DENBURY RESOURCES INC.
P R E S S R E L E A S E
Denbury Resources Announces Record Production Levels
First Quarter 2003 Results
News Release
Released at 7:30 AM CDT
DALLAS - May 1, 2003 - Denbury Resources Inc. (NYSE symbol: DNR) ("Denbury"
or the "Company") today announced its first quarter 2003 financial and operating
results. The Company's production increased slightly over the prior quarter's
production, averaging 36,093 barrels of oil equivalent per day ("BOE/d") in the
first quarter of 2003, the Company's highest quarterly-average to date. The
Company posted earnings for the quarter of $21.1 million, or $0.39 per common
share, as compared to earnings of $4.5 million, or $0.09 per common share for
the first quarter of 2002, with the increase primarily due to higher commodity
prices. Cash flow from operations for the quarter was $35.5 million, as compared
to cash flow from operations during the first quarter of 2002 of $12.0 million.
Continued Production Increases
- ------------------------------
Denbury's first quarter 2003 average daily production of 36,093 BOE/d was
2% higher than the 35,361 BOE/d production average for the comparable period in
2002 and 1% higher than fourth quarter 2002 production, despite the sale of
Laurel Field effective January 31, 2003. Production from Laurel Field had been
averaging between 1,500 and 1,700 BOE/d since the Company acquired it in August
2002. The Company recognized higher production from its offshore, onshore
Louisiana and tertiary oil recovery properties, with increases there more than
offsetting the lost production from the Laurel Field sale. The Company's first
quarter 2003 production was negatively affected by a mechanical failure in two
of the Company's Louisiana gas wells, lowering overall production (primarily
natural gas) by approximately 500 BOE/d. These two workovers were significant
factors in the increase in the quarter's operating expenses per BOE. First
quarter 2003 production was weighted slightly towards oil, with 54% of
production oil and 46% natural gas.
The Company's tertiary recovery projects at Little Creek and Mallalieu
Fields demonstrated additional response in the first quarter as a result of
incremental CO2 injections made possible by the completion of one CO2 well, the
Denkmann #1, in December 2002 and another CO2 well, the IP 15-4 #1, late in the
first quarter of 2003. Total CO2 production increased from around 120 million
cubic feet of CO2 per day ("MMcf/d") late in 2002 to approximately 175 MMcf/d by
mid-April. Oil production from the tertiary projects averaged 4,345 Bbls/d in
the first quarter of 2003, a 12% increase over the 2002 fourth quarter average
of 3,863 Bbls/d for these projects. During the months of March and April 2003,
oil production from Little Creek and Mallalieu was even higher, averaging
between 4,500 and 4,750 Bbls/d.
First Quarter 2003 Financial Results
- ------------------------------------
Commodity prices were significantly higher in the first quarter of 2003 as
compared to prices in the first quarter of the prior year. NYMEX oil prices
averaged almost $34.00 per Bbl and natural gas prices averaged almost $6.00 per
Mcf in the first quarter of 2003, as compared to NYMEX averages of around $21.50
per Bbl and $2.50 per Mcf in the first quarter of 2002. On a weighted average
price per BOE net to the Company, prices were $18.41 per BOE higher in the
first quarter of 2003 than in the comparable period of 2002. However, the
Company recognized only a portion of this benefit, as it paid out approximately
$8.52 per BOE on its oil and natural gas hedges in the current quarter, as
compared to cash receipts of $0.83 per BOE in the prior year quarter, leaving a
net realized price increase of approximately $9.06 per BOE.
Partially offsetting the higher revenues were increases in several expense
items. Lease operating expenses increased from $4.85 per BOE in the first
quarter of 2002 to $6.90 per BOE in the first quarter of 2003. The two
aforementioned workovers totaling approximately $850,000 were the biggest source
of the increase, although continued high expenses on the properties acquired
from COHO, continued expansion of CO2 tertiary projects, which typically have a
higher than average cost per BOE, and higher lease fuel costs also contributed
to the higher than historical operating costs. The Company expects to incur
between $1.8 million and $2.0 million of additional expense in the second
quarter of 2003 on the two workovers, which were not completed until late April.
The Company anticipates that its lease operating expenses on a per BOE basis
will decrease later this year, assuming normal operating parameters.
