Quarterly Report (10-q)

Date : 11/08/2019 @ 11:07AM
Source : Edgar (US Regulatory)
Stock : Denbury Resources Inc (DNR)
Quote : 1.01  -0.02 (-1.94%) @ 12:06AM
After Hours
Last Trade
Last $ 1.01 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019
OR

   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to ________

Commission file number: 001-12935
logo.jpg
DENBURY RESOURCES INC.
(Exact name of registrant as specified in its charter)

Delaware
 
20-0467835
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
5320 Legacy Drive,
 
 
Plano,
TX
 
 
75024
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code:
 
(972)
673-2000

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Trading Symbol:
Name of Each Exchange on Which Registered:
Common Stock $.001 Par Value
DNR
New York Stock Exchange

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

The number of shares outstanding of the registrant’s Common Stock, $.001 par value, as of October 31, 2019, was 483,262,340.




Denbury Resources Inc.


Table of Contents

 
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
 
 
 
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Denbury Resources Inc.
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par value and share data)
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Assets
Current assets
 
 
 
 
Cash and cash equivalents
 
$
514


$
38,560

Accrued production receivable
 
127,216


125,788

Trade and other receivables, net
 
27,949


26,970

Derivative assets
 
55,615

 
93,080

Other current assets
 
11,491


11,896

Total current assets
 
222,785


296,294

Property and equipment
 
 

 
 

Oil and natural gas properties (using full cost accounting)
 
 

 
 

Proved properties
 
11,315,866


11,072,209

Unevaluated properties
 
942,859


996,700

CO2 properties
 
1,199,339


1,196,795

Pipelines and plants
 
2,327,671


2,302,817

Other property and equipment
 
215,794


250,279

Less accumulated depletion, depreciation, amortization and impairment
 
(11,629,245
)

(11,500,190
)
Net property and equipment
 
4,372,284


4,318,610

Operating lease right-of-use assets
 
35,145

 

Derivative assets
 
11,483

 
4,195

Other assets
 
112,013


104,123

Total assets
 
$
4,753,710


$
4,723,222

Liabilities and Stockholders’ Equity
Current liabilities
 
 

 
 

Accounts payable and accrued liabilities
 
$
159,256


$
198,380

Oil and gas production payable
 
58,881


61,288

Current maturities of long-term debt (including future interest payable of $85,909 and $85,303, respectively – see Note 4)
 
100,626


105,125

Operating lease liabilities
 
6,710

 

Total current liabilities
 
325,473


364,793

Long-term liabilities
 
 


 

Long-term debt, net of current portion (including future interest payable of $104,501 and $164,914, respectively – see Note 4)
 
2,409,683


2,664,211

Asset retirement obligations
 
175,716


174,470

Deferred tax liabilities, net
 
400,213


309,758

Operating lease liabilities
 
43,704

 

Other liabilities
 
52,801


68,213

Total long-term liabilities
 
3,082,117


3,216,652

Commitments and contingencies (Note 7)
 


 


Stockholders’ equity
 
 
 
 
Preferred stock, $.001 par value, 25,000,000 shares authorized, none issued and outstanding
 



Common stock, $.001 par value, 750,000,000 shares authorized; 473,213,227 and 462,355,725 shares issued, respectively
 
473


462

Paid-in capital in excess of par
 
2,698,158


2,685,211

Accumulated deficit
 
(1,339,232
)

(1,533,112
)
Treasury stock, at cost, 3,620,785 and 1,941,749 shares, respectively
 
(13,279
)

(10,784
)
Total stockholders equity
 
1,346,120


1,141,777

Total liabilities and stockholders’ equity
 
$
4,753,710


$
4,723,222

 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


3


Denbury Resources Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues and other income
 
 
 
 
 
 
 
 
Oil, natural gas, and related product sales
 
$
293,192

 
$
379,628

 
$
918,190

 
$
1,095,214

CO2 sales and transportation fees
 
8,976

 
8,149

 
25,532

 
22,416

Purchased oil sales
 
5,468

 
265

 
8,274

 
1,668

Other income
 
7,817

 
6,931

 
12,274

 
15,972

Total revenues and other income
 
315,453

 
394,973

 
964,270

 
1,135,270

Expenses
 
 

 
 

 
 

 
 

