Exhibit 99.1
DENBURY RESOURCES INC.
P R E S S R E L E A S E
Denbury Resources Announces Third Quarter Results;
2005 Capital Budget and Production Guidance;
Hosts Analyst Conference
News Release
Released at 7:30 AM CDT
DALLAS, October 28, 2004 - Denbury Resources Inc. (NYSE symbol: DNR)
("Denbury" or the "Company") today announced its third quarter 2004 financial
and operating results. The Company posted earnings for the quarter of $18.3
million, or $0.33 per common share, as compared to earnings of $15.1 million or
$0.28 per common share for the third quarter of 2003, the increase primarily due
to higher commodity prices. Net cash flow provided by operations, a GAAP
measure, totaled $44.8 million during the third quarter of 2004, less than the
$49.8 million recorded during the third quarter of 2003, the decrease primarily
related to current income taxes on profits from the sale of the Company's
offshore properties completed in July 2004 (see below) partially offset by the
benefit from recent higher commodity prices. Adjusted cash flow from operations
for the third quarter of 2004 (before changes in assets and liabilities), a
non-GAAP measure, totaled $29.7 million, a 35% decrease from the $45.6 million
of adjusted cash flow generated in the third quarter of 2003, the decrease
primarily relating to the same income taxes on the offshore property sale. (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).
Impact of Offshore Sale
- -----------------------
On July 20, 2004, the Company closed the sale of Denbury Offshore, Inc., a
subsidiary that held Denbury's offshore assets, for $200 million (before
adjustments) to Newfield Exploration Company. The sale price was based on the
asset value of the offshore assets as of April 1, 2004, which means that the net
revenue and expenses from these properties which the Company received between
April 1st and closing, as well as expenses of the sale and other contractual
adjustments, reduced the purchase price to approximately $187 million. The
Company's third quarter results include 1,885 BOE/d of production for the first
19 days of July relating to the offshore properties sold to Newfield, generating
approximately $5.3 million of net operating revenue (revenue less operating
expenses). During the third quarter, Denbury also recorded approximately $18.0
million of current income taxes relating to the offshore sale, and paid
approximately $1.4 million of severance pay related to the sale in addition to
approximately $1.0 million paid during the first six months of 2004.
On a pro forma basis, excluding the impact of the offshore operations
during the third quarter of 2004 as outlined above, third quarter 2004 net
income is estimated to be $15.5 million, with adjusted cash flow from operations
of $43.8 million.
Production
- ----------
Production for the third quarter, excluding the offshore production
outlined above, was 27,772 BOE/d, just slightly higher than production during
the prior quarter and 7% higher than the average of 25,930 BOE/d produced during
the third quarter of 2003 (excluding any offshore production for both
comparative periods). Oil production from the Company's tertiary operations
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increased 6% over levels in the prior quarter and increased 65% when compared to
third quarter 2003 tertiary production, averaging 6,967 Bbls/d in the third
quarter of 2004, primarily as a result of production increases at Mallalieu and
McComb Fields. Natural gas production increased in the Barnett Shale as a result
of recent drilling activity, increasing from approximately 1.5 MMcf/d in the
third quarter of 2003 to approximately 3.9 MMcf/d in the 2004 quarter. Partially
offsetting these increases were declines in onshore Louisiana production
resulting from natural field depletion, the single largest factor being expected
depletion at Thornwell Field, onshore Louisiana, which declined approximately
1,400 BOE/d from first quarter 2004 production levels.
Third Quarter 2004 Financial Results
- ------------------------------------
The Company's net income declined from second quarter 2004 levels, as
higher commodity prices were more than offset by the loss of offshore production
and its net operating income. Payments on the Company's commodity hedges
continued to be a significant outflow, totaling $22.2 million for the third
quarter of 2004, and hedge payments are expected to be even higher in the fourth
quarter of 2004, after which time they will drop significantly, as most of the
out-of-the-money hedges expire by the end of this year. Depreciation and
amortization expense declined approximately $0.84 per BOE from the second
quarter of 2004 primarily as a result of proceeds from the offshore sale being
credited to the Company's full cost pool. When comparing the respective third
quarters of 2003 and 2004, higher commodity prices in the 2004 period more than
offset lower production, resulting in a 21% increase in net income in the 2004
period.
