EXHIBIT 99.1
DENBURY RESOURCES INC.
P R E S S R E L E A S E
Denbury Resources Announces Second Quarter Results
And Significant Increase in Proven CO2 Reserves
News Release
Released at 7:30 AM CDT
DALLAS, July 29, 2004 - Denbury Resources Inc. (NYSE symbol: 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
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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
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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.
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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
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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 December 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.
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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
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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.
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SECOND QUARTER FINANCIAL HIGHLIGHTS
(Amounts in thousands, except per share and unit data)
Three Months Ended
June 30, Percentage
------------------------------------ Change
2004 2003
------------------ -----------------
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 %
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Three Months Ended
June 30, Percentage
-------------------------------- Change
2004 2003
----------------- --------------
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.
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SIX MONTH FINANCIAL HIGHLIGHTS
(Amounts in thousands, except per share and unit data)
Six Months Ended
June 30, Percentage
--------------------------------- Change
2004 2003
---------------- ---------------
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
principle, net of income taxes of $1,600 - 2,612 NA
---------------- ---------------
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
principle - 0.05 NA
---------------- ---------------
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
principle - 0.05 NA
---------------- ---------------
Net income per common share - diluted 0.73 0.47 + 55 %
================ ===============
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Six Months Ended
June 30, Percentage
-------------------------------- Change
2004 2003
--------------- ---------------
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.
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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.
For further information contact:
Gareth Roberts, President and CEO, 972-673-2000
Phil Rykhoek, Sr. VP and Chief Financial Officer, 972-673-2000
www.denbury.com
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