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8-K - FORM 8-K - DENBURY INC | d73225e8vk.htm |
EX-99.1 - EX-99.1 - DENBURY INC | d73225exv99w1.htm |
Exhibit 99.2
DENBURY RESOURCES INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
INTRODUCTION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
INTRODUCTION
Denbury Resources Inc. (Denbury) is a growing independent oil and natural gas company.
Denbury is the largest oil and natural gas operator in Mississippi and Montana, owns the largest
reserves of CO2 used for tertiary oil recovery east of the Mississippi River, and holds
significant operating acreage in the Rockies, Permian Basin, Mid-Continent, and Gulf Coast regions.
Denburys goal is to increase the value of its properties through a combination of exploitation,
drilling, and proven engineering extraction practices, with its most significant emphasis relating
to tertiary recovery operations.
The following unaudited pro forma financial information is based on the historical
consolidated financial statements of Denbury adjusted to reflect the following:
| the acquisition of Encore Acquisition Company (Encore) effective March 9, 2010; | ||
| the disposition of 60 percent of Denburys Barnett Shale natural gas assets effective June 1, 2009 (the 60% Barnett Assets); | ||
| the disposition of 40 percent of Denburys Barnett Shale natural gas assets effective December 1, 2009 (the 40% Barnett Assets and together with the 60% Barnett Assets, the Barnett Assets); | ||
| the disposition of certain oil and natural gas properties acquired in the merger with Encore, primarily located in the Permian Basin in West Texas and southeastern New Mexico; the Mid-continent area, which includes the Anadarko Basin in Oklahoma, Texas, and Kansas; and the East Texas Basin (the Southern Assets) for approximately $888.8 million, including closing adjustments, effective May 1, 2010; and | ||
| related financing transactions and use of proceeds. |
The unaudited pro forma balance sheet as of March 31, 2010 gives effect to the disposition of
the Southern Assets and the use of proceeds as if each had occurred on March 31, 2010. The other
above noted events were completed prior to March 31, 2010 and accordingly, are reflected in
Denburys historical balance sheet as of March 31, 2010.
The unaudited pro forma statement of
operations for the three months ended March 31, 2010 gives effect to Denburys acquisition of
Encore, the disposition of the Southern Assets, and the related financing transactions and use of
proceeds as if each had occurred on January 1, 2009. The other above noted events were completed
prior to January 1, 2010 and accordingly, are reflected in Denburys historical statement of
operations for the three months ended March 31, 2010.
The unaudited pro forma statement of
operations for the year ended December 31, 2009 gives effect to the above noted events as if each
had occurred on January 1, 2009.
The unaudited pro forma statements of operations exclude the impact of nonrecurring expenses
Denbury and Encore incurred as a result of the acquisition and related financings, primarily
non-capitalizable banking, legal, accounting, advisory, due diligence, and integration fees.
The unaudited pro forma financial information should be read in
conjunction with Denburys 2009 Form 10-K, Denburys Form 10-Q for the quarter ended March 31,
2010, and Denburys Current Report on Form 8-K filed with the United States Securities and Exchange
Commission on March 4, 2010 containing, among other things, certain sections of Encores 2009 Form
10-K.
The unaudited pro forma financial information is for informational purposes only and is not
intended to represent or to be indicative of the results of operations or financial position that
Denbury would have reported had the above noted events been completed as of the dates set forth in
the unaudited pro forma financial information and should not be taken as indicative of Denburys
future results of operations or financial position. The actual results may differ significantly
from those reflected in the unaudited pro forma financial information for a number of reasons,
including, but not limited to, differences between the assumptions used to prepare the unaudited
pro forma financial information and actual results.