Operating expenses decreased slightly to $7.25 per BOE in the third quarter
of 2004 as compared to $7.35 per BOE in the third quarter of 2003, primarily
because there were no significant or unusual workover expenses in the 2004
period. Expenses remained at relatively high levels because of increased
activity and emphasis on tertiary operations (with their higher operating
costs), higher energy costs to operate the properties, and general cost
inflation in the industry. Production taxes increased in the third quarter of
2004 along with increased commodity prices.
General and administrative expenses increased, averaging $2.27 per BOE in
the third quarter of 2004, up from $1.13 per BOE in the prior year's third
quarter. Lower production as a result of the offshore sale caused a significant
increase in per BOE amounts, as did approximately $1.4 million of severance
costs related to the offshore property sale. The Company's general and
administrative costs have also risen in order to comply with the requirements of
the Sarbanes-Oxley Act.
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 and $85 million of bank debt paid off in
July 2004 with the proceeds from the offshore sale.
Depreciation, depletion and amortization expense ("DD&A") decreased in the
third quarter of 2004 to $7.62 per BOE, down from $8.46 per BOE in the prior
quarter, as a result of the offshore sale, the proceeds of which were credited
to the full cost pool. The DD&A rate in the most recent quarter was still
slightly higher than the third quarter of 2003 rate, primarily as a result of
the higher percentage of expenditures spent on offshore properties during 2003
and the first half of 2004, which typically have a higher finding and
development cost per BOE.
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The Company recognized a current income tax expense of $18.9 million in the
third quarter of 2004 related to state income taxes and alternative minimum
taxes resulting primarily from the offshore sale, which taxes cannot be offset
by the Company's regular tax net loss carryforwards or enhanced oil recovery
credits, partially offset by a deferred tax benefit of $11.1 million.
Outlook
- -------
Denbury's 2004 development and exploration budget is currently $213
million. Denbury's total current debt is $225 million, with no amounts
outstanding under its $200 million bank borrowing base, and with approximately
$70 million of cash remaining from the offshore sale. The Company plans to
invest this cash over the next one to two years on property acquisitions,
particularly properties that have future tertiary potential, some of which could
be new core properties for additional phases of tertiary operations. The Company
is leaving its earlier 2004 fourth quarter production forecast unchanged,
anticipating a quarterly average of between 28,000 and 28,500 BOE/d.
The Company has tentatively set its 2005 development and exploration
expenditure budget at $260 million, excluding any potential acquisitions.
Approximately 55% to 60% of the budget will be spent on projects relating to the
Company's tertiary recovery (CO2) projects, which includes additional drilling
and development at the CO2 source fields (Jackson Dome), additional development
of the Brookhaven, Mallalieu, McComb and Smithdale Fields in southwestern
Mississippi, and the commencement of work on three oil fields in East
Mississippi in anticipation of the new CO2 pipeline to East Mississippi
scheduled to be completed by mid-2006. The cost of the new CO2 pipeline is not
included in the $260 million budget, as the Company currently expects to finance
this pipeline through project financing and effectively pay for the pipeline
over time. The current estimated cost for the pipeline is approximately $45
million. Approximately 10% of the 2005 budget is being allocated to each of the
remaining two core areas of onshore Louisiana and eastern Mississippi and about
10% to 15% to the Barnett Shale. Approximately 10% of the budget relates to
exploratory projects, primarily natural gas targets onshore Louisiana.
Based on this capital budget program, the Company anticipates that its
production for 2005 will be in the range of 30,500 BOE/d, plus or minus 10%
higher than the Company's third quarter 2004 production levels excluding
offshore production during the quarter. The Company's production from its
tertiary CO2 projects during 2005 is expected to increase between 45% and 50%,
from an anticipated 2004 average of approximately 6,800 BOE/d to a projected
2005 average of approximately 10,000 BOE/d. The 2005 production forecast
excludes any anticipated production from our successful well at High Island A-6
as this property may be sold.
Gareth Roberts, Chief Executive Officer, said: "We are aggressively
expanding our core tertiary operations by accelerating our first two phases of
tertiary development in Southwest and East Mississippi and by actively pursuing
additional properties for subsequent phases. We plan to continue the expansion
and development of our CO2 reserve and production capacity in 2005 by drilling
four additional CO2 wells, two of which are expected to add additional CO2
reserves. Next year, we are also stepping up our activity in the Barnett Shale,
with 25 horizontal wells scheduled for 2005. The net result is a projected +/-
10% increase in overall production, all from internal organic growth. We believe
that we can continue this rate of growth for several years without acquisitions,
an enviable position in our industry. In addition, with our strong balance sheet
and cash position, we have plenty of capital to pursue acquisitions that could
further increase our inventory of projects and growth potential. With current
strong oil prices and our strategic position in the Mississippi area with our
tertiary operations, we believe we are ideally positioned for the future."
