| Basis of Presentation and Significant Accounting Policies | Note 1. Basis of Presentation Organization and Nature of Operations Denbury Resources Inc. (“Denbury” or the “Company”), a Delaware corporation, is an independent oil and natural gas company with operations focused in two key operating areas: the Gulf Coast and Rocky Mountain regions. Our goal is to increase the value of our properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis relating to CO 2 enhanced oil recovery operations. Interim Financial Statements The accompanying unaudited condensed consolidated financial statements of Denbury Resources Inc. and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”). Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Denbury,” refer to Denbury Resources Inc. and its subsidiaries. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end, and the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year. In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of our consolidated financial position as of June 30, 2020 , our consolidated results of operations for the three and six months ended June 30, 2020 and 2019 , our consolidated cash flows for the six months ended June 30, 2020 and 2019 , and our consolidated statements of changes in stockholders’ equity for the three and six months ended June 30, 2020 and 2019 . Industry Conditions, Liquidity, and Management’s Plans In March 2020, the World Health Organization declared the ongoing COVID-19 coronavirus (“COVID-19”) outbreak a pandemic, and the President of the United States declared the COVID-19 pandemic a national emergency. The COVID-19 pandemic has caused a rapid and precipitous drop in the worldwide demand for oil, which worsened an already deteriorated oil market that resulted from the early-March 2020 failure by the group of oil producing nations known as OPEC+ to reach an agreement over proposed oil production cuts, which caused oil prices to reach historic low levels during April 2020. Although OPEC+ subsequently reached an agreement to curtail production, which has allowed oil prices to recover into the low $ 40 s per barrel in July 2020, oil prices are expected to continue to remain at lower levels as a result of these events and the ongoing COVID-19 pandemic. Our operational and financial performance has been negatively impacted by actions taken to contain the impact of COVID-19, driving down domestic and global oil demand, and also affecting oil futures prices. Because the realized oil prices we have received since early March 2020 have been significantly reduced, our operating cash flow and liquidity have been adversely affected. In response to the low oil price environment and during this period of uncertainty, in the first six months of 2020 we have implemented the following operational and financial measures: • Reduced budgeted 2020 capital spending by $80 million , or 44% , to approximately $95 million to $105 million ; • Deferred the Cedar Creek Anticline CO 2 tertiary flood development project beyond 2020; • Implemented cost reduction measures including shutting down compressors or delaying well repairs and workovers that are uneconomic and reducing our workforce to better align with current and projected near-term needs; • Restructured approximately 50% of our three-way collars covering 14,500 barrels per day (“Bbls/d”) into fixed-price swaps for the second quarter through the fourth quarter of 2020 in order to increase downside protection. Our current hedge portfolio covers 35,500 Bbls/d for the second half of 2020, with over half of those contracts consisting of fixed-price swaps and the remainder consisting of three-way collars; • Evaluated production economics at each field and shut-in production beginning in late March 2020 that was uneconomic to produce or repair based on prevailing oil prices; and • Conducted a complete market-based review of strategic alternatives, including a comprehensive restructuring, to enhance our liquidity and strengthen our capital structure. Collectively, the above factors, along with the materially adverse change in industry market conditions and our cash flow over the past several months, substantially diminished our ability to repay, refinance, or restructure our $2.1 billion of our then-outstanding long-term bond debt. After extensive, arm’s length negotiations, on July 28, 2020, we entered into a Restructuring Support Agreement (“RSA”) with bank lenders and certain holders of our second lien and convertible notes. The RSA contemplates a restructuring of the Company pursuant to a prepackaged joint plan of reorganization. See discussion under Entry into Restructuring Support Agreement and Voluntary Reorganization under Chapter 11 of the Bankruptcy Code below. Entry into Restructuring Support Agreement and Voluntary Reorganization under Chapter 11 of the Bankruptcy Code On July 28, 2020, Denbury and its subsidiaries (collectively, “Denbury”) entered into a Restructuring Support Agreement (the “RSA”) with lenders holding 100% of the revolving loans under our bank credit facility (“Bank Credit Agreement”) and debtholders holding approximately 67.1% of our second lien notes and approximately 73.1% of our convertible notes, which contemplated a restructuring of the Company pursuant to a prepackaged joint plan of reorganization (the “Plan”). On July 30, 2020 (the “Petition Date”), Denbury and its subsidiaries filed petitions for reorganization in a “prepackaged” voluntary bankruptcy (the “Chapter 11 Restructuring”) under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) (case no. 20-33801). The Chapter 11 Restructuring is being undertaken to deleverage the Company, relieving it of approximately $2.1 billion of bond debt by issuing equity in a reorganized entity to the holders of that debt. Denbury continues to operate its businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court, in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. On July 31, 2020, the Bankruptcy Court entered orders approving certain customary “first day” relief to