1
DENBURY RESOURCES INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2010
(in thousands)
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2010
(in thousands)
Southern Assets | ||||||||||||
Pro Forma | ||||||||||||
Denbury | Adjustments | Denbury | ||||||||||
Historical | (Note 2) | Pro Forma | ||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 109,185 | $ | 843,779 | (a) | |||||||
(800,000) | (b) | $ | 152,964 | |||||||||
Accrued production receivable |
236,125 | | 236,125 | |||||||||
Trade and other receivables, net |
107,832 | (305) | (a) | 107,527 | ||||||||
Derivatives |
56,799 | | 56,799 | |||||||||
Other |
65,566 | | 65,566 | |||||||||
Total current assets |
575,507 | 43,474 | 618,981 | |||||||||
Properties and equipment: |
||||||||||||
Oil and natural gas properties (using full cost accounting): |
||||||||||||
Proved |
7,097,339 | (796,627) | (a) | 6,300,712 | ||||||||
Unevaluated |
1,573,737 | | 1,573,737 | |||||||||
CO2 properties, equipment, and pipelines |
1,607,488 | | 1,607,488 | |||||||||
Other |
96,067 | (770) | (a) | 95,297 | ||||||||
Less accumulated depreciation, depletion, amortization, and impairment |
(1,907,070 | ) | | (1,907,070 | ) | |||||||
Net property and equipment |
8,467,561 | (797,397 | ) | 7,670,164 | ||||||||
Derivatives |
43,720 | | 43,720 | |||||||||
Goodwill |
1,227,324 | (101,400) | (a) | 1,125,924 | ||||||||
Other assets |
225,891 | | 225,891 | |||||||||
Total assets |
$ | 10,540,003 | $ | (855,323 | ) | $ | 9,684,680 | |||||
Current liabilities: |
||||||||||||
Accounts payable and accrued liabilities |
$ | 396,770 | $ | (41,289) | (a) | $ | 355,481 | |||||
Oil and natural gas production payable |
157,813 | (4,321) | (a) | 153,492 | ||||||||
Derivatives |
125,068 | | 125,068 | |||||||||
Deferred taxes |
7,588 | | 7,588 | |||||||||
Current maturities of long-term debt |
105,931 | | 105,931 | |||||||||
Other |
4,069 | | 4,069 | |||||||||
Total current liabilities |
797,239 | (45,610 | ) | 751,629 | ||||||||
Long-term liabilities: |
||||||||||||
Long-term debt, net of current portion |
3,469,182 | (800,000) | (b) | 2,669,182 | ||||||||
Asset retirement obligations, net of current portion |
97,178 | (6,996) | (a) | 90,182 | ||||||||
Deferred taxes |
1,431,256 | | 1,431,256 | |||||||||
Derivatives |
38,184 | | 38,184 | |||||||||
Other |
26,453 | (2,717) | (a) | 23,736 | ||||||||
Total long-term liabilities |
5,062,253 | (809,713 | ) | 4,252,540 | ||||||||
Equity: |
||||||||||||
Denbury stockholders equity |
4,162,016 | | 4,162,016 | |||||||||
Noncontrolling interest |
518,495 | | 518,495 | |||||||||
Total equity |
4,680,511 | | 4,680,511 | |||||||||
Total liabilities and equity |
$ | 10,540,003 | $ | (855,323 | ) | $ | 9,684,680 | |||||
The accompanying notes are an integral part of these unaudited pro forma financial statements.
2
DENBURY RESOURCES INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(in thousands, except per share amounts)
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(in thousands, except per share amounts)
Encore | Southern Assets |
Pro Forma | ||||||||||||||||||
Denbury | Historical (2) | Historical | Adjustments | Denbury | ||||||||||||||||
Historical (1) | (Note 1) | (Note 1) | (Note 3) | Pro Forma | ||||||||||||||||
Revenues and other income: |
||||||||||||||||||||
Oil, natural gas, and related product sales |
$ | 330,886 | $ | 176,013 | $ | (51,647 | ) | $ | | $ | 455,252 | |||||||||
CO2 sales and transportation fees |
4,497 | | | | 4,497 | |||||||||||||||
Gain on sale of Genesis |
101,568 | | | | 101,568 | |||||||||||||||
Interest income and other |
