Attached files
file | filename |
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10-K - FORM 10-K - DENBURY INC | d77748e10vk.htm |
EX-23.B - EX-23.B - DENBURY INC | d77748exv23wb.htm |
EX-21 - EX-21 - DENBURY INC | d77748exv21.htm |
EX-32 - EX-32 - DENBURY INC | d77748exv32.htm |
EX-4.K - EX-4.K - DENBURY INC | d77748exv4wk.htm |
EX-4.P - EX-4.P - DENBURY INC | d77748exv4wp.htm |
EX-4.X - EX-4.X - DENBURY INC | d77748exv4wx.htm |
EX-4.E - EX-4.E - DENBURY INC | d77748exv4we.htm |
EX-4.S - EX-4.S - DENBURY INC | d77748exv4ws.htm |
EX-10.E - EX-10.E - DENBURY INC | d77748exv10we.htm |
EX-31.B - EX-31.B - DENBURY INC | d77748exv31wb.htm |
EX-4.CC - EX-4.CC - DENBURY INC | d77748exv4wcc.htm |
EX-10.D - EX-10.D - DENBURY INC | d77748exv10wd.htm |
EX-23.A - EX-23.A - DENBURY INC | d77748exv23wa.htm |
EX-31.A - EX-31.A - DENBURY INC | d77748exv31wa.htm |
EX-10.M - EX-10.M - DENBURY INC | d77748exv10wm.htm |
EX-10.O - EX-10.O - DENBURY INC | d77748exv10wo.htm |
EX-4.JJ - EX-4.JJ - DENBURY INC | d77748exv4wjj.htm |
Exhibit 99
DeGolyer and MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244
February 8, 2011
Denbury Resources Inc.
5320 Legacy Drive
Plano, Texas 75024
5320 Legacy Drive
Plano, Texas 75024
Ladies and Gentlemen:
Pursuant to your request, we have conducted a reserves evaluation of the net proved crude oil,
condensate, natural gas liquids (NGL), and natural gas reserves, as of December 31, 2010, of
certain properties owned by Denbury Resources Inc. (Denbury). The properties appraised consist of
working and royalty interests located in the states of Arkansas, Alabama, Louisiana, Mississippi,
Montana, North Dakota, Texas, Utah, and Wyoming. Denbury has represented that these properties
account for 100 percent of Denburys net proved reserves as of December 31, 2010. In addition, we
have made estimates of the extent of the proved carbon dioxide and helium reserves owned by
Denbury. The net proved reserves estimates prepared by us have been prepared in accordance with the
reserves definitions of Rules 410(a) (1)(32) of Regulation SX of the Securities and Exchange
Commission (SEC) of the United States.
Reserves included herein are expressed as net reserves. Gross reserves are defined as the
total estimated petroleum to be produced from these properties after December 31, 2010. Net
reserves are defined as that portion of the gross reserves attributable to the interests owned by
Denbury after deducting all interests owned by others.
Estimates of oil, condensate, NGL, and natural gas should be regarded only as estimates that
may change as further production history and additional information become available. Not only are
such reserves estimates based on that information which is currently available, but such estimates
are also subject to the uncertainties inherent in the application of judgmental factors in
interpreting such information.
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Data used in this evaluation were obtained from reviews with Denbury personnel, Denbury
files, from records on file with the appropriate regulatory agencies, and from public sources. In
the preparation of this report we have relied, without independent verification, upon such
information furnished by Denbury with respect to property interests, production from such
properties, current costs of operation and development, current prices for production, agreements
relating to current and future operations and sale of production, and various other information and
data that were accepted as represented. A field examination of the properties was not considered
necessary for the purposes of this report.
Methodology and Procedures
Estimates of reserves were prepared by the use of appropriate geologic, petroleum engineering,
and evaluation principals and techniques that are in accordance with practices generally recognized
by the petroleum industry as presented in the publication of the Society of Petroleum Engineers
entitled Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
(Revision as of February 19, 2007). The method or combination of methods used in the analysis of
each reservoir was tempered by experience with similar reservoirs, stage of development, quality
and completeness of basic data, and production history.