Lease operating expenses
 
117,850

 
122,527

 
361,205

 
361,267

Transportation and marketing expenses
 
10,067

 
11,116

 
32,076

 
31,671

CO2 discovery and operating expenses
 
879

 
708

 
2,016

 
1,670

Taxes other than income
 
22,010

 
27,344

 
71,312

 
81,897

Purchased oil expenses
 
5,436

 
264

 
8,213

 
1,426

General and administrative expenses
 
18,266

 
21,579

 
54,697

 
61,223

Interest, net of amounts capitalized of $8,773, $9,514, $27,545 and $26,817, respectively
 
22,858

 
18,527

 
60,672

 
51,974

Depletion, depreciation, and amortization
 
55,064

 
51,316

 
170,625

 
156,711

Commodity derivatives expense (income)
 
(43,155
)
 
44,577

 
15,462

 
189,601

Gain on debt extinguishment
 
(5,874
)
 

 
(106,220
)
 

Other expenses
 
2,140

 
2,980

 
8,664

 
10,544

Total expenses
 
205,541

 
300,938

 
678,722

 
947,984

Income before income taxes
 
109,912

 
94,035

 
285,548

 
187,286

Income tax provision
 
37,050

 
15,616

 
91,668

 
39,067

Net income
 
$
72,862

 
$
78,419

 
$
193,880

 
$
148,219

 
 


 
 
 
 
 
 
 Net income per common share
 


 
 
 
 
 
 
Basic
 
$
0.16

 
$
0.17

 
$
0.43

 
$
0.35

Diluted
 
$
0.14

 
$
0.17

 
$
0.41

 
$
0.33


 


 


 


 


Weighted average common shares outstanding
 
 

 
 

 
 

 
 

Basic
 
455,487

 
451,256

 
453,287

 
426,036

Diluted
 
547,205

 
458,450

 
490,054

 
455,934


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


4


Denbury Resources Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)

 
 
Nine Months Ended September 30,
 
 
2019
 
2018
Cash flows from operating activities

 
 
 
Net income

$
193,880

 
$
148,219

Adjustments to reconcile net income to cash flows from operating activities



 
 

Depletion, depreciation, and amortization

170,625

 
156,711

Deferred income taxes

90,454

 
42,741

Stock-based compensation

9,866

 
8,711

Commodity derivatives expense

15,462

 
189,601

Receipt (payment) on settlements of commodity derivatives

14,714

 
(149,738
)
Gain on debt extinguishment
 
(106,220
)
 

Debt issuance costs and discounts

7,607

 
4,980

Other, net

(6,862
)
 
(7,066
)
Changes in assets and liabilities, net of effects from acquisitions

 

 
 

Accrued production receivable

(1,428
)
 
(17,140
)
Trade and other receivables

(147
)
 
139

Other current and long-term assets

27

 
(4,467
)
Accounts payable and accrued liabilities

(33,167
)
 
27,435

Oil and natural gas production payable

(1,819
)
 
(3,764
)
Other liabilities

(9,414
)
 
(2,832
)
Net cash provided by operating activities

343,578

 
393,530



 
 
 
Cash flows from investing activities

 

 
 

Oil and natural gas capital expenditures

(204,904
)
 
(210,504
)
Pipelines and plants capital expenditures
 
(25,965
)
 
(19,134
)
Net proceeds from sales of oil and natural gas properties and equipment
 
10,494

 
7,308

Other

5,797

 
5,598

Net cash used in investing activities

(214,578
)
 
(216,732
)


 
 
 
Cash flows from financing activities

 

 
 

Bank repayments

(641,000
)
 
(1,943,653
)
Bank borrowings

691,000

 
1,468,653

Proceeds from issuance of senior secured notes
 

 
450,000

Interest payments treated as a reduction of debt
 
(59,808
)
 
(37,233
)
Cash paid in conjunction with debt exchange
 
(125,268
)
 

Costs of debt financing
 
(11,017
)
 
(15,933
)
Pipeline financing and capital lease debt repayments

(10,279
)
 
(18,353
)
Other

5,470

 
(13,288
)
Net cash used in financing activities

(150,902
)
 
(109,807
)
Net increase (decrease) in cash, cash equivalents, and restricted cash

(21,902
)
 
66,991

Cash, cash equivalents, and restricted cash at beginning of period

54,949

 
15,992

Cash, cash equivalents, and restricted cash at end of period

$
33,047

 
$
82,983


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


5


Denbury Resources Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity
(Dollar amounts in thousands)

