0.94 |
) |
Adjusted net
income (loss) (non-GAAP measure) |
|
$ |
(5,985 |
) |
|
$ |
(0.02 |
) |
|
$ |
19,704 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The net change between periods of the fair
market values of open commodity derivative positions, excluding the
impact of settlements on commodity derivatives during the
period.(2) Full cost pool ceiling test write-downs related to the
Company’s oil and natural gas properties.(3) Gain on extinguishment
related to the Company’s debt exchange during the three months
ended June 30, 2016 and open-market debt repurchases during the six
months ended June 30, 2016.(4) Settlements related to previously
outstanding litigation, the most significant of which pertaining to
a $28 million payment to Evolution in connection with the
settlement resolving all outstanding disputes and claims.(5)
Write-off of debt issuance costs associated with the Company’s
senior secured bank credit facility, related to the May 2016
redetermination which reduced the Company’s borrowing base, with
the six-month period further impacted by reductions in the
Company’s lender commitments resulting from the February 2016
amendment.(6) Severance-related payments associated with the
Company’s February-2016 workforce reduction.(7) Transaction costs
related to the Company’s debt exchange during the three months
ended June 30, 2016 and a loss on sublease during the six months
ended June 30, 2016.(8) The estimated income tax impacts on
adjustments to net income (loss) are generally computed based upon
a statutory rate of 38%, applicable to all periods presented, with
the exception of the write-down on oil and natural gas properties,
which is computed individually based upon the Company’s effective
tax rate, as well as the tax impact of a shortfall on the
stock-based compensation deduction which totaled <$1 million,
<$1 million, and $4 million during the three months ended June
30, 2017, June 30, 2016, and March 31, 2017, respectively, and $4
million and $9 million for the six months ended June 30, 2017 and
2016, respectively.
DENBURY RESOURCES
INC.SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Reconciliation of cash flows from operations
(GAAP measure) to adjusted cash flows from operations (non-GAAP
measure)
Adjusted cash flows from operations is a
non-GAAP measure that represents cash flows provided by operations
before changes in assets and liabilities, as summarized from the
Company’s Unaudited Condensed Consolidated Statements of Cash
Flows. Adjusted cash flows from operations measures the cash
flows earned or incurred from operating activities without regard
to the collection or payment of associated receivables or
payables. Management believes that it is important to
consider this additional measure, along with cash flows from
operations, as it believes the non-GAAP measure can often be a
better way to discuss changes in operating trends in its business
caused by changes in production, prices, operating costs and
related factors, without regard to whether the earned or incurred
item was collected or paid during that period.
|
|
Three Months Ended |
|
Six Months Ended |
In thousands |
|
June 30, |
|
March 31, |
|
June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2017 |
|
2016 |
Net income
(loss) (GAAP measure) |
|
$ |
14,399 |
|
|
$ |
(380,668 |
) |
|
$ |
21,530 |
|
|
$ |
35,929 |
|
|
$ |
(565,861 |
) |
Adjustments to
reconcile to adjusted cash flows from operations |
|
|
|
|
|
|
|
|
|
|
Depletion, depreciation, and amortization |
|
51,152 |
|
|
66,541 |
|
|
51,195 |
|
|
102,347 |
|
|
143,907 |
|
Deferred
income taxes |
|
16,238 |
|
|
(222,940 |
) |
|
34,909 |
|
|
51,147 |
|
|
(318,055 |
) |
Stock-based compensation |
|
4,835 |
|
|
3,263 |
|
|
4,106 |
|
|
8,941 |
|
|
4,122 |
|
Noncash
fair value adjustments on commodity derivatives |
|
(22,140 |
) |
|
150,235 |
|
|
(51,542 |
) |
|
(73,682 |
) |
|
245,288 |
|
Gain on
debt extinguishment |
|
— |
|
|
(12,278 |
) |
|
— |
|
|
— |
|
|
(107,269 |
) |
Write-down of oil and natural gas properties |
|
— |
|
|
479,400 |
|
|
— |
|
|
— |
|
|
735,400 |
|
Other |
|
781 |
|
|
9,439 |
|
|
1,557 |
|
|
2,338 |
|
|
12,329 |
|
Adjusted cash
flows from operations
(non-GAAP measure) (1) |
|
65,265 |
|
|
92,992 |
|
|
61,755 |
|
|
127,020 |
|
|
149,861 |
|
Net
change in assets and liabilities relating to operations |
|
(12,319 |
) |
|
(32,077 |
) |
|
(37,493 |
) |
|
(49,812 |
) |
|
(86,917 |
) |
Cash flows from
operations (GAAP measure) |
|
$ |
52,946 |
|
|
$ |
60,915 |
|
|
$ |
24,262 |
|
|
$ |
77,208 |
|
|
$ |
62,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The three and six-month periods ended June
30, 2016 include a $28 million payment to Evolution in connection
with the Company’s settlement agreement to resolve all outstanding
disputes and claims, and the six-month period ended June 30, 2016
includes severance-related payments associated with the 2016
workforce reduction of approximately $9 million. Excluding
these payments, adjusted cash flows from operations would have
totaled $121 million and $187 million for the three and six months
ended June 30, 2016.