1,870 | 437 | | | 2,307 | |||||||||||||||
Total revenues |
438,821 | 176,450 | (51,647 | ) | | 563,624 | ||||||||||||||
Expenses: |
||||||||||||||||||||
Lease operating |
96,220 | 36,872 | (7,790 | ) | | 125,302 | ||||||||||||||
Production taxes and marketing |
19,317 | 20,742 | (3,812 | ) | | 36,247 | ||||||||||||||
CO2 operating |
1,368 | | | | 1,368 | |||||||||||||||
General and administrative |
32,709 | 79,603 | | (74,298) | (a) | 38,014 | ||||||||||||||
Interest, net of amounts capitalized |
26,416 | 14,900 | | 3,338 | (b) | 44,654 | ||||||||||||||
Depletion, depreciation, and amortization |
81,872 | 47,104 | (97 | ) | (21,760) | (c) | 107,119 | |||||||||||||
Exploration |
| 2,961 | | (2,961) | (d) | | ||||||||||||||
Derivatives income |
(41,225 | ) | (10,174 | ) | | | (51,399 | ) | ||||||||||||
Transactions costs related to Encore acquisition |
44,999 | 14,851 | | (59,850) | (e) | | ||||||||||||||
Total expenses |
261,676 | 206,859 | (11,699 | ) | (155,531 | ) | 301,305 | |||||||||||||
Income (loss) before income taxes |
177,145 | (30,409 | ) | (39,948 | ) | 155,531 | 262,319 | |||||||||||||
Income tax benefit (provision) |
(76,941 | ) | (1,772 | ) | | (43,691) | (f) | |||||||||||||
10,033 | (g) | (112,371 | ) | |||||||||||||||||
Consolidated net income (loss) |
100,204 | (32,181 | ) | (39,948 | ) | 121,873 | 149,948 | |||||||||||||
Less: net
loss (income) attributable to noncontrolling interest |
(3,316 | ) | (7,095 | ) | | 23 | (h) | (10,388 | ) | |||||||||||
Net income (loss) attributable to Denbury stockholders |
$ | 96,888 | $ | (39,276 | ) | $ | (39,948 | ) | $ | 121,896 | $ | 139,560 | ||||||||
Net loss per common share: |
||||||||||||||||||||
Basic |
$ | 0.33 | $ | 0.35 | ||||||||||||||||
Diluted |
$ | 0.32 | $ | 0.35 | ||||||||||||||||
Weighted average common shares outstanding |
||||||||||||||||||||
Basic |
294,143 | 100,627 | (i) | 394,770 | ||||||||||||||||
Diluted |
299,224 | 100,803 | (i) | 400,027 |
(1) | The results of operations of Denbury shown under Denbury Historical include revenues and expenses from March 9, 2010 through March 31, 2010 from the properties acquired as part of the Encore acquisition. | |
(2) | Represents the results of operations of Encore from January 1, 2010 through March 8, 2010 presented on a basis consistent with Denburys classification of revenues and expenses. |
The
accompanying notes are an integral part of these unaudited pro forma financial statements.
3
DENBURY RESOURCES INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
(in thousands, except per share amounts)
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
(in thousands, except per share amounts)
Pro Forma | Barnett | Southern | ||||||||||||||||||||||||||
Encore | Reclassification | Assets | Assets | Pro Forma | ||||||||||||||||||||||||
Denbury | Historical | Adjustments | Historical | Historical | Adjustments | Denbury | ||||||||||||||||||||||
Historical | (Note 1) | (Note 4) | (Note 1) | (Note 1) | (Note 4) | Pro Forma | ||||||||||||||||||||||
Revenues and other income: |
||||||||||||||||||||||||||||
Oil, natural gas, and related product sales |
$ | 866,709 | $ | | $ | 685,416 | (a) | $ | (75,156 | ) | $ | (122,715 | ) | $ | | $ | 1,354,254 | |||||||||||
CO2 sales and transportation fees |
13,422 | | | | | | 13,422 | |||||||||||||||||||||
Interest income and other |
2,362 | 2,447 | (4,615) | (a) | | | | 194 | ||||||||||||||||||||
Oil revenue |
| 549,391 | (549,391) | (a) | | | | | ||||||||||||||||||||
Natural gas revenue |
| 131,185 | (131,185) | (a) | | | | | ||||||||||||||||||||
Marketing revenue |
| 4,840 | (4,840) | (a) | | | | | ||||||||||||||||||||