 
Common Stock
($.001 Par Value)
 
Paid-In
Capital in
Excess of
Par
 
Retained
Earnings (Accumulated Deficit)
 
Treasury Stock
(at cost)
 
 
 
Shares
 
Amount
Shares
 
Amount
Total Equity
Balance – December 31, 2018
462,355,725

 
$
462

 
$
2,685,211

 
$
(1,533,112
)
 
1,941,749

 
$
(10,784
)
 
$
1,141,777

Issued or purchased pursuant to stock compensation plans
1,331,050

 
2

 

 

 

 

 
2

Issued pursuant to directors’ compensation plan
41,487

 

 

 

 

 

 

Stock-based compensation

 

 
4,306

 

 

 

 
4,306

Tax withholding – stock compensation

 

 

 

 
531,494

 
(1,091
)
 
(1,091
)
Net loss

 

 

 
(25,674
)
 

 

 
(25,674
)
Balance – March 31, 2019
463,728,262

 
464

 
2,689,517

 
(1,558,786
)
 
2,473,243

 
(11,875
)
 
1,119,320

Issued or purchased pursuant to stock compensation plans
400,850

 

 

 

 

 

 

Issued pursuant to directors’ compensation plan
37,367

 

 

 

 

 

 

Stock-based compensation

 

 
4,667

 

 

 

 
4,667

Tax withholding – stock compensation

 

 

 

 
1,661

 
(3
)
 
(3
)
Net income

 

 

 
146,692

 

 

 
146,692

Balance – June 30, 2019
464,166,479

 
464

 
2,694,184

 
(1,412,094
)
 
2,474,904

 
(11,878
)
 
1,270,676

Issued or purchased pursuant to stock compensation plans
9,046,748

 
9

 
(9
)
 

 

 

 

Stock-based compensation

 

 
3,983

 

 

 

 
3,983

Tax withholding – stock compensation

 

 

 

 
1,145,881

 
(1,401
)
 
(1,401
)
Net income

 

 

 
72,862

 

 

 
72,862

Balance – September 30, 2019
473,213,227

 
$
473

 
$
2,698,158

 
$
(1,339,232
)
 
3,620,785

 
$
(13,279
)
 
$
1,346,120


 
Common Stock
($.001 Par Value)
 
Paid-In
Capital in
Excess of
Par
 
Retained
Earnings (Accumulated Deficit)
 
Treasury Stock
(at cost)
 
 
 
Shares
 
Amount
Shares
 
Amount
Total Equity
Balance – December 31, 2017
402,549,346

 
$
403

 
$
2,507,828

 
$
(1,855,810
)
 
457,041

 
$
(4,256
)
 
$
648,165

Issued or purchased pursuant to stock compensation plans
378,595

 

 

 

 

 

 

Stock-based compensation

 

 
3,303

 

 

 

 
3,303

Tax withholding – stock compensation

 

 

 

 
330,826

 
(828
)
 
(828
)
Net income

 

 

 
39,578

 

 

 
39,578

Balance – March 31, 2018
402,927,941

 
403

 
2,511,131

 
(1,816,232
)
 
787,867

 
(5,084
)
 
690,218

Issued or purchased pursuant to stock compensation plans
36,437

 

 

 

 

 

 

Issued pursuant to notes conversion
55,249,999

 
55

 
161,995

 

 

 

 
162,050

Stock-based compensation

 

 
3,226

 

 

 

 
3,226

Tax withholding – stock compensation

 

 

 

 
18,451

 
(71
)
 
(71
)
Net income

 

 

 
30,222

 

 

 
30,222

Balance – June 30, 2018
458,214,377

 
458

 
2,676,352

 
(1,786,010
)
 
806,318

 
(5,155
)
 
885,645

Issued or purchased pursuant to stock compensation plans
4,248,522

 
4

 
(4
)
 

 

 

 

Issued pursuant to notes conversion
(44
)
 

 
(46
)
 

 

 

 
(46
)
Stock-based compensation

 

 
4,597

 

 

 

 
4,597

Tax withholding – stock compensation

 

 

 

 
1,087,564

 
(5,431
)
 
(5,431
)
Net income

 

 

 
78,419

 

 

 
78,419

Balance – September 30, 2018
462,462,855

 
$
462

 
$
2,680,899

 
$
(1,707,591
)
 
