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DALLAS--(BUSINESS WIRE)--July 29, 2004--Denbury Resources Inc.
(NYSE:DNR) ("Denbury" or the "Company") today announced its second
quarter 2004 financial and operating results. The Company posted
strong earnings for the quarter of $19.4 million, or $0.35 per common
share, as compared to earnings of $5.1 million or $0.10 per common
share for the second quarter of 2003. Net cash flow provided by
operations, a GAAP measure, totaled $53.2 million during the second
quarter of 2004, as compared to $60.5 million during the second
quarter of 2003. Adjusted cash flow from operations for the second
quarter of 2004 (before changes in assets and liabilities) was a
near-record high, totaling $63.1 million, a 29% increase over the
$49.0 million generated in the second quarter of 2003. (See the
accompanying schedules for a reconciliation of net cash flow provided
by operations, as defined by generally accepted accounting principles
("GAAP"), which is a GAAP measure, as opposed to adjusted cash flow,
which is a non-GAAP measure).
Production
Production for the quarter was 36,602 BOE/d, virtually the same as
production during the prior quarter and 4% higher than the second
quarter of 2003 average of 35,050 BOE/d. Oil production from the
Company's tertiary operations increased 5% over levels in the prior
quarter and 46% when compared to second quarter of 2003 tertiary
production, averaging 6,603 Bbls/d in the second quarter of 2004,
primarily as a result of production increases at Mallalieu Field.
Production from the offshore Gulf of Mexico increased 7% over levels
in the prior quarter, averaging 9,114 BOE/d, as a result of several
recent well completions. Denbury Offshore, Inc., the subsidiary that
held the Company's offshore assets, was sold on July 20, 2004.
Partially offsetting these increases were declines in other areas
resulting from property sales and general depletion, the single
largest factor being expected depletion at Thornwell Field, onshore
Louisiana, which declined over 1,000 BOE/d from first quarter 2004
production levels.
Second Quarter 2004 Financial Results
In the second quarter of 2004, revenues increased $18.6 million
over second quarter 2003 amounts, primarily as a result of higher
commodity prices, partially offset by higher hedge payments. During
the second quarter of 2004, the most significant payments on hedges
were oil related, primarily for oil swaps put in place at the time of
the COHO property acquisition in 2002. Realized commodity prices on a
BOE basis were at record levels, averaging $35.75 per BOE in the
second quarter, as compared to an average of $29.71 per BOE in the
second quarter of 2003. NYMEX oil prices were 32% higher in the second
quarter of 2004 than in the prior year second quarter, and NYMEX
natural gas prices were 8% higher.
Operating expenses increased to $7.36 per BOE in the second
quarter of 2004 primarily as a result of repairs and maintenance on
offshore platforms and higher utility costs, up from $7.23 per BOE in
the second quarter of 2003. The increased activity on tertiary
operations and general cost inflation in the industry also contributed
to the overall increase in operating expense per BOE. Production taxes
increased in the second quarter of 2004 along with the increase in
commodity prices.
General and administrative expenses increased, averaging $1.25 per
BOE in the second quarter of 2004, up from $1.06 per BOE in the prior
year's second quarter. The majority of the increase relates to
severance costs for a portion of the Company's offshore professional
and technical staff that were terminated prior to June 30, 2004.
During 2004, the Company has also incurred additional general and
administrative expense associated with the corporate restructure in
December 2003, the sale of stock by the Texas Pacific Group in March
2004, and additional costs to comply with the requirements of the
Sarbanes-Oxley Act. The Company expects to incur an additional $1.6
million of severance and other incremental expenses in the third
quarter as a result of the offshore sale.
Interest expense decreased on a gross and per BOE basis as a
result of lower overall interest rates, primarily related to the
subordinated debt refinancing in 2003, and lower average debt levels
as a result of the $50 million reduction in debt during 2003.
Depreciation, depletion and amortization expense ("DD&A")
increased in the second quarter of 2004 to $8.46 per BOE, primarily as
a result of the higher percentage of expenditures on offshore
properties during 2003 and 2004, which typically have a higher finding
and development cost per BOE, and general upward cost revisions for
future development costs in the Company's mid-year reserve estimates.
The second quarter 2004 DD&A rate is more comparable to the fourth
quarter of 2003 DD&A rate of $8.00 per BOE than to the second quarter
of 2003 DD&A rate of $7.25 per BOE.