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Conference Call
- ---------------
The public is invited to listen to the Company's conference call set for
today, October 28, 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.
Analyst Conference
- ------------------
Denbury Resources Inc. (NYSE symbol: DNR), announced today that several
members of Denbury's management are hosting a conference in New Orleans for
analysts on November 4th and 5th, 2004 where they will be presenting specific
operational and financial updates. The slide presentation that will be presented
to the analysts will be available on Denbury's website, www.denbury.com,
beginning on November 4 and will include updated operational and comparative
financial data and an in-depth review of the Company's significant properties.
The main presentation will be webcast on November 4th and available on
www.denbury.com and will be archived on our web site for approximately 30 days
thereafter. To date, approximately 50 buy and sell-side analysts and several
asset managers have signed up for the presentations. Registration is ongoing and
can be made through the contact numbers below.
Financial and Statistical Data Tables
- -------------------------------------
Following are financial highlights for the comparative three and nine month
periods ended September 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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THIRD QUARTER FINANCIAL HIGHLIGHTS
(Amounts in thousands of U.S. dollars, except per share and unit data)
Three Months Ended
September 30,
------------------------------------------ Percentage
2004 2003 Change
-------------------- -------------------- ---------------
Revenues:
Oil sales 68,144 44,863 52%
Gas sales 34,924 43,933 -21%
CO2 sales and transportation fees 1,681 2,238 -25%
Loss on settlements of derivative contracts (22,243) (12,031) 85%
Interest and other income 664 387 72%
-------------------- --------------------
Total revenues 83,170 79,390 5%
-------------------- --------------------
Expenses:
Lease operating expenses 19,781 22,400 -12%
Production taxes and marketing expense 4,900 3,761 30%
CO2 operating costs 255 602 -58%
General and administrative 6,197 3,445 80%
Interest 4,768 5,358 -11%
Depletion, depreciation and accretion 20,780 22,566 -8%
Amortization of derivative contracts and
other non-cash hedging adjustments 383 (1,441) >100%
-------------------- --------------------
Total expenses 57,064 56,691 1%
-------------------- --------------------
Income before income taxes 26,106 22,699 15%
Income tax provision (benefit)
Current income taxes 18,949 (1,514) >100%
Deferred income taxes (11,117) 9,064 >100%
-------------------- --------------------
NET INCOME 18,274 15,149 21%
==================== ====================
Net income per common share:
Basic 0.33 0.28 18%
Diluted 0.32 0.27 19%
Weighted average common shares:
Basic 55,085 54,014 2%
Diluted 57,549 55,718 3%
Production (daily - net of royalties)
Oil (barrels) 19,206 18,051 6%
Gas (mcf) 62,708 90,393 -31%
BOE (6:1) 29,657 33,116 -10%
Unit sales price (including hedges)
Oil (per barrel) 28.25 24.60 15%
Gas (per mcf) 5.36 4.32 24%
Unit sales price (excluding hedges)
Oil (per barrel) 38.57 27.01 43%
Gas (per mcf) 6.05 5.28 15%
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Three Months Ended
September 30,
----------------------------------------- Percentage
2004 2003 Change
-------------------- ------------------- --------------
Non-GAAP Financial Measure (1)
Adjusted cash flow from
operations (non-GAAP measure) 29,747 45,611 -35%
Net change in assets and liabilities relating to
operations 15,019 4,178 >100%
-------------------- -------------------
Cash flow from operations (GAAP measure) 44,766 49,789 -10%
==================== ===================
Oil & gas capital investments 37,644 39,251 -4%
CO2 capital investments 15,825 2,635 >100%
Proceeds from sales of oil and gas properties 187,133 1,174 >100%
BOE data (6:1)
Oil and natural gas revenue 37.78 29.14 30%
Loss on settlements of derivative contracts (8.15) (3.95) >100%
Lease operating costs (7.25) (7.35) -1%
Production taxes and marketing expense (1.80) (1.23) 46%
-------------------- -------------------
Production netback 20.58 16.61 24%
CO2 operating cash flow 0.55 0.54 2%
General and administrative (2.27) (1.13) >100%
Net cash interest expense (1.49) (1.55) -4%
Current income taxes and other (6.46) 0.50 >100%
Changes in asset and liabilities relating to operations 5.50 1.37 >100%
-------------------- -------------------
Cash flow from operations 16.41 16.34 0%
==================== ===================
(1) See "Non-GAAP Measures" at the end of this report.