1,893,882

 
$
(10,586
)
 
$
963,184


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


6


Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements


Note 1. Basis of Presentation

Organization and Nature of Operations

Denbury Resources Inc., a Delaware corporation, is an independent oil and natural gas company with operations focused in two key operating areas: the Gulf Coast and Rocky Mountain regions.  Our goal is to increase the value of our properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis relating to CO2 enhanced oil recovery operations.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Denbury Resources Inc. and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”).  Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Denbury,” refer to Denbury Resources Inc. and its subsidiaries.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end, and the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year.  In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of our consolidated financial position as of September 30, 2019, our consolidated results of operations for the three and nine months ended September 30, 2019 and 2018, our consolidated cash flows for the nine months ended September 30, 2019 and 2018, and our consolidated statements of changes in stockholders’ equity for the three and nine months ended September 30, 2019 and 2018.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation. On the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018, “Purchased oil sales” is a new line item and includes sales related to purchases of oil from third-parties, which were reclassified from “Other income,” “Purchased oil expenses” is a new line item and includes expenses related to purchases of oil from third-parties, which were reclassified from “Marketing and plant operating expenses” used in prior reports, and “Transportation and marketing expenses” is a new line item, previously captioned “Marketing and plant operating expenses,” but adjusted to exclude both expenses related to plant operating expenses, which were reclassified to “Other expenses,” and also purchases of oil from third-parties. Such reclassifications had no impact on our reported total revenues, expenses, net income, current assets, total assets, current liabilities, total liabilities or stockholders’ equity.

Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported within the Unaudited Condensed Consolidated Balance Sheets to “Cash, cash equivalents, and restricted cash at end of period” as reported within the Unaudited Condensed Consolidated Statements of Cash Flows:
In thousands
 
September 30, 2019
 
December 31, 2018
Cash and cash equivalents
 
$
514

 
$
38,560

Restricted cash included in other assets
 
32,533

 
16,389

Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statements of Cash Flows
 
$
33,047

 
$
54,949



Amounts included in restricted cash included in “Other assets” in the accompanying Unaudited Condensed Consolidated Balance Sheets represent escrow accounts that are legally restricted for certain of our asset retirement obligations.



7


Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Net Income per Common Share

Basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Diluted net income per common share is calculated in the same manner, but includes the impact of potentially dilutive securities.  Potentially dilutive securities consist of nonvested restricted stock, nonvested performance-based equity awards, and shares into which our convertible senior notes are convertible.

The following table sets forth the reconciliations of net income and weighted average shares used for purposes of calculating the basic and diluted net income per common share for the periods indicated:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
In thousands
 
2019
 
2018
 
2019
 
2018
Numerator
 
 
 
 
 
 
 
 
Net income – basic
 
$
72,862

 
$
78,419

 
$
193,880

 
$
148,219

Effect of potentially dilutive securities
 
 
 
 

 
 
 
 

Interest on convertible senior notes including amortization of discount, net of tax
 
5,101

 

 
5,649

 
538

Net income – diluted
 
$
77,963

 
$
78,419

 
$
199,529

 
$
148,757

 
 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
 
455,487

 
451,256

 
453,287

 
426,036

Effect of potentially dilutive securities
 
 
 
 
 
 
 
 
Restricted stock and performance-based equity awards
 
865

 
7,194

 
2,489

 
6,983

Convertible senior notes(1)
 
90,853

 

 
34,278

 
22,915

Weighted average common shares outstanding – diluted
 
547,205

 
458,450

 
490,054

 
455,934



(1)
For the nine months ended September 30, 2019, shares shown under “convertible senior notes” represent proration of the impact over the period of the approximately 90.9 million shares of the Company’s common stock issuable upon full conversion of our convertible senior notes which were issued on June 19, 2019 (see Note 4, Long-Term Debt 2019 Debt Reduction Transactions).

Basic weighted average common shares exclude shares of nonvested restricted stock. As these restricted shares vest, they will be included in the shares outstanding used to calculate basic net income per common share (although time-vesting restricted stock is issued and outstanding upon grant). For purposes of calculating diluted weighted average common shares during the three and nine months ended September 30, 2019 and 2018, the nonvested restricted stock and performance-based equity awards are included in the computation using the treasury stock method, with the deemed proceeds equal to the average unrecognized compensation during the period, and for the shares underlying the convertible senior notes as if the convertible senior notes were converted at the beginning of the 2018 and 2019 periods.