When applicable, the volumetric method was used to estimate the original oil in place (OOIP)
and the original gas in place (OGIP). Structure and isopach maps were constructed to estimate
reservoir volume. Electrical logs, radioactivity logs, core analyses, and other available data were
used to prepare these maps as well as to estimate representative values for porosity and water
saturation. When adequate data were available and when circumstances justified, material balance
and other engineering methods were used to estimate OOIP or OGIP.
Estimates of ultimate recovery were obtained after applying recovery factors to OOIP or OGIP.
These recovery factors were based on consideration of the type of energy inherent in the
reservoirs, analyses of the petroleum, the structural positions of the properties, and the
production histories. When applicable, material balance and other engineering methods were used to
estimate recovery factors. An analysis of reservoir performance, including production rate,
reservoir pressure, and gas-oil ratio behavior, was used in the estimation of reserves.
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For depletion-type reservoirs or those whose performance disclosed a reliable decline in
producing-rate trends or other diagnostic characteristics, reserves were estimated by the
application of appropriate decline curves or other performance relationships. In the analyses of
production-decline curves, reserves were estimated only to the limits of economic production or to
the limit of the production licenses as appropriate.
Definition of Reserves
Petroleum reserves estimated by us included in this report are classified as proved. Only
proved reserves have been evaluated for this report. Reserves classifications used by us in this
report are in accordance with the reserves definitions of Rules 410(a) (1)(32) of Regulation
SX of the SEC. Reserves are judged to be economically producible in future years from known
reservoirs under existing economic and operating conditions and assuming continuation of current
regulatory practices using conventional production methods and equipment. In the analyses of
production-decline curves, reserves were estimated only to the limit of economic rates of
production under existing economic and operating conditions using prices and costs consistent with
the effective date of this report, including consideration of changes in existing prices provided
only by contractual arrangements but not including escalations based upon future conditions. The
petroleum reserves are classified as follows:
Proved oil and gas reserves Proved oil and gas reserves are those
quantities of oil and gas, which, by analysis of geoscience and
engineering data, can be estimated with reasonable certainty to be
economically produciblefrom a given date forward, from known reservoirs,
and under existing economic conditions, operating methods, and government
regulationsprior to the time at which contracts providing the right to
operate expire, unless evidence indicates that renewal is reasonably
certain, regardless of whether deterministic or probabilistic methods are
used for the estimation. The project to extract the hydrocarbons must have
commenced or the operator must be reasonably certain that it will commence
the project within a reasonable time.
(i) The area of the reservoir considered as proved includes:
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(A) The area identified by drilling and limited by fluid contacts, if any, and (B)
Adjacent undrilled portions of the reservoir that can, with reasonable certainty,
be judged to be continuous with it and to contain economically producible oil or
gas on the basis of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir
are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration
unless geoscience, engineering, or performance data and reliable technology
establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known
oil (HKO) elevation and the potential exists for an associated gas cap, proved oil
reserves may be assigned in the structurally higher portions of the reservoir only
if geoscience, engineering, or performance data and reliable technology establish
the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved
recovery techniques (including, but not limited to, fluid injection) are included
in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with
properties no more favorable than in the reservoir as a whole, the operation of an
installed program in the reservoir or an analogous reservoir, or other evidence
using reliable technology establishes the reasonable certainty of the engineering
analysis on which the project or program was based; and (B) The project has been
approved for development by all necessary parties and entities, including
governmental entities.
(v) Existing economic conditions include prices and costs at which economic
producibility from a reservoir is to be determined. The price shall be the average
price during the 12-month period prior to the ending date of the period covered by
the report, determined as an unweighted arithmetic average of the
first-day-of-the-month price for each month within such period, unless prices are
defined by contractual arrangements, excluding escalations based upon future
conditions.
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Developed oil and gas reserves Developed oil and gas reserves are
reserves of any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods or in
which the cost of the required equipment is relatively minor compared to the cost
of a new well; and
(ii) Through installed extraction equipment and infrastructure operational at the
time of the reserves estimate if the extraction is by means not involving a well.
Undeveloped oil and gas reserves Undeveloped oil and gas reserves are
reserves of any category that are expected to be recovered from new wells
on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting
development spacing areas that are reasonably certain of production when drilled,
unless evidence using reliable technology exists that establishes reasonable
certainty of economic producibility at greater distances.
(ii) Undrilled locations can be classified as having undeveloped reserves only if
a development plan has been adopted indicating that they are scheduled to be
drilled within five years, unless the specific circumstances justify a longer
time.