DENBURY RESOURCES
INC.SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Reconciliation of commodity derivatives income
(expense) (GAAP measure) to noncash fair value adjustments on
commodity derivatives (non-GAAP measure)
Noncash fair value adjustments on commodity
derivatives is a non-GAAP measure and is different from “Commodity
derivatives expense (income)” in the Unaudited Condensed
Consolidated Statements of Operations in that the noncash fair
value adjustments on commodity derivatives represents only the net
change between periods of the fair market values of open commodity
derivative positions, and excludes the impact of settlements on
commodity derivatives during the period. Management believes
that noncash fair value adjustments on commodity derivatives is a
useful supplemental disclosure to “Commodity derivatives expense
(income)” because the GAAP measure also includes settlements on
commodity derivatives during the period; the non-GAAP measure is
widely used within the industry and by securities analysts, banks
and credit rating agencies in calculating EBITDA and in adjusting
net income (loss) to present those measures on a comparative basis
across companies, as well as to assess compliance with certain debt
covenants.
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
March 31, |
|
June 30, |
In
thousands |
|
2017 |
|
2016 |
|
2017 |
|
2017 |
|
2016 |
Receipt (payment) on
settlements of commodity derivatives |
|
$ |
(11,767 |
) |
|
$ |
52,026 |
|
|
$ |
(26,940 |
) |
|
$ |
(38,707 |
) |
|
$ |
124,253 |
|
Noncash fair value
adjustments on commodity derivatives (non-GAAP measure) |
|
22,140 |
|
|
(150,235 |
) |
|
51,542 |
|
|
73,682 |
|
|
(245,288 |
) |
Commodity
derivatives income (expense) (GAAP measure) |
|
$ |
10,373 |
|
|
$ |
(98,209 |
) |
|
$ |
24,602 |
|
|
$ |
34,975 |
|
|
$ |
(121,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENBURY RESOURCES
INC.OPERATING HIGHLIGHTS (UNAUDITED)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
March 31, |
|
June 30, |
|
|
2017 |
|
2016 |
|
2017 |
|
2017 |
|
2016 |
Production
(daily – net of royalties) |
|
|
|
|
|
|
|
|
|
|
Oil
(barrels) |
|
57,867 |
|
|
61,952 |
|
|
58,303 |
|
