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8-K - FORM 8-K - DENBURY INC | d79384e8vk.htm |
Exhibit 99.1
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 both 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 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 statement of operations for the nine months ended September 30, 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
Barnett Shale dispositions were completed during 2009.
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 September 30, 2010 and certain sections
of Encores 2009 Form 10-K included in Denburys Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 4, 2010.
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.
DENBURY RESOURCES INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(in thousands, except per share amounts)
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(in thousands, except per share amounts)
Southern | ||||||||||||||||||||
Encore | Assets | Pro Forma | ||||||||||||||||||
Denbury | Historical (2) | Historical | Adjustments | Denbury | ||||||||||||||||
Historical (1) | (Note 1) | (Note 1) | (Note 2 ) | Pro Forma | ||||||||||||||||
Revenues and other income: |
||||||||||||||||||||
Oil, natural gas, and related product sales |
$ | 1,279,699 | $ | 176,013 | $ | (72,208 | ) | $ | | $ | 1,383,504 | |||||||||
CO2 sales and transportation fees |
13,840 | | | | 13,840 | |||||||||||||||
Gain on sale of interests in Genesis |
101,537 | | | | 101,537 | |||||||||||||||
Interest income and other |
7,658 | 437 | | | 8,095 | |||||||||||||||
Total revenues |
1,402,734 | 176,450 | (72,208 | ) | | 1,506,976 | ||||||||||||||
Expenses: |
||||||||||||||||||||
Lease operating expenses |
355,731 | 36,872 | (13,619 | ) | | 378,984 | ||||||||||||||
Production taxes and marketing expenses |
92,959 | 20,742 | (5,359 | ) | | 108,342 | ||||||||||||||
CO2 discovery and operating expenses |
5,537 | | | | 5,537 | |||||||||||||||
General and administrative |
101,016 | 79,603 | | (74,298 | )(a) | 106,321 | ||||||||||||||
Interest, net of amounts capitalized |
123,230 | 14,900 | | (3,489 | )(b) | 134,641 | ||||||||||||||
Depletion, depreciation, and amortization |
322,683 | 47,104 | | (30,020 | )(c) | 339,767 | ||||||||||||||
Exploration |
| 2,961 | | (2,961 | )(d) | | ||||||||||||||
Derivatives income |
(138,045 | ) | (10,174 | ) | | | (148,219 | ) | ||||||||||||
Transactions costs and other related to Encore Merger |
79,253 | 14,851 | | (59,850 | )(e) | 34,254 | ||||||||||||||
Total expenses |
942,364 | 206,859 | (18,978 | ) | (170,618 | ) | 959,627 | |||||||||||||
Income (loss) before income taxes |
460,370 | (30,409 | ) | (53,230 | ) | 170,618 | 547,349 | |||||||||||||
Income tax benefit (provision) |
(178,603 | ) | (1,772 | ) | 20,121 | (64,494 | )(f) | |||||||||||||
11,180 | (g) | (213,568 | ) | |||||||||||||||||
Consolidated net income (loss) |
281,767 | (32,181 | ) | (33,109 | ) | 117,304 | 333,781 | |||||||||||||
Less: net loss (income) attributable to
noncontrolling interest |
(20,408 | ) | (7,095 | ) | | 23 | (h) | (27,480 | ) | |||||||||||
Net income (loss) attributable to Denbury stockholders |
$ | 261,359 | $ | (39,276 | ) | $ | (33,109 | ) | $ | 117,327 | $ | 306,301 | ||||||||
Net income per common share: |
||||||||||||||||||||
Basic |
$ | 0.72 | $ | 0.77 | ||||||||||||||||
Diluted |
$ | 0.71 | $ | 0.76 | ||||||||||||||||
Weighted
average common shares outstanding: |
||||||||||||||||||||
Basic |
362,241 | 33,173 | (i) | 395,414 | ||||||||||||||||
Diluted |
367,434 | 33,173 | (i) | 400,607 |
(1) | The results of operations of Denbury shown under Denbury Historical include revenues and expenses from March 9, 2010, the acquisition date of Encore, through September 30, 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.
2
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 3) | (Note 1) | (Note 1) | (Note 3) | 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 expenses |
326,132 | 165,062 | 9,811 | (a) | (15,726 | ) | (28,072 | ) | | 457,207 | ||||||||||||||||||
Production taxes and marketing
expenses |
42,484 | | 81,986 | (a) | (5,952 | ) | (9,490 | ) | | 109,028 | ||||||||||||||||||
CO2 discovery and
operating expenses |
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 | | | | 46,413 | (c) | 172,860 | ||||||||||||||||||||
Depletion, depreciation, and
amortization |
238,323 | 290,776 | 2,449 | (a) | | (286 | ) | (105,098 | ) (d) | 426,164 | ||||||||||||||||||
Derivatives expense |
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 | ) | (132,969 | ) | 1,632,152 | |||||||||||||||||
Equity in net income of Genesis |
6,657 | | | | | | 6,657 | |||||||||||||||||||||
Income (loss) before income taxes |
(122,189 | ) | (130,060 | ) | | (53,478 | ) | (84,867 | ) | 132,969 | (257,625 | ) | ||||||||||||||||
Income tax benefit |
47,033 | 32,173 | | | | 2,032 | (f) | 81,238 | ||||||||||||||||||||
Consolidated net income (loss) |
(75,156 | ) | (97,887 | ) | | (53,478 | ) | (84,867 | ) | 135,001 | (176,387 | ) | ||||||||||||||||
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 | ) | $ | 129,503 | $ | (165,133 | ) | |||||||||
Net loss per common share: |
||||||||||||||||||||||||||||
Basic |
$ | (0.30 | ) | $ | (0.43 | ) | ||||||||||||||||||||||
Diluted |
$ | (0.30 | ) | $ | (0.43 | ) | ||||||||||||||||||||||
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.