(iii) Under no circumstances shall estimates for undeveloped reserves be
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual projects in the same reservoir or an analogous
reservoir, as defined in [section 210.410 (a) Definitions], or by other evidence
using reliable technology establishing reasonable certainty.
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Our estimates of Denburys net proved reserves attributable to the reviewed properties are
based on the definitions of proved reserves of the SEC and are as follows, expressed in thousands
of barrels (Mbbl), millions of cubic feet (MMcf), and thousands of barrels of oil equivalent
(Mboe):
Net Proved Reserves | ||||||||||||||||
as of | ||||||||||||||||
December 31, 2010 | ||||||||||||||||
Oil and | Natural | Oil | ||||||||||||||
Condensate | NGL | Gas | Equivalent | |||||||||||||
(Mbbl) | (Mbbl) | (MMcf) | (Mboe) | |||||||||||||
Proved Developed |
217,823 | 1,254 | 110,516 | 237,496 | ||||||||||||
Proved Undeveloped |
119,199 | 0 | 247,377 | 160,428 | ||||||||||||
Total Proved |
337,022 | 1,254 | 357,893 | 397,925 |
Note: Gas is converted to oil equivalent using a factor of 6,000 cubic feet of gas per 1 barrel of
oil equivalent.
In our opinion, the information relating to estimated proved reserves of oil, condensate,
and natural gas contained in this report has been prepared in accordance with Paragraphs
932-235-50-4, 932-235-50-6, 932-235-50-7, and 932-235-50-9, of the Accounting Standards Update
932-235-50, Extractive Industries Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures (January 2010) of the Financial Accounting Standards Board and Rules 410(a)
(1)(32) of Regulation SX and Rules 302(b) and 1201, 1202(a)(1), (2), (3), (4), (8) and 1203(a)
of Regulation SK of the SEC.
In addition to the natural gas reserves shown in the foregoing tabulation, Denburys net
proved carbon dioxide gas reserves in Mississippi and Wyoming, as of December 31, 2010 are
estimated to be 6,563,984 MMcf. This amount includes 4,731,706 MMcf of developed reserves, and
1,832,278 MMcf of undeveloped reserves. Denburys proved carbon dioxide gas reserves to their
working interest are 7,918,584 MMcf of which 5,868,823 MMcf are developed. The gross proved carbon
dioxide reserves for the appraised properties are 9,274,887 MMcf, of which 5,932,531 MMcf are
developed. Net helium reserves, all undeveloped, are 7,159 MMcf. The carbon dioxide and helium
reserves estimates have been prepared by applying the reserves definitions of Rules 4-10(a)
(1)-(32) of Regulation S-X of the SEC as those for natural gas. No revenue estimates have been made
for the carbon dioxide and helium reserves.
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Primary Economic Assumptions
The following economic assumptions were used for estimating existing and future prices and
costs:
Oil and Condensate Prices
Denbury has represented that the oil and condensate prices were based on a
12-month average price (reference price), calculated as the unweighted
arithmetic average of the first-day-of-the-month price for each month
within the 12-month period prior to the end of the reporting period,
unless prices are defined by contractual arrangements. Denbury supplied
differentials by field to a NYMEX reference price of $79.43 per barrel and
the prices were held constant thereafter. The volume-weighted average
price was $74.36 per barrel.
NGL Prices
Denbury has represented that the NGL prices were based on a 12-month
average price (reference price), calculated as the unweighted arithmetic
average of the first-day-of-the-month price for each month within the
12-month period prior to the end of the reporting period, unless prices
are defined by contractual arrangements. Denbury supplied differentials by
field to a reference price of $79.43 per barrel and the prices were held
constant thereafter. The volume-weighted average price was $49.35 per
barrel.
Natural Gas Prices
Denbury has represented that the natural gas prices were based on a
reference price, calculated as the unweighted arithmetic average of the
first-day-of-the-month price for each month within the 12-month period
prior to the end of the reporting period, unless prices are defined by
contractual arrangements. The gas prices were calculated for each property
using differentials to the NYMEX reference price of $4.448 per MMbtu
furnished by Denbury and held constant thereafter. The volume-weighted
average price was $4.29 per Mcf.