|
58,084 |
|
|
64,045 |
|
Gas
(mcf) |
|
11,444 |
|
|
15,328 |
|
|
9,778 |
|
|
10,616 |
|
|
17,299 |
|
BOE
(6:1) |
|
59,774 |
|
|
64,506 |
|
|
59,933 |
|
|
59,853 |
|
|
66,929 |
|
Unit sales
price (excluding derivative settlements) |
|
|
|
|
|
|
|
|
|
|
Oil (per
barrel) |
|
$ |
47.16 |
|
|
$ |
43.38 |
|
|
$ |
50.31 |
|
|
$ |
48.73 |
|
|
$ |
36.84 |
|
Gas (per
mcf) |
|
2.46 |
|
|
1.50 |
|
|
2.50 |
|
|
2.48 |
|
|
1.61 |
|
BOE
(6:1) |
|
46.12 |
|
|
42.02 |
|
|
49.35 |
|
|
47.73 |
|
|
35.67 |
|
Unit sales
price (including derivative settlements) |
|
|
|
|
|
|
|
|
|
|
Oil (per
barrel) |
|
$ |
44.92 |
|
|
$ |
52.61 |
|
|
$ |
45.17 |
|
|
$ |
45.05 |
|
|
$ |
47.50 |
|
Gas (per
mcf) |
|
2.46 |
|
|
1.50 |
|
|
2.50 |
|
|
2.48 |
|
|
1.61 |
|
BOE
(6:1) |
|
43.96 |
|
|
50.88 |
|
|
44.35 |
|
|
44.16 |
|
|
45.87 |
|
NYMEX
differentials |
|
|
|
|
|
|
|
|
|
|
Gulf
Coast region |
|
|
|
|
|
|
|
|
|
|
Oil (per
barrel) |
|
$ |
(0.78 |
) |
|
$ |
(1.22 |
) |
|
$ |
(1.42 |
) |
|
$ |
(1.09 |
) |
|
$ |
(1.78 |
) |
Gas (per
mcf) |
|
(0.03 |
) |
|
(0.69 |
) |
|
0.09 |
|
|
0.03 |
|
|
(0.46 |
) |
Rocky
Mountain region |
|
|
|
|
|
|
|
|
|
|
Oil (per
barrel) |
|
$ |
(1.96 |
) |
|
$ |
(3.98 |
) |
|
$ |
(2.09 |
) |
|
$ |
(2.02 |
) |
|
$ |
(4.73 |
) |
Gas (per
mcf) |
|
(1.42 |
) |
|
(0.80 |
) |
|
(0.97 |
) |
|
(1.19 |
) |
|
(0.56 |
) |
Total
company |
|
|
|
|
|
|
|
|
|
|
Oil (per
barrel) |
|
$ |
(1.16 |
) |
|
$ |
(2.18 |
) |
|
$ |
(1.64 |
) |
|
$ |
(1.39 |
) |
|
$ |
(2.81 |
) |
Gas (per
mcf) |
|
(0.69 |
) |
|
(0.73 |
) |
|
(0.57 |
) |
|
(0.63 |
) |
|
(0.50 |
) |
DENBURY RESOURCES
INC.OPERATING HIGHLIGHTS (UNAUDITED)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
March 31, |
|
June 30, |
Average Daily Volumes (BOE/d) (6:1) |
|
2017 |
|
2016 |
|
2017 |
|
2017 |
|
2016 |
Tertiary oil
production |
|
|
|
|
|
|
|
|
|
|
Gulf Coast
region |
|
|
|
|
|
|
|
|
|
|
Mature
properties (1) |
|
7,737 |
|
|
9,415 |
|
|
8,111 |
|
|
7,924 |
|
|
9,540 |
|
Delhi |
|
4,965 |
|
|
3,996 |
|
|
4,991 |
|
|
4,978 |
|
|
3,984 |
|
Hastings |
|
4,400 |
|
|
4,972 |
|
|
4,288 |
|
|
4,344 |
|
|
5,020 |
|
Heidelberg |
|
4,996 |
|
|
5,246 |
|
|
4,730 |
|
|
4,864 |
|
|
5,296 |
|
Oyster
Bayou |
|
5,217 |
|
|