Total revenues |
882,493 | 687,863 | (4,615 | ) | (75,156 | ) | (122,715 | ) | | 1,367,870 | ||||||||||||||||||
Expenses: |
||||||||||||||||||||||||||||
Lease operating |
326,132 | 165,062 | 9,811 | (a) | (15,726 | ) | (28,072 | ) | | 457,207 | ||||||||||||||||||
Production taxes and marketing |
42,484 | | 81,986 | (a) | (5,952 | ) | (9,490 | ) | | 109,028 | ||||||||||||||||||
CO2 operating |
4,649 | | | | | | 4,649 | |||||||||||||||||||||
General and administrative |
116,095 | 54,024 | 8,119 | (a) | | | (21,796) | (b) | 156,442 | |||||||||||||||||||
Interest, net of amounts capitalized |
47,430 | 79,017 | | | | 52,864 | (c) | 179,311 | ||||||||||||||||||||
Depletion, depreciation, and amortization |
238,323 | 290,776 | 2,449 | (a) | | (286 | ) | (105,098) | (d) | 426,164 | ||||||||||||||||||
Derivatives income |
236,226 | 59,597 | | | | | 295,823 | |||||||||||||||||||||
Production, ad valorem, and severance taxes |
| 69,539 | (69,539) | (a) | | | | | ||||||||||||||||||||
Impairment of long-lived assets |
| 9,979 | | | | | 9,979 | |||||||||||||||||||||
Exploration |
| 52,488 | | | | (52,488) | (e) | | ||||||||||||||||||||
Marketing |
| 3,994 | (3,994) | (a) | | | | | ||||||||||||||||||||
Other operating |
| 33,447 | (33,447) | (a) | | | | | ||||||||||||||||||||
Total expenses |
1,011,339 | 817,923 | (4,615 | ) | (21,678 | ) | (37,848 | ) | (126,518 | ) | 1,638,603 | |||||||||||||||||
Equity in net income of Genesis |
6,657 | | | | | | 6,657 | |||||||||||||||||||||
Income (loss) before income taxes |
(122,189 | ) | (130,060 | ) | | (53,478 | ) | (84,867 | ) | 126,518 | (264,076 | ) | ||||||||||||||||
Income tax benefit |
47,033 | 32,173 | | | | 4,471 | (f) | 83,677 | ||||||||||||||||||||
Consolidated net income (loss) |
(75,156 | ) | (97,887 | ) | | (53,478 | ) | (84,867 | ) | 130,989 | (180,399 | ) | ||||||||||||||||
Less: net loss (income) attributable to noncontrolling interest |
| 16,752 | | | | (5,498) | (g) | 11,254 | ||||||||||||||||||||
Net income (loss) attributable to Denbury stockholders |
$ | (75,156 | ) | $ | (81,135 | ) | $ | | $ | (53,478 | ) | $ | (84,867 | ) | $ | 125,491 | $ | (169,145 | ) | |||||||||
Net loss per common share: |
||||||||||||||||||||||||||||
Basic |
$ | (0.30 | ) | $ | (0.44 | ) | ||||||||||||||||||||||
Diluted |
$ | (0.30 | ) | $ | (0.44 | ) | ||||||||||||||||||||||
Weighted average common shares outstanding |
||||||||||||||||||||||||||||
Basic |
246,917 | 135,171 | (h) | 382,088 | ||||||||||||||||||||||||
Diluted |
246,917 | 135,171 | (h) | 382,088 |
The accompanying notes are an integral part of these unaudited pro forma financial
statements.
4
DENBURY RESOURCES INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
Note 1. Basis of Presentation
Encore Merger
On March 9, 2010, Denbury acquired Encore pursuant to an Agreement and Plan of Merger (the
Merger Agreement) entered into with Encore on October 31, 2009. The Merger Agreement provided
for a stock and cash transaction valued at approximately $4.5 billion at that time, including the
assumption of debt and the value of the noncontrolling interest in Encore Energy Partners LP
(ENP). Under the Merger Agreement, Encore was merged with and into Denbury (the Merger), with
Denbury surviving the Merger. The Merger was consummated on March 9, 2010, following approval by
the stockholders of both Denbury and Encore, closing of a new revolving credit facility as part of
the financing for the Merger, and satisfaction of conditions precedent. The combined company
continues to be known as Denbury Resources Inc. and is headquartered in Plano, Texas.