enable Denbury to operate in the ordinary course during the Chapter 11 Restructuring, including approval on an interim basis of post-petition financing under a debtor-in-possession (“DIP”) facility (the “DIP Facility”) and use of cash collateral of Denbury’s lenders and secured noteholders. The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the Bank Credit Agreement, the indentures governing our senior secured second lien notes, convertible senior notes, and senior subordinated notes and the agreements governing our NEJD pipeline lease financing. On August 4, 2020, we entered into the DIP Facility, and $185 million of our outstanding loans and all of our approximately $ 95 million of outstanding letters of credit under Denbury’s pre-petition revolving Bank Credit Agreement were “rolled up” into the DIP Facility. Immediately thereafter , Denbury initiated a repayment of $150 million of amounts borrowed under the DIP Facility with cash on hand . On August 7, 2020, the beneficiary of the $ 41.3 million letter of credit issued as “financial assurances” under the NEJD pipeline lease financing drew the full amount of such letter of credit in accordance with its terms as a result of the Chapter 11 Restructuring, which resulted in Denbury borrowing an identical amount under the DIP Facility. The Plan contemplates that, upon emergence from the Chapter 11 Restructuring, the DIP Facility be replaced with a committed exit facility, and Denbury’s pre-petition bond debt will receive the treatment set forth in the Plan and be cancelled. Accordingly, we have classified all outstanding debt, excluding the noncurrent portions of our capital leases and pipeline financings which the Plan contemplates will be reinstated upon emergence, as a current liability on our condensed consolidated balance sheet as of June 30, 2020. See also Note 4, Long-Term Debt – Chapter 11 Restructuring and Effect of Automatic Stay . As consideration for the entry into the RSA by the ad hoc committee of holders of Denbury’s second lien notes and the compromises therein, on July 29, 2020, Denbury paid in cash prior to the Petition Date accrued and unpaid interest under the second lien notes of $8.0 million in the aggregate, as set forth in the RSA. The RSA provides for certain milestones requiring, among other things, that Denbury (i) obtains entry of an order by the Bankruptcy Court approving the Disclosure Statement and confirming the Plan (the “Confirmation Order”) no later than September 6, 2020; (ii) obtains entry of an order by the Bankruptcy Court approving the DIP Facility on a final basis no later than the earlier of (a) the entry of the Confirmation Order or (b) 35 days after the Petition Date; and (iii) causes the Plan to become effective no later than 14 days after entry of the Confirmation Order. Denbury is currently soliciting votes to accept the Plan from holders of claims and interests entitled to vote. Below is a summary of the treatment that the stakeholders of the Company would receive under the Plan following emergence from chapter 11: • Trade and Other Claims . The holders of Denbury’s other secured, priority and trade vendor claims would have such obligations reinstated, paid in full in cash, or receive such other treatment to render such claims unimpaired. • Holders of Bank Credit Agreement Claims . The holders of obligations under the Bank Credit Agreement would have such obligations paid in full in cash or receive such other treatment to render such claims unimpaired. • Holders of Second Lien Notes Claims . The holders of obligations under senior secured second lien notes would receive their pro rata share of 95% of the reorganized company’s equity interests, subject to certain dilution on account of warrants and the management incentive plan. • Holders of Convertible Notes Claims . The holders of obligations under convertible senior notes would receive their pro rata share of (a) 5% of the reorganized company’s equity interests, subject to certain dilution on account of warrants and the management incentive plan and (b) 100% of the series A warrants on the terms set forth in the Plan. • Holders of Subordinated Notes Claims . If the class of subordinated notes claims votes to accept the Plan, holders of obligations under senior subordinated notes would receive their pro rata share of 54.55% of the series B warrants on the terms set forth in the Plan, reflecting 3% of the reorganized company’s equity interests after giving effect to the exercise of the Series A warrants. • Equity Holders. If the classes of subordinated notes claims and equity interests both vote to accept the Plan, holders of existing equity interests would receive their pro rata share of 45.45% of the series B warrants on the terms set forth in the Plan, reflecting 2.5% of the reorganized company’s equity interests after giving effect to the exercise of the Series A warrants. Going Concern As discussed above, the filing of the Chapter 11 Restructuring on July 30, 2020 constituted an event of default under all of our outstanding debt agreements, resulting in the automatic and immediate acceleration of the Company’s debt outstanding, with the exception of our capital leases and our obligations under our Free State pipeline transportation agreement. At that date, the Company did not have sufficient cash on hand or available liquidity to repay such debt. Our operations and ability to develop and execute our business plan are subject to risk and uncertainty associated with the Chapter 11 Restructuring. The outcome of the Chapter 11 Restructuring is subject to factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the Company’s creditors. There can be no assurance that we will confirm and consummate the Plan as contemplated by the RSA or complete another plan of reorganization with respect to the Chapter 11 Restructuring. As a result, we have concluded that management’s plans do not alleviate substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared on a going concern basis of accounting, and