5,088 |
|
|
5,075 |
|
|
5,146 |
|
|
5,291 |
|
Tinsley |
|
6,311 |
|
|
7,335 |
|
|
6,666 |
|
|
6,487 |
|
|
7,617 |
|
Total
Gulf Coast region |
|
33,626 |
|
|
36,052 |
|
|
33,861 |
|
|
33,743 |
|
|
36,748 |
|
Rocky Mountain
region |
|
|
|
|
|
|
|
|
|
|
Bell
Creek |
|
3,060 |
|
|
3,160 |
|
|
3,209 |
|
|
3,134 |
|
|
3,090 |
|
Salt
Creek (2) |
|
23 |
|
|
— |
|
|
— |
|
|
12 |
|
|
— |
|
Total
Rocky Mountain region |
|
3,083 |
|
|
3,160 |
|
|
3,209 |
|
|
3,146 |
|
|
3,090 |
|
Total tertiary oil
production |
|
36,709 |
|
|
39,212 |
|
|
37,070 |
|
|
36,889 |
|
|
39,838 |
|
Non-tertiary
oil and gas production |
|
|
|
|
|
|
|
|
|
|
Gulf Coast
region |
|
|
|
|
|
|
|
|
|
|
Mississippi |
|
1,004 |
|
|
1,017 |
|
|
1,342 |
|
|
1,172 |
|
|
845 |
|
Texas |
|
5,002 |
|
|
4,104 |
|
|
4,333 |
|
|
4,669 |
|
|
5,126 |
|
Other |
|
460 |
|
|
456 |
|
|
495 |
|
|
477 |
|
|
503 |
|
Total
Gulf Coast region |
|
6,466 |
|
|
5,577 |
|
|
6,170 |
|
|
6,318 |
|
|
6,474 |
|
Rocky Mountain
region |
|
|
|
|
|
|
|
|
|
|
Cedar
Creek Anticline |
|
15,124 |
|
|
16,325 |
|
|
15,067 |
|
|
15,096 |
|
|
17,052 |
|
Other |
|
1,475 |
|
|
1,862 |
|
|
1,626 |
|
|
1,550 |
|
|
1,966 |
|
Total
Rocky Mountain region |
|
16,599 |
|
|
18,187 |
|
|
16,693 |
|
|
16,646 |
|
|
19,018 |
|
Total non-tertiary
production |
|
23,065 |
|
|
23,764 |
|
|
22,863 |
|
|
22,964 |
|
|
25,492 |
|
Total
continuing production |
|
59,774 |
|
|
62,976 |
|
|
59,933 |
|
|
59,853 |
|
|
65,330 |
|
Property
sales |
|
|
|
|
|
|
|
|
|
|
2016
property divestitures (3) |
|
— |
|
|
1,530 |
|
|
— |
|
|
— |
|
|
1,599 |
|
Total
production |
|
59,774 |
|
|
64,506 |
|
|
59,933 |
|
|
59,853 |
|
|
66,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Mature properties include Brookhaven, Cranfield, Eucutta,
Little Creek, Lockhart Crossing, Mallalieu, Martinville, McComb and
Soso fields.(2) Includes production related to the acquisition of a
23% non-operated working interest in Salt Creek Field in Wyoming,
which closed on June 30, 2017.(3) Includes non-tertiary production
in the Rocky Mountain region related to the sale of remaining
non-core assets in the Williston Basin of North Dakota and Montana,
which closed in the third quarter of 2016.