In the Merger, Denbury issued approximately 135.2 million shares of its common stock and paid
approximately $833.9 million in cash to Encore stockholders. The Denbury shares issued to Encore
stockholders represented approximately 34 percent of Denburys common stock issued and outstanding
immediately after the Merger. The total fair value of the Denbury common stock issued to Encore
stockholders pursuant to the Merger was approximately $2.1 billion based upon Denburys closing
price of $15.43 per share on March 9, 2010. Consideration transferred and the fair value of the
noncontrolling interest of ENP were allocated to the underlying assets acquired and liabilities
assumed of both Encore and ENP based upon their estimated fair values. The preliminary purchase
price allocation is reflected in Denburys historical balance sheet as of March 31, 2010.
The unaudited pro forma financial information for the year ended December 31, 2009 and the period of January 1, 2010 through March 9, 2010, includes
adjustments to conform Encores accounting for oil and natural gas properties to the full cost
method. Denbury follows the full cost method of accounting for oil and natural gas properties
while Encore followed the successful efforts method of accounting for oil and natural gas
properties. Certain costs that are capitalized under the full cost method are expensed under the
successful efforts method. These costs consist primarily of unsuccessful exploration drilling
costs, geological and geophysical costs, delay rentals, abandonment costs, and general and
administrative expenses directly related to exploration and development activities. Under the
successful efforts method of accounting, proved property acquisition costs are amortized on a
unit-of-production basis over total proved reserves and costs of wells, including related equipment
and facilities, are depreciated over the life of the proved developed reserves that will utilize
those capitalized assets on a field-by-field basis. Under the full cost method of accounting,
property acquisition costs, costs of wells, including related equipment and facilities, and future
development costs are included in a single full cost pool, which is amortized on a
unit-of-production basis over total proved reserves.
Issuance of 8.25% Senior Subordinated Notes due 2020
On February 10, 2010, Denbury issued $1.0 billion of 8.25% Senior Subordinated Notes due 2020
(the 2020 Notes), for net proceeds after underwriting discounts and commissions of $980 million.
The 2020 Notes were sold at par. Upon the closing of the Merger, $400 million of the net proceeds
were used to finance a portion of the Merger consideration and as of March 31, 2010, Denbury had
redeemed $500.5 million principal amount of Encores outstanding senior subordinated notes in a
tender offer. Under the indenture governing the 2020 Notes, to the extent that fewer than $600
million principal amount of Encores outstanding senior subordinated notes were repurchased in
tender offers or change of control repurchases under the Encore indentures, Denbury is required to
redeem an equal amount of the 2020 Notes, plus accrued and unpaid interest. Denbury reclassified
$99.5 million of the 2020 Notes as a current liability at March 31, 2010, as it had only redeemed
$500.5 million principal amount of Encores outstanding senior subordinated notes at that date. In
April 2010, Denbury repurchased an additional $95.7 million principal amount of Encores
outstanding senior subordinated notes under change of control provisions of Encores senior subordinated notes, and redeemed $3.7 million
principal amount of the 2020 Notes under the terms thereof.
The accompanying Unaudited Pro Forma Statements of Operations reflect the issuance of the 2020
Notes and March 2010 repurchases of Encores senior subordinated notes discussed above as if each had occurred
January 1, 2009. The issuance of the 2020 Notes and March 2010 repurchases of Encores senior
subordinated notes were completed prior to March 31, 2010 and accordingly, are reflected in
Denburys historical balance sheet at March 31, 2010. The April 2010 repurchases of $95.7 million of Encores
senior subordinated notes and the $3.7 million principal amount redeemed on the 2020 Notes are not reflected in the accompanying pro forma financial information.