3
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 was 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 September 30, 2010,
contained in Denburys Form 10-Q for the period ended September 30, 2010.
The unaudited pro forma financial information for the twelve months 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.
The Company has not presented a pro forma September 30, 2010 balance sheet as all of the above
transactions are reflected in Denburys historical consolidated balance sheet as of September 30,
2010 as contained in Denburys Form 10-Q for the period ended September 30, 2010.
Issuance of 8.25% Senior Subordinated Notes due 2020
Denbury issued $996.3 million, of 8.25% Senior Subordinated Notes due 2020 (the 2020 Notes),
net of $3.7 million in redemptions, for net proceeds after underwriting discounts and commissions
of $976.3 million. The 2020 Notes were sold at par. From the proceeds of the 2020 Notes, $400
million of the net proceeds were used to finance a portion of the Merger consideration and $596.2
million were used to redeem a portion of Encores outstanding senior subordinated notes through a
series of tender offers discussed below.
The accompanying Unaudited Pro Forma Statements of Operations reflect the issuance of the 2020
Notes as if it had occurred January 1, 2009.
Tender Offers for Encores Senior Subordinated Notes
Between February and April 2010, Denbury repurchased $596.2 million of Encores senior
subordinated notes. $500.5 million of the senior subordinated notes were purchased on
March 10, 2010 and $95.7 million of the senior subordinated notes were purchased in
April 2010, leaving $228.7 million of former Encore notes outstanding.
The accompanying Unaudited Pro Forma Statements of Operations reflect Denburys purchase of
Encores Senior Subordinated Notes in March and April 2010 as if each had occurred January 1, 2009.
4
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, 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. |
Denburys and Encores then existing revolving credit agreements were repaid on March 9, 2010.
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 its 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
Statement of Operations for the year ended December 31, 2009 assumes the sale closed on January 1,
2009.
5
Note 2. Unaudited Pro Forma Statement of Operations for the Nine Months Ended September 30,
2010
The accompanying Unaudited Pro Forma Statement of Operations for the nine months ended
September 30, 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 nine months ended September 30, 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 or repurchase of: |
||||
Denburys revolving credit facility |
$ | (752 | ) | |
Denburys Credit Agreement |
(4,329 | ) | ||
Encores revolving credit facility |
(1,171 | ) | ||
Encores 6.0% Senior Subordinated Notes |
(3,263 | ) | ||
Encores 6.25% Senior Subordinated Notes |
(1,835 | ) | ||
Encores 7.25% Senior Subordinated Notes |
(1,973 | ) | ||
(13,323 | ) | |||
Increase in interest due to: |
||||
2020 Notes |
9,067 | |||
Pro forma decrease to cash interest expense |
(4,256 | ) | ||
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 2020 Notes |
271 | |||
Pro forma increase to noncash interest expense |
767 | |||
Pro forma decrease to interest expense |
$ | (3,489 | ) | |
(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 depletion adjustment utilizes a rate of $15.07 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 acquisition and the sale of the Southern Assets and pro forma adjustments (a) (e) at Denburys estimated combined statutory tax rate of 37.8%. | ||
(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. | ||
(i) | Represents shares of Denbury common stock issued to Encore stockholders in conjunction with the Merger. |
6
Note 3. Unaudited Pro Forma Statement of Operations for the Twelve Months Ended December 31, 2009
The accompanying Unaudited Pro Forma Statement of Operations for the twelve months 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 expenses; | ||
| the reclassification of Encores severance taxes to Production taxes and marketing expenses; | ||
| the reclassification of Encores ad valorem taxes to Lease operating expenses; | ||
| the reclassification of Encores transportation costs to Production taxes and marketing expenses; | ||
| the reclassification of Encores marketing expenses to Production taxes and marketing expenses; | ||
| 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. |
7
(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): |
Decrease in interest due to paydown or repurchase of: |
||||
Denburys revolving credit facility |
$ | (3,808 | ) | |
Encores revolving credit facility |
(8,268 | ) | ||
Encores 6.0% Senior Subordinated Notes |
(17,971 | ) | ||
Encores 6.25% Senior Subordinated Notes |
(9,308 | ) | ||
Encores 7.25% Senior Subordinated Notes |
(10,712 | ) | ||
(50,067 | ) | |||
Increase in interest due to: |
||||
Denburys Credit Agreement |
8,000 | |||
2020 Notes |
82,193 | |||
Pro forma increase to cash interest expense |
40,126 | |||
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 2020 Notes |
2,165 | |||
Pro forma increase to noncash interest expense |
6,287 | |||
Pro forma increase to interest expense |
$ | 46,413 | ||
(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 depletion adjustment utilizes 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%. | ||
(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. |
8