DENBURY RESOURCES
INC.PER-BOE DATA (UNAUDITED)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
March 31, |
|
June 30, |
|
|
2017 |
|
2016 |
|
2017 |
|
2017 |
|
2016 |
Oil and natural gas
revenues |
|
$ |
46.12 |
|
|
$ |
42.02 |
|
|
$ |
49.35 |
|
|
$ |
47.73 |
|
|
$ |
35.67 |
|
Receipt (payment) on
settlements of commodity derivatives |
|
(2.16 |
) |
|
8.86 |
|
|
(5.00 |
) |
|
(3.57 |
) |
|
10.20 |
|
Lease operating
expenses |
|
(20.46 |
) |
|
(17.04 |
) |
|
(21.11 |
) |
|
(20.78 |
) |
|
(16.62 |
) |
Production and ad
valorem taxes |
|
(3.36 |
) |
|
(2.90 |
) |
|
(3.86 |
) |
|
(3.61 |
) |
|
(2.81 |
) |
Marketing expenses, net
of third-party purchases, and plant operating expenses |
|
(1.83 |
) |
|
(1.85 |
) |
|
(1.87 |
) |
|
(1.85 |
) |
|
(1.84 |
) |
Production netback |
|
18.31 |
|
|
29.09 |
|
|
17.51 |
|
|
17.92 |
|
|
24.60 |
|
CO2 sales, net of
operating and exploration expenses |
|
1.12 |
|
|
0.95 |
|
|
0.89 |
|
|
1.00 |
|
|
0.92 |
|
General and
administrative expenses |
|
(4.74 |
) |
|
(3.84 |
) |
|
(5.24 |
) |
|
(4.99 |
) |
|
(4.63 |
) |
Interest expense,
net |
|
(4.42 |
) |
|
(6.14 |
) |
|
(5.04 |
) |
|
(4.73 |
) |
|
(6.42 |
) |
Other |
|
1.72 |
|
|
(4.22 |
) |
|
3.33 |
|
|
2.53 |
|
|
(2.16 |
) |
Changes in assets and
liabilities relating to operations |
|
(2.26 |
) |
|
(5.46 |
) |
|
(6.95 |
) |
|
(4.60 |
) |
|
(7.14 |
) |
Cash
flows from operations |
|
9.73 |
|
|
10.38 |
|
|
4.50 |
|
|
7.13 |
|
|
5.17 |
|
DD&A |
|
(9.40 |
) |
|
(11.34 |
) |
|
(9.49 |
) |
|
(9.45 |
) |
|
(11.81 |
) |
Write-down of oil and
natural gas properties |
|
— |
|
|
(81.67 |
) |
|
— |
|
|
— |
|
|
(60.37 |
) |
Deferred income
taxes |
|
(2.99 |
) |
|
37.98 |
|
|
(6.47 |
) |
|
(4.72 |
) |
|
26.11 |
|
Gain on debt
extinguishment |
|
— |
|
|
2.09 |
|
|
— |
|
|
— |
|
|
8.81 |
|
Noncash fair value
adjustments on commodity derivatives |
|
4.07 |
|
|
(25.59 |
) |
|
9.56 |
|
|
6.80 |
|
|
(20.14 |
) |
Other noncash
items |
|
1.24 |
|
|
3.30 |
|
|
5.89 |
|
|
3.56 |
|
|
5.78 |
|
Net
income (loss) |
|
$ |
2.65 |
|
|
$ |
(64.85 |
) |
|
$ |
3.99 |
|
|
$ |
3.32 |
|
|
$ |
(46.45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURE SUMMARY (UNAUDITED)
(1)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
March 31, |
|
June 30, |
In
thousands |
|
2017 |
|
2016 |
|
2017 |
|
2017 |
|
2016 |
Capital expenditures by
project |
|
|
|
|
|
|
|
|
|
|
Tertiary
oil fields |
|
$ |
43,561 |
|
|
$ |
31,934 |
|
|
$ |
21,207 |
|
|
$ |
64,768 |
|
|
$ |
63,898 |
|
Non-tertiary fields |
|
14,332 |
|
|
4,903 |
|
|
18,440 |
|
|
32,772 |
|
|
10,776 |
|
Capitalized internal costs (2) |
|
13,071 |
|
|
11,314 |
|
|
13,646 |
|
|
26,717 |
|
|
25,787 |
|
Oil and
natural gas capital expenditures |
|
70,964 |
|
|
48,151 |
|
|
53,293 |
|
|
124,257 |
|
|
100,461 |
|
CO2
pipelines, sources and other |
|
518 |
|
|
144 |
|
|
10 |
|
|
528 |
|
|
152 |
|
Capital expenditures, before acquisitions and capitalized
interest |
|
71,482 |
|
|
48,295 |
|
|
53,303 |
|
|
124,785 |
|
|
100,613 |
|
Acquisitions of oil and
natural gas properties |
|
73,001 |
|
|
680 |
|
|
16,098 |
|
|
89,099 |
|
|
904 |
|
Capital expenditures, before capitalized
interest |
|
144,483 |
|
|
48,975 |
|
|
69,401 |
|
|
213,884 |
|
|
101,517 |
|
Capitalized
interest |
|
8,147 |
|
|
6,289 |
|
|
4,654 |
|
|
12,801 |
|
|
12,069 |
|
Capital expenditures, total |
|
$ |
152,630 |
|
|
$ |
55,264 |
|
|
$ |
74,055 |
|
|
$ |
226,685 |
|
|
$ |
113,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Capital expenditure amounts include accrued capital.(2)
Includes capitalized internal acquisition, exploration and
development costs and pre-production tertiary startup costs.