The Company incurred $7.1 million of charges in the second quarter
of 2004 relating to its oil and natural gas hedges, primarily caused
by the early retirement in June 2004 of 20 MMcf/d of its 2004 natural
gas hedges related to the Company's offshore production that was sold
in July 2004.
The Company recognized current income tax expense of $977,000 in
the second quarter of 2004 related to state income taxes and
alternative minimum taxes due that cannot be offset by the Company's
regular tax net loss carryforwards or enhanced oil recovery credits.
The Company expects to pay approximately $22 million of income taxes
in the third quarter related to the offshore sale.
Additional CO2 Reserves
The Company is in the process of completing one additional CO2
well and one is nearing total depth, both of which are expected to add
incremental production capacity and additional reserves. The Company's
preliminary estimates are that the first well will add approximately
700 Bcf of additional CO2 reserves, representing a significant
increase from the Company's total proved CO2 reserves of 1.6 Tcf at
Dec. 31, 2003. The Company expects the second well to add
approximately 300 Bcf of additional CO2 reserves. The Company projects
that it will have the capability to produce a total of approximately
350 MMcf/d of CO2 after completion of these two wells.
2004 Outlook
Denbury's 2004 development and exploration budget remains at its
current level of $205 million. Any acquisitions made by the Company
will increase these capital budget amounts. Denbury's current total
debt (following completion of the offshore sale) is $225 million, with
$175 million undrawn on its adjusted bank borrowing base and
approximately $75 million of cash generated from the offshore sale.
The Company plans to invest this cash over the next one to two years
by increasing its development activity to a level higher than its
anticipated cash flow, focusing primarily on its tertiary operations.
The Company expects its production during the third quarter of
2004 to be approximately 27,500 BOE/d, excluding any production
relating to the offshore operations for the interim period of July 1
through closing of the offshore sale on July 20, 2004. Fourth quarter
production is expected to increase to between 28,000 and 28,500 BOE/d.
Gareth Roberts, Chief Executive Officer, said: "With the
completion of the sale of the offshore properties, we plan to
concentrate and focus on our tertiary operations. Production from our
tertiary recovery operations is on forecast, averaging 6,603 Bbls/d, a
5% increase over the first quarter tertiary production rates. We
expect tertiary oil production to continue to grow for several more
years from this first phase of operations. With the incremental
reserves anticipated from the two recent CO2 source wells, we have
sufficient CO2 reserves to implement the next phase of our tertiary
recovery program, the flooding of six oil fields in East Mississippi.
We are working diligently on our plans for a CO2 pipeline to that part
of the state, and hope to commence construction operations in the
fourth quarter, with completion anticipated twelve to eighteen months
thereafter. Financially, the sale of our offshore assets has made us
stronger than we have ever been, allowing us to develop our inventory
of CO2 projects without the need to hedge as aggressively as in past
years. Our future has never looked better."
Conference Call
The public is invited to listen to the Company's conference call
set for today, July 29, 2004, at 10:00 a.m. CDT. The call will be
broadcast live over the Internet at our web site: www.denbury.com. If
you are unable to participate during the live broadcast, the call will
be archived on our web site for approximately 30 days and will also be
available for playback for one week by dialing 888-203-1112 or
719-457-0820.
Financial and Statistical Data Tables
Following are financial highlights for the comparative three and
six month periods ended June 30, 2004 and 2003. All production volumes
and dollars are expressed on a net revenue interest basis with gas
volumes converted at 6:1.