New $1.6 Billion Revolving Credit Agreement
On March 9, 2010, Denbury entered into a new $1.6 billion revolving credit agreement with
JPMorgan Chase Bank, N.A., as administrative agent, and 23 other lenders as party thereto (the
Credit Agreement). Borrowings under the Credit Agreement,
5
DENBURY RESOURCES INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION Continued
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION Continued
coupled with the funds from Denburys issuance of the 2020 Notes, were used to:
| fund the cash portion of the Merger consideration (inclusive of payments due to Encore stock option holders); | ||
| repay amounts outstanding under Denburys then existing $750 million revolving credit agreement, which had $125 million outstanding as of March 9, 2010; | ||
| repay amounts outstanding under Encores then existing revolving credit agreement, which had $265 million outstanding as of March 9, 2010; | ||
| pay Encores severance costs; | ||
| pay transaction fees and expenses; and | ||
| provide additional liquidity. |
Both Denburys and Encores then existing revolving credit agreements were repaid on March 9,
2010. The accompanying Unaudited Pro Forma Balance Sheet at March 31, 2010 assumes
the outstanding borrowings under the Credit Agreement of $800 million at March 31, 2010
were repaid with proceeds from the sale of the Southern Assets.
Sale of the 60% Barnett Assets
In May 2009, Denbury entered into an agreement to sell 60 percent of its Barnett Shale natural gas assets to Talon Oil and Gas LLC (Talon), a privately held company, for $270 million (before closing adjustments). Denbury closed on approximately three-quarters of the sale in June 2009 and closed on the remainder of the sale in July 2009. Net proceeds were approximately $259.8 million (after closing adjustments, and net of $8.1 million for natural gas swaps transferred in the sale). The agreement was effective June 1, 2009, and consequently operating net revenues after June 1, net of capital expenditures, along with any other purchase price adjustments, were adjustments to the selling price. Denbury used the net proceeds from the sale to repay bank debt. Denbury did not record a gain or loss on the sale in accordance with the full cost method of accounting. The accompanying Unaudited Pro Forma Statement of Operations for the year ended December 31, 2009 assumes the sale closed on January 1, 2009. |
Sale of the 40% Barnett Assets
In December 2009, Denbury closed the sale of the remaining 40 percent of its Barnett Shale
natural gas assets to Talon for $210 million (before closing adjustments). Net proceeds were
approximately $209.9 million (after closing adjustments). The effective date under the agreement
was December 1, 2009, and consequently operating net revenues after December 1, net of capital
expenditures, along with any other purchase price adjustments, were adjustments to the selling
price. Denbury used the net proceeds from the sale to repay bank debt. Denbury did not record a
gain or loss on the sale in accordance with the full cost method of accounting. The accompanying
Unaudited Pro Forma Statement of Operations for the year ended December 31, 2009 assumes the sale
closed on January 1, 2009.
Sale of the Southern Assets
On March 31, 2010, Denbury entered into a purchase and sale agreement to sell the Southern
Assets to Quantum Resources Management, LLC, for a sales price of $900 million (before closing
adjustments). The effective date under the agreement was May 1, 2010, and consequently operating
net revenues after May 1, net of capital expenditures, along with any other purchase price
adjustments, were adjustments to the selling price. On May 14, 2010, Denbury completed the sale
and received net proceeds of approximately $888.8 million, $830 million of which was used to reduce
outstanding borrowings under the Credit Agreement. Denbury did not record a gain or loss on the
sale in accordance with the full cost method of accounting.
The
accompanying Unaudited Pro Forma Balance Sheet at March 31, 2010 reflects the elimination
of approximately $101.4 million of goodwill attributable to the sale of the Southern
Assets based on the relative fair values of the assets sold to the estimated total
fair value of Denburys net assets retained. The
calculation of goodwill attributable to the Southern Assets is preliminary and will
be refined as Denbury completes its fair value analysis.
Note 2. Unaudited Pro Forma Balance Sheet as of March 31, 2010
The accompanying Unaudited Pro Forma Balance Sheet as of March 31, 2010 gives effect to the
disposition of the Southern Assets and the use of proceeds as if each had occurred on March 31,
2010. The other events detailed in Note 1. Basis of Presentation were completed prior to March
31, 2010 and accordingly, are reflected in Denburys historical balance sheet as of March 31, 2010.