DENBURY RESOURCES
INC.INTEREST AND FINANCING EXPENSES
(UNAUDITED)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
March 31, |
|
June 30, |
In
thousands |
|
2017 |
|
2016 |
|
2017 |
|
2017 |
|
2016 |
Cash interest (1) |
|
$ |
43,352 |
|
|
$ |
43,148 |
|
|
$ |
42,500 |
|
|
$ |
85,852 |
|
|
$ |
87,793 |
|
Interest on 2021 Senior
Secured Notes not reflected as interest for financial reporting
purposes (1) |
|
(12,588 |
) |
|
(7,036 |
) |
|
(12,569 |
) |
|
(25,157 |
) |
|
(7,036 |
) |
Noncash interest
expense (2) |
|
1,444 |
|
|
6,235 |
|
|
1,901 |
|
|
3,345 |
|
|
9,541 |
|
Less: capitalized
interest |
|
(8,147 |
) |
|
(6,289 |
) |
|
(4,654 |
) |
|
(12,801 |
) |
|
(12,069 |
) |
Interest
expense, net |
|
$ |
24,061 |
|
|
$ |
36,058 |
|
|
$ |
27,178 |
|
|
$ |
51,239 |
|
|
$ |
78,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Cash interest is presented on an accrual basis, and includes
interest which is paid semiannually on the Company’s 9% Senior
Secured Second Lien Notes due 2021, most of which is accounted for
as debt and therefore not reflected as interest for financial
reporting purposes.(2) Noncash interest expense includes $5 million
and $6 million during the three and six month periods ending June
30, 2016, respectively, consisting of the write-off of debt
issuance costs associated with the Company’s senior secured bank
credit facility related to the May 2016 redetermination which
reduced the Company’s borrowing base, with the six-month period
further impacted by reductions in the Company’s lender commitments
resulting from the February 2016 amendment.
SELECTED BALANCE SHEET AND CASH FLOW
DATA (UNAUDITED)
|
|
June 30, |
|
December 31, |
In
thousands |
|
2017 |
|
2016 |
Cash and cash
equivalents |
|
$ |
3,508 |
|
|
$ |
1,606 |
|
Total assets |
|
4,425,341 |
|
|
4,274,578 |
|
|
|
|
|
|
Borrowings under senior
secured bank credit facility |
|
$ |
490,000 |
|
|
$ |
301,000 |
|
Borrowings under senior
secured second lien notes (principal only) (1) |
|
614,919 |
|
|
614,919 |
|
Borrowings under senior
subordinated notes (principal only) |
|
1,612,603 |
|
|
1,612,603 |
|
Financing and capital
leases |
|
236,555 |
|
|
251,389 |
|
Total
debt (principal only) |
|
$ |
2,954,077 |
|
|
$ |
2,779,911 |
|
|
|
|
|
|
Total stockholders’
equity |
|
$ |
514,199 |
|
|
$ |
468,448 |
|
(1) Excludes $204 million and $229 million, respectively, of
future interest payable on the notes as of June 30, 2017 and
December 31, 2016, accounted for as debt for financial reporting
purposes.
|
|
Six Months Ended |
|
|
June 30, |
In
thousands |
|
2017 |
|
2016 |
Cash provided by (used
in) |
|
|
|
|
Operating
activities |
|
$ |
77,208 |
|
|
$ |
62,944 |
|
Investing
activities |
|
(221,150 |
) |
|
(127,520 |
) |
Financing
activities |
|
145,844 |
|
|
64,309 |
|
DENBURY CONTACTS:
Mark C. Allen, Senior Vice President and Chief Financial Officer, 972.673.2000
John Mayer, Investor Relations, 972.673.2383
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