do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result if we are unable to continue as a going concern. Reclassifications Certain prior period amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on our reported net income (loss), current assets, total assets, current liabilities, total liabilities or stockholders’ equity. Cash, Cash Equivalents, and Restricted Cash We consider all highly liquid investments to be cash equivalents if they have maturities of three months or less at the date of purchase. Cash and cash equivalents potentially subject the Company to a concentration of credit risk as substantially all of its deposits held in financial institutions were in excess of the Federal Deposit Insurance Corporation insurance limits as of June 30, 2020. The Company maintains its cash and cash equivalents in the form of checking accounts with financial institutions that are also lenders under the Bank Credit Agreement. The Company has not experienced any losses on its deposits of cash and cash equivalents. The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported within the Unaudited Condensed Consolidated Balance Sheets to “Cash, cash equivalents, and restricted cash at end of period” as reported within the Unaudited Condensed Consolidated Statements of Cash Flows: In thousands June 30, 2020 December 31, 2019 Cash and cash equivalents $ 209,276 $ 516 Restricted cash included in other assets 38,366 32,529 Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statements of Cash Flows $ 247,642 $ 33,045 Amounts included in restricted cash included in “Other assets” in the accompanying Unaudited Condensed Consolidated Balance Sheets represent escrow accounts that are legally restricted for certain of our asset retirement obligations. See Entry into Restructuring Support Agreement and Voluntary Reorganization under Chapter 11 of the Bankruptcy Code above for a discussion of cash used to repay outstanding borrowings subsequent to June 30, 2020. Net Income (Loss) per Common Share Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is calculated in the same manner, but includes the impact of potentially dilutive securities. Potentially dilutive securities consist of nonvested restricted stock, nonvested performance-based equity awards, and shares into which our convertible senior notes are convertible . The following table sets forth the reconciliations of net income (loss) and weighted average shares used for purposes of calculating the basic and diluted net income (loss) per common share for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, In thousands 2020 2019 2020 2019 Numerator Net income (loss) – basic $ (697,474 ) $ 146,692 $ (623,458 ) $ 121,018 Effect of potentially dilutive securities Interest on convertible senior notes including amortization of discount, net of tax — 548 — 548 Net income (loss) – diluted $ (697,474 ) $ 147,240 $ (623,458 ) $ 121,566 Denominator Weighted average common shares outstanding – basic 495,245 452,612 494,752 452,169 Effect of potentially dilutive securities Restricted stock and performance-based equity awards — 2,835 — 3,301 Convertible senior notes (1) — 11,980 — 5,990 Weighted average common shares outstanding – diluted 495,245 467,427 494,752 461,460 (1) Shares shown under “convertible senior notes” represent the impact over the periods of the approximately 90.9 million shares of the Company’s common stock issuable upon full conversion of our convertible senior notes which were issued on June 19, 2019. Basic weighted average common shares exclude shares of nonvested restricted stock. As these restricted shares vest, they will be included in the shares outstanding used to calculate basic net income (loss) per common share (although time-vesting restricted stock is issued and outstanding upon grant). For purposes of calculating diluted weighted average common shares during the three and six months ended June 30, 2019 , the nonvested restricted stock and performance-based equity awards are included in the computation using the treasury stock method, with the deemed proceeds equal to the average unrecognized compensation during the period, and for the shares underlying the convertible senior notes as if the convertible senior notes were converted at the beginning of 2019 . The following securities could potentially dilute earnings per share in the future, but were excluded from the computation of diluted net income (loss) per share, as their effect would have been antidilutive: Three Months Ended Six Months Ended June 30, June 30, In thousands 2020 2019 2020 2019 Stock appreciation rights 1,493 2,026 1,510 2,059 Restricted stock and performance-based equity awards 6,589 4,998 10,837 4,790 Convertible senior notes 90,368 — 90,610 — Oil and Natural Gas Properties Unevaluated Costs. Under full cost accounting, we exclude certain unevaluated costs from the amortization base and full cost ceiling test pending the determination of whether proved reserves can be assigned to such properties. These costs are transferred to the full cost amortization base in the course of these properties being developed, tested and evaluated. At least annually, we test these assets for impairment based on an evaluation of management’s expectations of future pricing, evaluation of lease expiration terms, and planned project development activities. Given the significant declines in NYMEX oil prices to approximately $20 per Bbl in late March 2020 due to OPEC supply pressures and a reduction in worldwide oil demand amid the COVID-19 pandemic, as well as the uncertainty of future oil prices from demand destruction caused by the pandemic, we reassessed our development plans and recognized an impairment of $244.9 million of our unevaluated costs during the three months ended March 31, 2020, whereby these costs were transferred to the full cost amortization base. Write-Down of Oil and Natural Gas Properties. The net capitalized costs of oil and natural gas properties are limited to the lower of unamortized cost or the cost center ceiling. The cost center ceiling