The following securities could potentially dilute earnings per share in the future, but were excluded from the computation of diluted net income per share, as their effect would have been antidilutive:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
In thousands
 
2019
 
2018
 
2019
 
2018
Stock appreciation rights
 
2,011

 
2,689

 
2,043

 
2,824

Restricted stock and performance-based equity awards
 
7,996

 

 
5,859

 
203





8


Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

Recently Adopted

Leases. Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”), and ASU 2018-01, Leases (Topic 842) – Land Easement Practical Expedient for Transition to Topic 842, using the modified retrospective method with an application date of January 1, 2019. ASU 2016-02 does not apply to mineral leases or leases that convey the right to explore for or use the land on which oil, natural gas, and similar natural resources are contained. We elected the practical expedients provided in the new ASUs that allow historical lease classification of existing leases, allow entities to recognize leases with terms of one year or less in their statement of operations, allow lease and non-lease components to be combined, and carry forward our accounting treatment for existing land easement agreements. The adoption of the new standards resulted in the recognition of $39.1 million of lease assets and $55.8 million of lease liabilities ($16.7 million of which related to previously-existing lease obligations) as of January 1, 2019, in our Unaudited Condensed Consolidated Balance Sheets, but did not materially impact our results of operations and had no impact on our cash flows. The additional lease assets and liabilities recorded on our balance sheet primarily related to our operating leases for office space, as the accounting for our financing leases and pipeline financings was relatively unchanged.

Not Yet Adopted

Financial Instruments – Credit Losses. In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, and requires the use of a new forward-looking expected loss model that will result in the earlier recognition of allowances for losses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. Entities must adopt the amendment using a modified retrospective approach to the first reporting period in which the guidance is effective. Management is currently assessing the impact the adoption of ASU 2016-13 will have on our consolidated financial statements.

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”). ASU 2018-13 adds, modifies, or removes certain disclosure requirements for recurring and nonrecurring fair value measurements based on the FASB’s consideration of costs and benefits. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. Entities must adopt the amendments on changes in unrealized gains and losses for Level 3 fair value measurements, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty prospectively, and all other amendments should be applied retrospectively to all periods presented. The adoption of ASU 2018-13 is currently not expected to have a material effect on our consolidated financial statements, but may require enhanced footnote disclosures.

Note 2. Revenue Recognition

We record revenue in accordance with Financial Accounting Standards Board Codification (“FASC”) Topic 606, Revenue from Contracts with Customers. The core principle of FASC Topic 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount of consideration that it expects to be entitled to receive for those goods or services. Once we have delivered the volume of commodity to the delivery point and the customer takes delivery and possession, we are entitled to payment and we invoice the customer for such delivered production. Payment under most oil and CO2 contracts is made within a month following product delivery and for natural gas and NGL contracts is generally made within two months following delivery. Timing of revenue recognition may differ from the timing of invoicing to customers; however, as the right to consideration after delivery is unconditional based on only the passage of time before payment of the consideration is due, upon delivery we record a receivable in “Accrued production receivable” in our Unaudited Condensed Consolidated Balance Sheets, which was $127.2 million and $125.8 million as of September 30, 2019 and December 31, 2018, respectively. The Company enters into purchase transactions with third parties and separate sale transactions with third parties in the Gulf Coast region. Revenues and expenses from these transactions are presented on a gross basis, as we act as a principal in the transaction by assuming control of the commodities purchased and the responsibility to deliver the commodities sold. Revenue is recognized when control transfers to the purchaser at the delivery point based on the price received from the purchaser.



9


Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Disaggregation of Revenue

The following table summarizes our revenues by product type for the three and nine months ended September 30, 2019 and 2018:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
In thousands
 
2019
 
2018
 
2019
 
2018
Oil sales
 
$
292,100

 
$
377,329

 
$
912,636

 
$
1,088,021

Natural gas sales
 
1,092

 
2,299

 
5,554

 
7,193

CO2 sales and transportation fees
 
8,976

 
8,149

 
25,532

 
22,416

Purchased oil sales
 
5,468

 
265

 
8,274

 
1,668

Total revenues
 
$
307,636

 
$
388,042

 
$
951,996

 
$
1,119,298



Note 3. Leases

We evaluate contracts for leasing arrangements at inception. We lease office space, equipment, and vehicles that have non-cancelable lease terms. Leases with a term of 12 months or less are not recorded on our balance sheet. During the third quarter of 2019, we exercised the early buyout option on our remaining finance leases. The table below reflects our operating lease assets and liabilities, which primarily consists of our office leases, and finance lease assets and liabilities:
 