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Operating Expenses and Capital Costs
Operating expenses and capital costs, based on information provided by
Denbury, were used in estimating future costs required to operate the
properties. In certain cases, future costs, either higher or lower than
existing costs, may have been used because of anticipated changes in
operating conditions. These costs were not escalated for inflation.
Abandonment costs, net of salvage, were provided by Denbury for all
properties.
The estimated future revenue and expenditures attributable to the production and sale of
Denburys net proved reserves of the properties appraised, as of December 31, 2010, is summarized
in thousands of dollars (M$) as follows:
Proved | ||||||||||||||||
Developed | Developed | |||||||||||||||
Producing | Nonproducing | Undeveloped | Total | |||||||||||||
Future Gross Revenue, M$ |
14,365,187 | 2,445,941 | 9,887,691 | 26,698,819 | ||||||||||||
Production & Ad Valorem Taxes, M$ |
1,090,341 | 135,686 | 701,347 | 1,927,375 | ||||||||||||
Operating Expenses, M$ |
5,018,755 | 477,846 | 2,278,921 | 7,775,522 | ||||||||||||
Capital Costs, M$ |
62,668 | 108,425 | 1,651,292 | 1,822,385 | ||||||||||||
Abandonment Costs |
90,073 | 0 | 0 | 90,073 | ||||||||||||
Future Net Revenue, M$* |
8,103,351 | 1,723,984 | 5,256,131 | 15,083,466 | ||||||||||||
Present Worth at 10 Percent, M$* |
4,596,956 | 769,158 | 1,926,231 | 7,292,345 |
* | Future income tax expenses were not taken into account in the preparation of these estimates. |
Estimates of crude oil, condensate, natural gas liquids, and natural gas reserves and
future net revenue should be regarded only as estimates that may change as further production
history and additional information become available. Not only are such reserves and revenue
estimates based on that information which is currently available, but such estimates are also
subject to the uncertainties inherent in the application of judgmental factors
While the oil and gas industry may be subject to regulatory changes from time to time that
could affect an industry participants ability to recover its oil and gas reserves, we are not
aware of any such governmental actions which would restrict the recovery of the December 31, 2010,
estimated oil and gas volumes. The reserves estimated in this report can be produced under current
regulatory guidelines.
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DeGolyer and MacNaughton
To the extent the above-enumerated rules, regulations, and statements require determinations
of an accounting or legal nature, we, as engineers, are necessarily unable to express an opinion as
to whether the above-described information is in accordance therewith or sufficient therefor.
DeGolyer and MacNaughton is an independent petroleum engineering consulting firm that has been
providing petroleum consulting services throughout the world since 1936. DeGolyer and MacNaughton
does not have any financial interest, including stock ownership, in Denbury. Our fees were not
contingent on the results of our evaluation. This letter report has been prepared at the request of
Denbury. DeGolyer and MacNaughton has used all assumptions, data, procedures, and methods that it
considers necessary and appropriate to prepare this report.
Submitted, | ||||
/s/ DeGolyer and MacNaughton | ||||
DeGOLYER and MacNAUGHTON | ||||
Texas Registered Engineering Firm F-716 | ||||
/s/ Paul J. Szatkowski, P.E. | ||||
[SEAL]
|
Senior Vice President | |||
DeGolyer and MacNaughton |
DeGolyer and MacNaughton
CERTIFICATE of QUALIFICATION
I, Paul J. Szatkowski, Petroleum Engineer with DeGolyer and MacNaughton, 5001 Spring Valley Road,
Suite 800 East, Dallas, Texas, 75244 U.S.A., hereby certify:
1. | That I am a Senior Vice President with DeGolyer and MacNaughton, which company did prepare the letter report addressed to Denbury dated February 8, 2011, and that I, as Senior Vice President, was responsible for the preparation of this report. |
2. | That I attended Texas A&M University, and that I graduated with a Bachelor of Science degree in Petroleum Engineering in 1974; that I am a Registered Professional Engineer in the State of Texas; that I am a member of the International Society of Petroleum Engineers and the American Association of Petroleum Geologists; and that I have in excess of 36 years of experience in oil and gas reservoir studies and reserves evaluations. |
/s/ Paul J. Szatkowski, P.E. |
||||
Senior Vice President | ||||
DeGolyer and MacNaughton |