SECOND QUARTER FINANCIAL HIGHLIGHTS
(Amounts in thousands, except per share and unit data)
Three Months
Ended
June 30, Percentage
-----------------
2004 2003 Change
-------- --------
Revenues:
Oil sales 58,529 43,922 + 33%
Gas sales 60,542 50,830 + 19%
CO2 sales and transportation fees 1,580 2,445 - 35%
Loss on settlements of derivative
contracts (18,239) (13,356) + 37%
Interest and other income 432 382 + 13%
-------- --------
Total revenues 102,844 84,223 + 22%
-------- --------
Expenses:
Lease operating expenses 24,530 23,048 + 6%
Production taxes and marketing expense 4,514 3,467 + 30%
CO2 operating costs 209 534 - 61%
General and administrative 4,178 3,376 + 24%
Interest 5,068 6,227 - 19%
Loss on early retirement of debt - 17,629 NA
Depletion, depreciation and accretion 28,161 23,130 + 22%
Amortization of derivative contracts and
other non-cash hedging adjustments 7,146 (751) + 100+%
-------- --------
Total expenses 73,806 76,660 - 4%
-------- --------
Income before income taxes 29,038 7,563 + 100+%
Income tax provision (benefit)
Current income taxes 977 (1,093) + 100+%
Deferred income taxes 8,672 3,527 + 100+%
-------- --------
NET INCOME 19,389 5,129 + 100+%
======== ========
Net income per common share:
Basic 0.35 0.10 + 100+%
Diluted 0.34 0.09 + 100+%
Weighted average common shares:
Basic 54,744 53,815 + 2%
Diluted 57,102 55,337 + 3%
Production (daily - net of royalties)
Oil (barrels) 18,730 18,957 - 1%
Gas (mcf) 107,230 96,558 + 11%
BOE (6:1) 36,602 35,050 + 4%
Unit sales price (including hedges)
Oil (per barrel) 26.56 23.93 + 11%
Gas (per mcf) 5.69 4.56 + 25%
Unit sales price (excluding hedges)
Oil (per barrel) 34.34 25.46 + 35%
Gas (per mcf) 6.20 5.78 + 7%
Three Months
Ended
June 30, Percentage
---------------
2004 2003 Change
------- -------
Non-GAAP Financial Measure (1)
Adjusted or discretionary cash flow from
operations (non-GAAP measure) 63,054 48,989 + 29%
Net change in assets and liabilities
relating to operations (9,844) 11,553 - 100+%
------- -------
Cash flow from operations (GAAP measure) 53,210 60,542 - 12%
======= =======
Oil & gas capital investments 44,049 43,972 NA
CO2 capital investments 6,938 6,469 + 7%
Proceeds from sales of oil and gas
properties 634 1,788 - 65%
BOE data (6:1)
Revenue 35.75 29.71 + 20%
Loss on settlements of derivative
contracts (5.48) (4.19) + 31%
Lease operating costs (7.36) (7.23) + 2%
Production taxes and marketing expense (1.36) (1.08) + 26%
------- -------
Production netback 21.55 17.21 + 25%
CO2 operating cash flow 0.41 0.60 - 32%
General and administrative (1.25) (1.06) + 18%
Net cash interest expense (1.35) (1.75) - 23%
Current income taxes and other (0.42) 0.36 - 100+%
Changes in asset and liabilities (2.96) 3.62 - 100+%
------- -------
Cash flow from operations 15.98 18.98 - 16%
======= =======
(1) See "Non-GAAP Measures" at the end of this report.
SIX MONTH FINANCIAL HIGHLIGHTS
(Amounts in thousands, except per share and unit data)
Six Months Ended
June 30, Percentage
-----------------
2004 2003 Change
-------- --------
Revenues:
Oil sales 113,054 96,135 + 18%
Gas sales 116,253 110,341 + 5%
CO2 sales and transportation fees 2,941 4,634 - 37%
Loss on settlements of derivative
contracts (32,507) (41,041) - 21%
Interest and other income 758 602 + 26%
-------- --------
Total revenues 200,499 170,671 + 17%
-------- --------
Expenses:
Lease operating expenses 47,058 45,450 + 4%
Production taxes and marketing expense 8,581 7,363 + 17%
CO2 operating costs 353 851 - 59%
General and administrative 8,926 7,167 + 25%
Interest 10,149 12,688 - 20%
Loss on early retirement of debt -- 17,629 NA
Depletion, depreciation and accretion 55,485 46,683 + 19%
Amortization of derivative contracts and
other non-cash hedging adjustments 7,964 (2,261) + 100+%
-------- --------
Total expenses 138,516 135,570 + 2%
-------- --------
Income before income taxes 61,983 35,101 + 77%
Income tax provision
Current income taxes 3,096 1,637 + 89%
Deferred income taxes 17,194 9,882 + 74%
-------- --------
Income before cumulative effect of change
in accounting principle 41,693 23,582 + 77%
Cumulative effect of change in accounting NA
principle, net of income taxes of $1,600 -- 2,612
-------- --------
NET INCOME 41,693 26,194 + 59%
======== ========
Net income per common share -- basic:
Income before cumulative effect of change
in accounting principle 0.76 0.44 + 73%
Cumulative effect of change in accounting NA
principle -- 0.05
-------- --------
Net income per common share -- basic 0.76 0.49 + 55%
======== ========
Net income per common share -- diluted:
Income before cumulative effect of change
