EXHIBIT 99
DeGolyer and MacNaughton
4925 Greenville Avenue, Suite 400
One Energy Square
Dallas, Texas 75206
APPRAISAL REPORT
as of
DECEMBER 31, 2003
on
PROVED RESERVES
of
CERTAIN PROPERTIES
owned by
DENBURY RESOURCES INC.
SEC CASE
DeGolyer and MacNaughton
TABLE of CONTENTS
Page
----
FOREWORD...................................................................1
Scope of Investigation.................................................1
Authority..............................................................2
Source of Information..................................................2
CLASSIFICATION OF RESERVES.................................................4
ESTIMATION OF RESERVES.....................................................7
VALUATION OF RESERVES......................................................9
SUMMARY and CONCLUSIONS...................................................12
DeGolyer and MacNaughton
4925 Greenville Avenue, Suite 400
One Energy Square
Dallas, Texas 75206
APPRAISAL REPORT
as of
DECEMBER 31, 2003
on
PROVED RESERVES
of
CERTAIN PROPERTIES
owned by
DENBURY RESOURCES INC.
SEC CASE
FOREWORD
Scope of Investigation
- ----------------------
This report presents an appraisal, as of December 31, 2003, of the extent
and value of the proved crude oil, condensate, natural gas liquids, and natural
gas reserves of certain properties owned by Denbury Resources Inc. (Denbury).
Estimates of carbon dioxide gas reserves are also included. The reserves
estimated in this report are located in Arkansas, Louisiana, Mississippi, Texas,
and offshore from Louisiana and Texas. The properties appraised are listed in
detail in a related report entitled "Appraisal Report as of December 31, 2003 on
Certain Properties owned by Denbury Resources Inc. SEC Case."
Reserves estimated in this report are expressed as gross and net reserves.
Gross reserves are defined as the total estimated petroleum to be produced from
these properties after December 31, 2003. Net reserves are defined as that
portion of the gross reserves attributable to the interests owned by Denbury
after deducting royalties and interests owned by others.
This report also presents values that were estimated for proved reserves
using initial prices and costs provided by Denbury. Prices are related to NYMEX
prices of $32.52 per barrel and $6.189 per million British thermal units
(MMBtu). No escalation has been applied to prices and costs.
DeGolyer and MacNaughton
Page 2
A detailed explanation of the future price and cost assumptions is included in
the Valuation of Reserves section of this report.
Values of proved reserves in this report are expressed in terms of
estimated future gross revenue, future net revenue, and present worth. Future
gross revenue is that revenue which will accrue to the appraised interests from
the production and sale of the estimated net reserves. Future net revenue is
calculated by deducting estimated production taxes, ad valorem taxes, operating
expenses, and capital costs from the future gross revenue. Operating expenses
include field operating expenses, compression charges, and the estimated
expenses of direct supervision, but do not include that portion of general
administrative costs sometimes allocated to production. Future income tax
expenses were not taken into account in the preparation of these estimates.
Present worth is defined as future net revenue discounted at a specified
arbitrary discount rate compounded monthly over the expected period of
realization. In this report, present worth values using a discount rate of 10
percent are reported.
Estimates of oil, condensate, natural gas liquids, and 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 in interpreting such
information.
Authority
- ---------
This report was prepared at the request of Mr. Ronald T. Evans, Senior Vice
President Reservoir Engineering, Denbury.
Source of Information
- ---------------------
Data used in the preparation of this report were obtained from Denbury,
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 information furnished by Denbury with respect to its 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.
DeGolyer and MacNaughton
Page 3
CLASSIFICATION of RESERVES
- --------------------------
Petroleum reserves included in this report are classified as proved and 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 as of the date the estimate is made, including
consideration of changes in existing prices provided only by contractual
arrangements but not including escalations based upon future conditions. Proved
reserves classifications used in this report are in accordance with the reserves
definitions of Rules 4-10(a) (1)-(13) of Regulation S-X of the Securities and
Exchange Commission (SEC) of the United States. The petroleum reserves are
classified as follows:
Proved oil and gas reserves - Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas, and natural gas liquids which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic
and operating conditions, i.e., prices and costs as of the date the
estimate is made. Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on escalations
based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test.
The area of a reservoir considered proved includes (A) that portion
delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any; and (B) the immediately adjoining portions not yet
drilled, but which can be reasonably judged as economically productive
on the basis of available geological and engineering data. In the
absence of information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the
reservoir.
(ii) Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are included
in the "proved" classification when successful testing by a pilot
project, or the operation of an installed program in the reservoir,
provides support for the engineering analysis on which the project or
program was based.