(a) | Represents the receipt of net proceeds from the sale of the Southern Assets of approximately $888.8 million, including a $45 million deposit received on March 31, 2010, the elimination of assets and liabilities related to the Southern Assets, and the accrual of approximately $5.0 million of transaction costs associated with the sale of the Southern Assets. | ||
(b) | Represents the use of a portion of the net proceeds from the sale of the Southern Assets to repay in full the outstanding borrowings under the Credit Agreement. As of March 31, 2010, Denbury had outstanding borrowings under the Credit |
6
DENBURY RESOURCES INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION Continued
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION Continued
Agreement of $800 million. As such, the pro forma adjustment reflects the use of proceeds to repay in full those outstanding borrowings. |
Note 3. Unaudited Pro Forma Statement of Operations for the Three Months Ended March 31, 2010
The accompanying Unaudited Pro Forma Statement of Operations for the three months ended March
31, 2010 gives effect to Denburys acquisition of Encore, the disposition of the Southern Assets,
and the related financing transactions and use of proceeds as if each had occurred on January 1,
2009. All other events detailed in Note 1. Basis of Presentation were completed prior to January
1, 2010 and accordingly, are reflected in Denburys historical statement of operations for the
three months ended March 31, 2010.
(a) | Represents the decrease to general and administrative expense due to the reduction in ongoing executive salaries and severance payments to former Encore employees. Encores executive officers and certain other employees were not retained as employees of Denbury following the effective time of the Merger. | ||
(b) | Represents the decrease in interest expense on debt retired and the increase in interest expense on the Credit Agreement and the 2020 Notes as follows (in thousands): |
Decrease in interest due to paydown of: |
||||
Denburys revolving credit facility |
$ | (752 | ) | |
Encores revolving credit facility |
(1,171 | ) | ||
Encores 6.0% Senior Subordinated Notes |
(3,046 | ) | ||
Encores 6.25% Senior Subordinated Notes |
(1,278 | ) | ||
Encores 7.25% Senior Subordinated Notes |
(1,691 | ) | ||
(7,938 | ) | |||
Increase in interest due to: |
||||
Denburys Credit Agreement |
1,468 | |||
2020 Notes |
9,041 | |||
Pro forma increase to cash interest expense |
2,571 | |||
Change in amortization of discount/premium on Encores Senior Subordinated Notes |
(838 | ) | ||
Decrease in amortization of deferred financing costs due to: |
||||
Encores revolving credit facilities |
(828 | ) | ||
Encores Senior Subordinated Notes |
(175 | ) | ||
Increase in amortization of deferred financing costs due to: |
||||
Denburys Credit Agreement |
2,337 | |||
Denburys Bridge Facility |
271 | |||
Pro forma increase to noncash interest expense |
767 | |||
Pro forma increase to interest expense |
$ | 3,338 | ||
On a pro forma basis, there were no outstanding borrowings under the Credit Agreement as of March 31, 2010, during the three months ended March 31, 2010, or during the year ended December 31, 2009. | |||
(c) | Represents the change in depletion, depreciation, and amortization (DD&A) expense primarily resulting from the pro forma calculation of the combined entitys DD&A expense under the full cost method of accounting for oil and natural gas properties. The pro forma DD&A adjustment utilizes a DD&A rate of $13.90 per BOE. | ||
(d) | Represents the capitalization of unsuccessful exploration costs, geological and geophysical costs, delay rentals, and early rig release attributable to the development of oil and natural gas properties in accordance with the full cost method of accounting for oil and natural gas properties. | ||
(e) | Represents the elimination of transaction costs incurred in conjunction with the Merger. These costs are nonrecurring charges directly attributable to the Merger. | ||
(f) | Represents the income tax effect of the sale of the Southern Assets and pro forma adjustments (a) (e) at Denburys estimated combined statutory tax rate of 37.8 percent. | ||
(g) | Represents the reversal of a discrete re-measurement of deferred tax expense related to years prior to 2010, recorded as a result of the Merger, to give effect to the increase in state tax apportionment factor on deferred tax liabilities. | ||
(h) | Represents the allocable portion of adjustments (a) (g) to earnings relating to the noncontrolling interest of ENP. |
7
DENBURY RESOURCES INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION Continued
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION Continued
(i) | Represents additional weighting of shares of Denbury common stock issued to Encore stockholders in conjunction with the Merger for the period from January 1, 2010 through March 8, 2010. |
Note 4. Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 2009
The accompanying Unaudited Pro Forma Statement of Operations for the year ended December 31,
2009 gives effect to the events detailed in Note 1. Basis of Presentation as if each had occurred
on January 1, 2009.