General and administrative expenses also increased, averaging $1.17 per BOE
in the first quarter of 2003, up from $1.01 per BOE in the prior year's first
quarter. The increase relates to expenses associated with the recent sale of
stock by the Texas Pacific Group, higher year-end expenses than in the prior
year for items such as engineering fees and audit fees, and an overall increase
in personnel and associated expenses.
Late in the first quarter, the Company issued $225 million of 7.5%
subordinated notes due 2013 and called its existing $200 million principal
amount of 9% subordinated notes due 2008. The old notes were retired on April
16th and the refinancing is expected to save approximately $2.6 million per year
in interest expense. As a result of the refinancing, the Company anticipates an
$11 million after tax charge in the second quarter of 2003 relating to the call
premium paid to retire the old notes and the write-off of unamortized discount
on the old notes.
The Company recognized current income tax expense of $2.7 million in the
first quarter of 2003, as compared to a benefit of $481,000 in the first quarter
of 2002. The current income taxes relate to anticipated alternative minimum
taxes due for 2003, due to the Company utilizing almost all of its remaining
alternative minimum tax loss carryforwards in 2002.
On January 1, 2003, the Company implemented SFAS No.143, "Accounting for
Asset Retirement Obligations." As a result, the Company recorded a liability of
$41.0 million representing the discounted present value of the retirement
obligations and an increase to oil and gas properties of $34.4 million. The
liability will be accreted to its future value each period and the capitalized
cost is depreciated over the useful life of the related asset. The cumulative
effect of this change in accounting principle for the prior years, net of
related income tax expense, is $2.6 million, which was a credit to earnings in
the first quarter of 2003.
2003 Outlook
- ------------
Denbury's 2003 development and exploration budget is currently set at $138
million, including approximately $8 million of projects carried over from 2002.
Any acquisitions made by the Company will increase these capital budget amounts.
During the first quarter of 2003, the Company made two minor acquisitions
consisting of incremental interests in two offshore blocks at an aggregate cost
of approximately $3.2 million.
Denbury's total debt as of May 1, 2003 is approximately $350 million, with
$95 million undrawn on its recently reaffirmed bank borrowing base of $220
million. Even though the Company added approximately $15 million of additional
debt as part of its recent subordinated debt refinancing, the Company still
expects to reduce its debt during 2003 to its target of $300 million, based on
anticipated cash flow computed using the current commodity prices. At this time,
the Company is leaving its targeted 2003 average production level unchanged at
37,500 BOE/d.
Gareth Roberts, Chief Executive Officer, said: "Even with the unforeseen
mechanical problems, we were able to keep our production on budget and are still
on track to meet our previously stated 2003 production target. Based on 2003's
current futures prices, we expect to generate $50 million to $60 million of
excess cash flow above our current $138 million budget. While we may consider a
modest increase to our capital expenditure budget of $10 million to $15 million,
any remaining excess cash flow will be used to repay debt and/or fund, or
partially fund, any potential acquisitions. Most significantly, the production
from our tertiary recovery projects is increasing as we were able to increase
our CO2 injections with the incremental production from our recently completed
CO2 wells. Since these CO2 wells are performing better than anticipated, we are
now ahead of schedule on CO2 production. In addition, we have a third CO2 well
in progress that has reached total depth and is undergoing completion
operations."
Conference Call
- ---------------
The public is invited to listen to the Company's conference call set for
today, May 1, 2003, 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 888-286-8010, passcode 34949979.
Financial and Statistical Data Tables
Following are financial highlights for the comparative first quarters ended
March 31, 2003 and 2002. All production volumes and dollars are expressed on a
net revenue interest basis with gas volumes converted to equivalent barrels at
6:1.