 
September 30,
In thousands
 
2019
Operating leases
Operating lease right-of-use assets
 
$
35,145

 
 
 
Operating lease liabilities - current
 
$
6,710

Operating lease liabilities - long-term
 
43,704

Total operating lease liabilities
 
$
50,414

 
 
 
Finance leases
Other property and equipment
 
$

Accumulated depreciation
 

Other property and equipment, net
 
$

 
 
 
Current maturities of long-term debt
 
$

Long-term debt, net of current portion
 

Total finance lease liabilities
 
$





10


Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

The majority of our leases contain renewal options, typically exercisable at our sole discretion. We record right-of-use assets and liabilities based on the present value of lease payments over the initial lease term, unless the option to extend the lease is reasonably certain, and utilize our incremental borrowing rate based on information available at the lease commencement date. The following weighted average remaining lease terms and discount rates related to our outstanding leases:
 
 
September 30,
 
 
2019
Weighted Average Remaining Lease Term
Operating leases
 
6.0 years

Finance leases
 
0 years

 
 
 
Weighted Average Discount Rate
Operating leases
 
6.8
%
Finance leases
 
%


Lease costs for operating leases or leases with a term of 12 months or less are recognized on a straight-line basis over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset are recognized separately, with the depreciable life reflective of the expected lease term. We have subleased part of the office space included in our operating leases for which we receive rental payments. The following table summarizes the components of lease costs and sublease income:
 
 
 
 
Three Months Ended
 
Nine Months Ended
In thousands
 
Income Statement Presentation
 
September 30, 2019
 
September 30, 2019
Operating lease cost
 
General and administrative expenses
 
$
1,187

 
$
6,014

 
 
 
 
 
 
 
Finance lease cost
 
 
 
 
 
 
Amortization of right-of-use assets
 
Depletion, depreciation, and amortization
 
$
54

 
$
1,188

Interest on lease liabilities
 
Interest expense
 
2

 
40

Total finance lease cost
 
 
 
$
56

 
$
1,228

 
 
 
 
 
 
 
Sublease income
 
General and administrative expenses
 
$
964

 
$
3,331



Our statement of cash flows included the following activity related to our operating and finance leases:
 
 
Nine Months Ended
In thousands
 
September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
7,335

Operating cash flows from interest on finance leases
 
40

Financing cash flows from finance leases
 
1,275

 
 
 
Right-of-use assets obtained in exchange for lease obligations
 


Operating leases
 
307

Finance leases
 





11


Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

The following table summarizes by year the maturities of our minimum lease payments as of September 30, 2019:
 
 
Operating
 
Finance
In thousands
 
Leases
 
Leases
2019
 
$
2,479

 
$

2020
 
9,874

 

2021
 
10,042

 

2022
 
10,260

 

2023
 
10,300

 

Thereafter
 
18,604

 

Total minimum lease payments
 
61,559

 

Less: Amount representing interest
 
(11,145
)
 

Present value of minimum lease payments
 
$
50,414

 
$


The following table summarizes by year the remaining non-cancelable future payments under our leases, as accounted for under previous accounting guidance under FASC Topic 840, Leases, as of December 31, 2018:
 
 
Operating
In thousands
 
Leases
2019
 
$
10,690

2020
 
9,776

2021
 
10,007

2022
 
10,223

2023
 
10,262

Thereafter
 
18,169

Total minimum lease payments
 
$
69,127





12


Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 4. Long-Term Debt

The table below reflects long-term debt and capital lease obligations outstanding as of the dates indicated:
 
 
September 30,
 
December 31,
In thousands
 
2019
 
2018
Senior Secured Bank Credit Agreement
 
$
50,000

 
$

9% Senior Secured Second Lien Notes due 2021
 
614,919

 
614,919

9¼% Senior Secured Second Lien Notes due 2022
 
455,668

 
455,668

7¾% Senior Secured Second Lien Notes due 2024
 
531,821

 

7½% Senior Secured Second Lien Notes due 2024
 
20,641

 
450,000

6⅜% Convertible Senior Notes due 2024
 
245,548

 