(a) | Represents reclassifications required to conform Encores revenue and expense items to Denburys presentation, including: |
| the reclassification of Encores oil and natural gas product sales to Oil, natural gas, and related product sales; | ||
| the reclassification of Encores marketing revenue to Oil, natural gas, and related product sales; | ||
| the reclassification of Encores gains on sale of other assets to Interest income and other; | ||
| the reclassification of Encores lower of cost or market adjustment related to pipe and other tubular inventory to Lease operating expense; | ||
| the reclassification of Encores severance taxes to Production taxes and marketing expense; | ||
| the reclassification of Encores ad valorem taxes to Lease operating expense; | ||
| the reclassification of Encores transportation costs to Production taxes and marketing expense; | ||
| the reclassification of Encores marketing expenses to Production taxes and marketing expense; | ||
| the reclassification of Encores franchise taxes and bad debt expense to General and administrative expense; and | ||
| the reclassification of accretion expense on Encores asset retirement obligations to Depletion, depreciation, and amortization expense. |
Adjustments (b) (h) to the accompanying Unaudited Pro Forma Statement of Operations for the
year ended December 31, 2009 include pro forma adjustments to reflect the events detailed in Note
1. Basis of Presentation and the conversion of Encores method of accounting for oil and natural
gas properties from the successful efforts method of accounting to the full cost method of
accounting:
(b) | Represents the decrease to general and administrative expense due to the reduction in ongoing executive salaries and the elimination of transaction costs incurred in conjunction with the Merger. Encores executive officers and certain other employees were not retained as employees of Denbury following the effective time of the Merger. | ||
(c) | Represents the decrease in interest expense on debt retired and the increase in interest expense on the Credit Agreement and the 2020 Notes as follows (in thousands): |
8
DENBURY RESOURCES INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION Continued
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION Continued
Decrease in interest due to paydown of: |
||||
Denburys
revolving credit facility |
$ | (3,808 | ) | |
Encores
revolving credit facility |
(8,268 | ) | ||
Encores 6.0% Senior Subordinated Notes |
(16,128 | ) | ||
Encores 6.25% Senior Subordinated Notes |
(6,764 | ) | ||
Encores 7.25% Senior Subordinated Notes |
(8,955 | ) | ||
(43,923 | ) | |||
Increase in interest due to: |
||||
Denburys Credit Agreement |
8,000 | |||
2020 Notes |
82,500 | |||
Pro forma increase to cash interest expense |
46,577 | |||
Change in amortization of discount/premium on Encores Senior Subordinated Notes |
(3,755 | ) | ||
Decrease in amortization of deferred financing costs due to: |
||||
Encores
revolving credit facilities |
(3,657 | ) | ||
Encores Senior Subordinated Notes |
(831 | ) | ||
Increase in amortization of deferred financing costs due to: |
||||
Denburys Credit Agreement |
12,365 | |||
Denburys Bridge Facility |
2,165 | |||
Pro forma increase to noncash interest expense |
6,287 | |||
Pro forma increase to interest expense |
$ | 52,864 | ||
On a pro forma basis, there were no outstanding borrowings under the Credit Agreement as of March 31, 2010, during the three months ended March 31, 2010, or during the year ended December 31, 2009. | |||
(d) | Represents the change in DD&A expense primarily resulting from the pro forma calculation of the combined entitys DD&A expense under the full cost method of accounting for oil and natural gas properties. The pro forma DD&A adjustment utilizes a DD&A rate of $14.35 per BOE. | ||
(e) | Represents the capitalization of unsuccessful exploration costs, geological and geophysical costs, delay rentals, and early rig release attributable to the development of oil and natural gas properties in accordance with the full cost method of accounting for oil and natural gas properties. | ||
(f) | Represents the income tax effect of the sale of the Barnett Assets, the sale of the Southern Assets, and pro forma adjustments (b) (e) at Denburys estimated combined statutory tax rate of 37.8 percent. | ||
(g) | Represents the allocable portion of pro forma adjustments (b) (f) to earnings relating to the noncontrolling interest of ENP. | ||
(h) | Represents shares of Denbury common stock issued to Encore stockholders in conjunction with the Merger. |
9