FINANCIAL HIGHLIGHTS
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
Three Months Ended
March 31,
--------------------------- Percentage
2003 2002 Change
----------- ------------- ---------------
REVENUES:
Oil sales 52,213 27,833 + 88%
Gas sales 59,511 23,077 + 158%
CO2 sales 2,189 1,490 + 47%
Gain (loss) on settlements of derivative contracts (27,685) 2,636 - 1150%
Interest and other income 220 411 - 46%
----------- ------------- ---------------
Total revenues 86,448 55,447 + 56%
----------- ------------- ---------------
EXPENSES:
Lease operating expenses 22,402 15,428 + 45%
Production taxes and marketing expense 3,896 2,614 + 49%
CO2 operating expenses 317 167 + 90%
General and administrative 3,428 2,849 + 20%
Interest 6,461 6,654 - 3%
Depletion and depreciation 23,553 22,926 + 3%
Amortization of derivative contracts and other
non-cash hedging adjustments (1,510) (1,081) + 40%
Franchise taxes 363 367 - 1%
----------- ------------- ---------------
Total expenses 58,910 49,924 + 18%
----------- ------------- ---------------
Income before income taxes 27,538 5,523 + 399%
Income tax provision (benefit)
Current income taxes 2,730 (481) + 668%
Deferred income taxes 6,355 1,458 + 336%
----------- ------------- ---------------
Income before cumulative effect of a change in
accounting principle 18,453 4,546 + 306%
Cumulative effect on prior years of a change in
accounting principal, net of income tax expense of
$1,600 2,612 - NA
----------- ------------- ---------------
NET INCOME 21,065 4,546 + 363%
=========== ============= ===============
NET INCOME PER COMMON SHARE - BASIC:
Income before cumulative effect of a change in
accounting principle 0.34 0.09 + 278%
Cumulative effect of a change in accounting
principle 0.05 - NA
----------- ------------ ----------------
Net income per common share - basic 0.39 0.09 + 333%
=========== ============ ================
Three Months Ended
March 31,
--------------------------- Percentage
2003 2002 Change
----------- ------------ ----------------
NET INCOME PER COMMON SHARE - DILUTED:
Income before cumulative effect of a change in
accounting principle 0.33 0.08 + 313%
Cumulative effect of a change in accounting
principle 0.05 - NA
----------- ------------ ----------------
Net income per common share - diluted 0.38 0.08 + 375%
=========== ============ ================
WEIGHTED AVERAGE COMMON SHARES:
Basic 53,639 52,994 + 1%
Diluted 55,049 53,724 + 2%
PRODUCTION (DAILY - NET OF ROYALTIES)
Oil (barrels) 19,565 17,740 + 10%
Gas (mcf) 99,170 105,726 - 6%
BOE (6:1) 36,093 35,361 + 2%
UNIT SALES PRICE (INCLUDING HEDGES)
Oil (per barrel) 24.69 17.72 + 39%
Gas (per mcf) 4.54 2.65 + 71%
UNIT SALES PRICE (EXCLUDING HEDGES)
Oil (per barrel) 29.65 17.43 + 70%
Gas (per mcf) 6.67 2.43 + 174%
CASH FLOW FROM OPERATIONS 35,509 12,032 + 195%
OIL & GAS CAPITAL INVESTMENTS 36,360 26,276 + 38%
CO2 CAPITAL INVESTMENTS 6,904 335 + 1961%
PROCEEDS FROM SALES OF OIL AND GAS PROPERTIES 26,366 - NA
CASH AND CASH EQUIVALENTS 161,170 14,369 + 1022%
TOTAL ASSETS 1,081,986 764,581 + 42%
TOTAL DEBT (EXCLUDING DISCOUNT) 475,000 346,000 + 37%
TOTAL STOCKHOLDERS' EQUITY 379,844 338,430 + 12%
BOE DATA (6:1)
Revenue 34.40 15.99 + 115%
Gain (loss) on settlements of derivative contracts (8.52) 0.83 - 1127%
Lease operating costs (6.90) (4.85) + 42%
Production taxes and marketing expense (1.20) (0.82) + 46%
------------ -------------- ----------------
Production netback 17.78 11.15 + 59%
CO2 operating margin 0.58 0.42 + 38%
General and administrative (1.17) (1.01) + 16%
Net cash interest expense (1.77) (1.76) + 1%
Current income taxes and other (0.83) 0.16 + 619%
Changes in assets and liabilities (3.66) (5.18) - 29%
------------ -------------- ---------------
Cash flow from operations 10.93 3.78 + 189%
============ ============== ===============
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, holds key operating acreage onshore Louisiana and has a growing
presence in the offshore Gulf of Mexico areas. The Company increases the value
of acquired properties in its core areas through a combination of exploitation
drilling and proven engineering extraction practices.
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, 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.
For further information contact:
Gareth Roberts, President and CEO, 972-673-2000
Phil Rykhoek, Chief Financial Officer, 972-673-2000
www.denbury.com