in accounting principle 0.73 0.42 + 74%
Cumulative effect of change in accounting NA
principle -- 0.05
-------- --------
Net income per common share -- diluted 0.73 0.47 + 55%
======== ========
Six Months Ended
June 30, Percentage
--------------------
2004 2003 Change
---------- ---------
Weighted average common shares:
Basic 54,566 53,728 + 2%
Diluted 56,739 55,186 + 3%
Production (daily -- net of royalties)
Oil (barrels) 19,067 19,259 - 1%
Gas (mcf) 105,344 97,857 + 8%
BOE (6:1) 36,624 35,569 + 3%
Unit sales price (including hedges)
Oil (per barrel) 25.72 24.32 + 6%
Gas (per mcf) 5.61 4.55 + 23%
Unit sales price (excluding hedges)
Oil (per barrel) 32.58 27.58 + 18%
Gas (per mcf) 6.06 6.23 - 3%
Non-GAAP Financial Measure: (1)
Adjusted or discretionary cash flow
from operations (non-GAAP measure) 121,974 96,355 + 27%
Net change in assets and liabilities
relating to operations (15,769) (304) - 100+%
---------- ---------
Cash flow from operations (GAAP
measure) 106,205 96,051 + 11%
========== =========
Oil & gas capital investments 91,962 80,333 + 14%
CO2 capital investments 27,141 13,373 + 100+%
Proceeds from sales of oil and gas
properties 1,146 28,154 - 96%
Cash and cash equivalents 27,940 19,348 + 44%
Total assets 1,081,184 944,685 + 14%
Total long-term debt (excluding
discount) 310,000 335,000 - 7%
Total stockholders' equity 478,107 381,213 + 25%
BOE data (6:1)
Revenue 34.40 32.07 + 7%
Loss on settlements of derivative
contracts (4.88) (6.37) - 23%
Lease operating costs (7.06) (7.06) NA
Production taxes and marketing expense (1.29) (1.15) + 12%
---------- ---------
Production netback 21.17 17.49 + 21%
CO2 operating cash flow 0.39 0.59 - 34%
General and administrative (1.34) (1.11) + 21%
Net cash interest expense (1.34) (1.76) - 24%
Current income taxes and other (0.58) (0.24) + 100+%
Changes in asset and liabilities (2.37) (0.05) + 100+%
---------- ---------
Cash flow from operations 15.93 14.92 + 7%
========== =========
(1) See "Non-GAAP Measures" at the end of this report.
Non-GAAP Measures
Adjusted cash flow from operations is a non-GAAP measure that
represents cash flow provided by operations before changes in assets
and liabilities, as summarized from the Company's Consolidated
Statements of Cash Flows. Adjusted cash flow from operations measures
the cash flow earned or incurred from operating activities without
regard to the collection or payment of associated receivables or
payables. The Company believes that this is important to consider
separately, as it believes it can often be a better way to discuss
changes in operating trends in its business caused by changes in
production, prices, operating costs, and so forth, without regard to
whether the earned or incurred item was collected or paid during that
period. For a further discussion, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Operating
Results" in our latest Form 10-Q or Form 10-K.
Denbury Resources Inc. (www.denbury.com) is a growing independent
oil and gas company. The Company is the largest oil and natural gas
operator in Mississippi, owns the largest reserves of carbon dioxide
used for tertiary oil recovery east of the Mississippi River, and
holds significant operating acreage in onshore Louisiana. The Company
increases the value of acquired properties in its core areas through a
combination of exploitation drilling and proven engineering extraction
practices, including secondary and tertiary recovery operations.
This press release, other than historical financial information,
contains forward looking statements that involve risks such as those
involved in drilling activity and those due to price volatility, and
uncertainties as to drilling results, proved reserves, production
levels, commodity prices, and financial results as detailed in the
Company's filings with the Securities and Exchange Commission,
including its reports on Form 10-K and 10-Q. These reports are
incorporated by reference as though fully set forth herein. These
statements are based on assumptions concerning commodity prices,
existing market conditions, scheduling, drilling and completion
results and costs and engineering assumptions that management believes
are reasonable based on currently available information; however,
management's assumptions and the Company's future performance are both
subject to a wide range of business risks, and there is no assurance
that these goals and projections can or will be met. Actual results
may vary materially.
CONTACT: Denbury Resources Inc.
Gareth Roberts, 972-673-2000
or
Phil Rykhoek, 972-673-2000
www.denbury.com
SOURCE: Denbury Resources Inc.