DeGolyer and MacNaughton
Page 4
(iii) Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural
gas, and natural gas liquids, the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors; (C) crude oil, natural gas, and
natural gas liquids, that may occur in undrilled prospects; and (D)
crude oil, natural gas, and natural gas liquids, that may be recovered
from oil shales, coal, gilsonite, and other such sources.
Proved developed oil and gas reserves - Proved developed oil and gas
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery should be included as "proved developed
reserves" only after testing by a pilot project or after the operation of
an installed program has confirmed through production response that
increased recovery will be achieved.
Proved undeveloped reserves - Proved undeveloped oil and gas reserves are
reserves 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. Reserves on undrilled acreage shall be limited
to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other undrilled
units can be claimed only where it can be demonstrated with certainty that
there is continuity of production from the existing productive formation.
Under no circumstances should estimates for proved 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 tests in the area and in the same
reservoir.
DeGolyer and MacNaughton
Page 5
ESTIMATION of RESERVES
- ----------------------
Estimates of reserves were prepared by the use of geological and
engineering methods generally accepted by the petroleum industry. 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 original gas in place (OGIP). Structure maps were
prepared to delineate each reservoir, 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.
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 based on
current economic conditions.
In certain cases, when the previously named methods could not be used,
reserves were estimated by analogy with similar wells or reservoirs for which
more complete data were available.
The gas reserves included herein are reported as sales gas. Sales gas is
defined as that gas to be delivered into a gas pipeline for sale after
separation, processing, fuel use, and flare. All gas volumes are expressed at a
temperature base of 60 degrees Fahrenheit ((degree)F) and at the legal pressure
base of the state or area in which the reserves are located. Condensate reserves
estimated herein are those to be recovered by conventional lease
DeGolyer and MacNaughton
Page 6
separation. Natural gas liquids reserves are estimated to be those attributable
to the leasehold interests appraised based on historical yield information.
In the preparation of this study, as of December 31, 2003, gross production
estimated to December 31, 2003, was deducted from gross ultimate recovery to
arrive at the estimate of gross reserves. In some fields, this required that the
production rates be estimated for up to 3 months, since production data from
certain properties were available only through September 2003.
The following table presents estimates of the proved reserves, as of
December 31, 2003, of the properties appraised, expressed in thousands of
barrels (Mbbl) or millions of cubic feet (MMcf):
Oil and Natural Gas Total
Condensate Liquids Liquids Gas
(Mbbl) (Mbbl) (Mbbl) (MMcf)
---------------- --------------- ---------- ---------
Gross Reserves
Developed Producing 87,532 224 87,756 380,720
Developed Nonproducing 20,984 193 21,177 117,387
Undeveloped 46,545 0 46,545 115,994
---------------- --------------- ---------- ---------
Total Gross Reserves 155,061 417 155,478 614,101
Net Reserves
Developed Producing 38,237 120 38,357 103,007
Developed Nonproducing 15,328 119 15,447 41,743
Undeveloped 37,462 0 37,462 77,137
---------------- --------------- ---------- ---------
Total Net Reserves 91,027 239 91,266 221,887
In addition to the natural gas reserves shown in the foregoing tabulation,
Denbury's net proved carbon dioxide gas reserves in Mississippi, as of December
31, 2003, are estimated to be 1,289,632 MMcf. This amount includes 1,055,668
MMcf of developed reserves and 233,964 MMcf of undeveloped reserves. The carbon
dioxide gas reserves have been prepared under the same guidelines as those for
oil and natural gas. No revenue estimates have been made for the carbon dioxide
reserves.
VALUATION of RESERVES
- ---------------------
Revenue values in this report were estimated using the initial prices and
costs provided by Denbury. Future prices were estimated using guidelines
established by the United States Securities and Exchange Commission (SEC) and
the Financial Accounting Standards Board (FASB).
DeGolyer and MacNaughton
Page 7
In this report, values for proved reserves were based on projections of
estimated future production and revenue prepared for these properties.
The following assumptions were used for estimating future prices and costs:
Oil and Condensate Prices
Oil and condensate prices were calculated using differentials furnished by
Denbury for each lease to a NYMEX price of $32.52 per barrel and held
constant thereafter. The weighted average price over the lives of the
properties was $29.65 per barrel.
Natural Gas Liquids Prices
Natural gas liquids prices were calculated using the 2003 average ratio to
the NYMEX price of $32.52 per barrel. These prices were held constant over
the lives of the properties.