is defined as (1) the present value of estimated future net revenues from proved oil and natural gas reserves before future abandonment costs (discounted at 10%), based on the average first-day-of-the-month oil and natural gas price for each month during a 12-month rolling period prior to the end of a particular reporting period; plus (2) the cost of properties not being amortized; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) related income tax effects. Our future net revenues from proved oil and natural gas reserves are not reduced for development costs related to the cost of drilling for and developing CO 2 reserves nor those related to the cost of constructing CO 2 pipelines, as we do not have to incur additional costs to develop the proved oil and natural gas reserves. Therefore, we include in the ceiling test, as a reduction of future net revenues, that portion of our capitalized CO 2 costs related to CO 2 reserves and CO 2 pipelines that we estimate will be consumed in the process of producing our proved oil and natural gas reserves. The fair value of our oil and natural gas derivative contracts is not included in the ceiling test, as we do not designate these contracts as hedge instruments for accounting purposes. The cost center ceiling test is prepared quarterly. We recognized a full cost pool ceiling test write-down of $662.4 million and $72.5 million during the three months ended June 30, 2020 and March 31, 2020, respectively. The first-day-of-the-month oil prices for the preceding 12 months, after adjustments for market differentials by field, averaged $44.74 per Bbl and $55.17 per Bbl as of June 30, 2020 and March 31, 2020, respectively. In addition, the first-day-of-the-month natural gas prices for the preceding 12 months, after adjustments for market differentials by field, averaged $1.91 per MMBtu and $1.68 per MMBtu as of June 30, 2020 and March 31, 2020, respectively. If oil prices remain at or near early-August 2020 levels for the remainder of 2020, we currently expect that we would also record write-downs in subsequent quarters in 2020, as the 12-month average price used in determining the full cost ceiling value will continue to decline during each rolling quarterly period in 2020, subject to the date of the Company’s emergence from bankruptcy and potential impacts of fresh start accounting, if applicable. Impairment Assessment of Long-Lived Assets We test long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. These long-lived assets, which are not subject to our full cost pool ceiling test, are principally comprised of our capitalized CO 2 properties and pipelines. Given the significant declines in NYMEX oil prices to approximately $20 per Bbl in late March 2020 due to OPEC supply pressures and a reduction in worldwide oil demand amid the COVID-19 pandemic, we performed a long-lived asset impairment test for our two long-lived asset groups (Gulf Coast region and Rocky Mountain region) as of March 31, 2020. We perform our long-lived asset impairment test by comparing the net carrying costs of our two long-lived asset groups to the respective expected future undiscounted net cash flows that are supported by these long-lived assets which include production of our probable and possible oil and natural gas reserves. The portion of our capitalized CO 2 costs related to CO 2 reserves and CO 2 pipelines that we estimate will be consumed in the process of producing our proved oil and natural gas reserves is included in the full cost pool ceiling test as a reduction to future net revenues. The remaining net capitalized costs that are not included in the full cost pool ceiling test, and related intangible assets, are subject to long-lived asset impairment testing. These costs totaled approximately $ 1.3 billion as of March 31, 2020. If the undiscounted net cash flows are below the net carrying costs for an asset group, we must record an impairment loss by the amount, if any, that net carrying costs exceed the fair value of the long-lived asset group. The undiscounted net cash flows for our asset groups exceeded the net carrying costs; thus, step two of the impairment test was not required and no impairment was recorded. Significant assumptions impacting expected future undiscounted net cash flows include projections of future oil and natural gas prices, projections of estimated quantities of oil and natural gas reserves, projections of future rates of production, timing and amount of future development and operating costs, projected availability and cost of CO 2 , projected recovery factors of tertiary reserves and risk-adjustment factors applied to the cash flows. We performed a qualitative assessment as of June 30, 2020 and determined there were no material changes to our key cash flow assumptions and no triggering events since the analysis performed as of March 31, 2020; therefore, no impairment test was performed for the second quarter of 2020. Recent Accounting Pronouncements Recently Adopted Financial Instruments – Credit Losses. In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, and requires the use of a new forward-looking expected loss model that will result in the earlier recognition of allowances for losses. Effective January 1, 2020, we adopted ASU 2016-13. The implementation of this standard did not have a material impact on our consolidated financial statements. Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”). ASU 2018-13 adds, modifies, or removes certain disclosure requirements for recurring and nonrecurring fair value measurements based on the FASB’s consideration of costs and benefits. Effective January 1, 2020, we adopted ASU 2018-13. The implementation of this standard did not have a material impact on our consolidated financial statements or footnote disclosures. Not Yet Adopted Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The objective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the impact this guidance may have on our consolidated financial statements and related footnote disclosures. |