6⅜% Senior Subordinated Notes due 2021
 
51,304

 
203,545

5½% Senior Subordinated Notes due 2022
 
83,736

 
314,662

4⅝% Senior Subordinated Notes due 2023
 
211,695

 
307,978

Pipeline financings
 
171,067

 
180,073

Capital lease obligations
 

 
5,362

Total debt principal balance
 
2,436,399

 
2,532,207

Debt discount(1)
 
(105,426
)
 

Future interest payable(2)
 
190,410

 
250,218

Debt issuance costs
 
(11,074
)
 
(13,089
)
Total debt, net of debt issuance costs and discount
 
2,510,309

 
2,769,336

Less: current maturities of long-term debt(3)
 
(100,626
)
 
(105,125
)
Long-term debt and capital lease obligations
 
$
2,409,683

 
$
2,664,211



(1)
Consists of discounts related to the issuance during June 2019 of our new 7¾% Senior Secured Second Lien Notes due 2024 (the “7¾% Senior Secured Notes”) and new 6⅜% Convertible Senior Notes due 2024 (the “2024 Convertible Senior Notes”) of $28.2 million and $77.2 million, respectively (see 2019 Debt Reduction Transactions below) as of September 30, 2019.
(2)
Future interest payable represents most of the interest due over the terms of our 9% Senior Secured Second Lien Notes due 2021 (the “2021 Senior Secured Notes”) and 9¼% Senior Secured Second Lien Notes due 2022 (the “2022 Senior Secured Notes”) and has been accounted for as debt in accordance with FASC 470-60, Troubled Debt Restructuring by Debtors.
(3)
Our current maturities of long-term debt as of September 30, 2019 include $85.9 million of future interest payable related to the 2021 Senior Secured Notes and 2022 Senior Secured Notes that is due within the next twelve months.

The ultimate parent company in our corporate structure, Denbury Resources Inc. (“DRI”), is the sole issuer of all of our outstanding senior secured, convertible senior, and senior subordinated notes. DRI has no independent assets or operations. Each of the subsidiary guarantors of such notes is 100% owned, directly or indirectly, by DRI, and the guarantees of the notes are full and unconditional and joint and several; any subsidiaries of DRI that are not subsidiary guarantors of such notes are minor subsidiaries.

Senior Secured Bank Credit Facility

In December 2014, we entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders party thereto (as amended, the “Bank Credit Agreement”), which has been amended periodically since that time. The Bank Credit Agreement is a senior secured revolving credit facility with a maturity date of December 9, 2021, provided that the maturity date may occur earlier (between February 2021 and August 2021) if the 2021 Senior Secured Notes due in May 2021 or 6⅜% Senior Subordinated Notes due in August 2021 (the “6⅜% Senior Subordinated Notes”), respectively, are not repaid or refinanced by each of their respective maturity dates. As part of our fall 2019 semiannual redetermination, the borrowing base and lender commitments for our Bank Credit Agreement were reaffirmed at $615 million, with the next such redetermination being scheduled for May 2020. If our outstanding debt under the Bank Credit Agreement were to ever exceed the borrowing base, we would be required to repay the excess amount over a period not to exceed six months. The


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Denbury Resources Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

weighted average interest rate on borrowings under the Bank Credit Agreement was 4.7% as of September 30, 2019. We incur a commitment fee of 0.50% on the undrawn portion of the aggregate lender commitments under the Bank Credit Agreement.

The Bank Credit Agreement contains certain financial performance covenants through the maturity of the facility, including the following:

A Consolidated Total Debt to Consolidated EBITDAX covenant, with such ratio not to exceed 5.25 to 1.0 through December 31, 2020, and 4.50 to 1.0 thereafter;
A consolidated senior secured debt to consolidated EBITDAX covenant, with such ratio not to exceed 2.5 to 1.0. Only debt under our Bank Credit Agreement is considered consolidated senior secured debt for purposes of this ratio;
A minimum permitted ratio of consolidated EBITDAX to consolidated interest charges of 1.25 to 1.0; and
A requirement to maintain a current ratio of 1.0 to 1.0.

As of September 30, 2019, we were in compliance with all debt covenants under the Bank Credit Agreement. The above description of our Bank Credit Agreement and defined terms are contained in the Bank Credit Agreement and the amendments thereto.

2019 Debt Reduction Transactions