Natural Gas Prices
Natural gas prices were calculated for each lease using differentials
furnished by Denbury to a NYMEX price of $6.189 per MMBtu and held constant
thereafter. The weighted average price over the lives of the properties was
$6.10 per thousand cubic feet.
Operating Expenses and Capital Costs
Current operating expenses and capital costs, based on information provided
by Denbury, were used in estimating future costs required to operate the
properties. In certain cases, future costs, either higher or lower than
current costs, may have been used because of anticipated changes in
operating conditions. These costs were not escalated for inflation.
DeGolyer and MacNaughton
Page 8
The future revenue to be derived from the production and sale of the proved
reserves, as of December 31, 2003, of the properties appraised is estimated as
follows:
Proved
------------------------------------------------------
Developed Developed Total
Producing Nonproducing Undeveloped Proved
------------------------------------------------------
Future Gross Revenue, M$ 1,714,249 727,873 1,617,302 4,059,424
Production and Ad Valorem Taxes, M$ 64,213 26,483 53,655 144,351
Operating Expenses, M$ 482,159 130,868 363,363 976,390
Capital Costs, M$ 37,235 24,103 239,643 300,981
Future Net Revenue*, M$ 1,130,642 546,419 960,641 2,637,702
Present Worth at 10 Percent*, M$ 777,025 317,020 472,326 1,566,371
* Future income taxes have not been taken into account in the preparation of
these estimates.
Timing of capital expenditures and the resulting development of production
were based on a development plan provided by Denbury.
In our opinion, the information relating to estimated proved reserves,
estimated future net revenue from proved reserves, and present worth of
estimated future net revenue from proved reserves of oil, condensate, natural
gas liquids, and gas contained in this report has been prepared in accordance
with Paragraphs 10-13, 15, and 30(a)-(b) of Statement of Financial Accounting
Standards No. 69 (November 1982) of the FASB and Rules 4-10(a) (1)-(13) of
Regulation S-X and Rule 302(b) of Regulation S-K of the SEC; provided, however,
that (i) certain estimated data have not been provided with respect to changes
in reserves information and (ii) future income tax expenses have not been taken
into account in estimating the future net revenue and present worth values set
forth herein.
To the extent that the above-enumerated rules, regulations, and statements
require determinations of an accounting or legal nature or information beyond
the scope of our report, we are necessarily unable to express an opinion as to
whether the above-described information is in accordance therewith or sufficient
therefor.
DeGolyer and MacNaughton
Page 9
SUMMARY and CONCLUSIONS
- -----------------------
Denbury owns working and royalty interests in certain properties located in
Arkansas, Louisiana, Mississippi, Texas, and offshore from Louisiana and Texas.
The estimated net proved reserves of the properties appraised, as of December
31, 2003, are summarized as follows, expressed in thousands of barrels (Mbbl) or
millions of cubic feet (MMcf):
Oil and Natural Gas Total
Condensate Liquids Liquids Gas
(Mbbl) (Mbbl) (Mbbl) (MMcf)
---------------- --------------- ---------- ---------
Net Reserves
Developed Producing 38,237 120 38,357 103,007
Developed Nonproducing 15,328 119 15,447 41,743
Undeveloped 37,462 0 37,462 77,137
---------------- --------------- ---------- ---------
Total 91,027 239 91,266 221,887
The estimated revenue and costs attributable to Denbury's interests in the
proved reserves, as of December 31, 2003, of the properties appraised under the
aforementioned assumptions concerning future prices and costs are summarized as
follows:
Proved
------------------------------------------------------
Developed Developed Total
Producing Nonproducing Undeveloped Proved
------------------------------------------------------
Future Gross Revenue, M$ 1,714,249 727,873 1,617,302 4,059,424
Production and Ad Valorem Taxes, M$ 64,213 26,483 53,655 144,351
Operating Expenses, M$ 482,159 130,868 363,363 976,390
Capital Costs, M$ 37,235 24,103 239,643 300,981
Future Net Revenue*, M$ 1,130,642 546,419 960,641 2,637,702
Present Worth at 10 Percent*, M$ 777,025 317,020 472,326 1,566,371
* Future income taxes have not been taken into account in the preparation of
these estimates.
DeGolyer and MacNaughton
Page 10
All gas volumes in this report are expressed at a temperature base of 60
(degree)F and at the legal pressure base of the state or area in which the
reserves are located.
Submitted,
/s/ DeGolyer and MacNaughton
DeGOLYER and MacNAUGHTON
SIGNED: March 9, 2004
/s/ Paul J. Szatkowski, P.E.
--------------------------------
Paul J. Szatkowski, P.E.
Senior Vice President
DeGolyer and MacNaughton