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NINE MONTH FINANCIAL HIGHLIGHTS
(Amounts in thousands of U.S. dollars, except per share and unit data)
Nine Months Ended
September 30,
------------------------------------------ Percentage
2004 2003 Change
-------------------- -------------------- ---------------
Revenues:
Oil sales 181,198 140,998 29%
Gas sales 151,177 154,274 -2%
CO2 sales and transportation fees 4,622 6,872 -33%
Loss on settlements of derivative contracts (54,750) (53,072) 3%
Interest and other income 1,422 989 44%
-------------------- --------------------
Total revenues 283,669 250,061 13%
-------------------- --------------------
Expenses:
Lease operating expenses 66,839 67,850 -1%
Production taxes and marketing expense 13,481 11,124 21%
CO2 operating costs 608 1,453 -58%
General and administrative 15,123 10,612 43%
Interest 14,917 18,046 -17%
Loss on early retirement of debt - 17,629 -100%
Depletion, depreciation and accretion 76,265 69,249 10%
Amortization of derivative contracts and
other non-cash hedging adjustments 8,347 (3,702) >100%
-------------------- --------------------
Total expenses 195,580 192,261 2%
-------------------- --------------------
Income before income taxes 88,089 57,800 52%
Income tax provision
Current income taxes 22,045 123 > 100%
Deferred income taxes 6,077 18,946 -68%
-------------------- --------------------
Income before cumulative effect of change
in accounting principle 59,967 38,731 55%
Cumulative effect of change in accounting
principle, net of income taxes of $1,600 - 2,612 -100%
-------------------- --------------------
NET INCOME 59,967 41,343 45%
==================== ====================
Net income per common share - basic:
Income before cumulative effect of change
in accounting principle 1.10 0.72 53%
Cumulative effect of change in accounting
principle - 0.05 -100%
-------------------- --------------------
Net income per common share - basic 1.10 0.77 43%
==================== ====================
Net income per common share - diluted:
Income before cumulative effect of change
in accounting principle 1.05 0.70 50%
Cumulative effect of change in accounting
principle - 0.05 -100%
-------------------- --------------------
Net income per common share - diluted 1.05 0.75 40%
==================== ====================
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Nine Months Ended
September 30,
------------------------------------------ Percentage
2004 2003 Change
-------------------- -------------------- --------------
Weighted average common shares:
Basic 54,740 53,824 2%
Diluted 57,020 55,375 3%
Production (daily - net of royalties)
Oil (barrels) 19,114 18,852 1%
Gas (mcf) 91,028 95,341 -5%
BOE (6:1) 34,285 34,742 -1%
Unit sales price (including hedges)
Oil (per barrel) 26.58 24.41 9%
Gas (per mcf) 5.55 4.48 24%
Unit sales price (excluding hedges)
Oil (per barrel) 34.60 27.40 26%
Gas (per mcf) 6.06 5.93 2%
Non-GAAP Financial Measure: (1)
Adjusted cash flow from
operations (non-GAAP measure) 151,721 141,966 7%
Net change in assets and liabilities relating to
operations (750) 3,874 >100%
-------------------- --------------------
Cash flow from operations (GAAP measure) 150,971 145,840 4%
==================== ====================
Oil & gas capital investments 129,606 119,584 8%
CO2 capital investments 42,966 16,008 >100%
Proceeds from sales of oil and gas properties 188,279 29,328 >100%
Cash and cash equivalents 93,142 28,108 >100%
Short-term investments 31,955 - N/A
Total assets 991,709 942,558 5%
Total long-term debt (excluding discount) 225,000 329,000 -32%
Total stockholders' equity 500,630 410,386 22%
BOE data (6:1)
Oil and natural gas revenue 35.38 31.13 14%
Loss on settlements of derivative contracts (5.83) (5.60) 4%
Lease operating costs (7.11) (7.15) -1%
Production taxes and marketing expense (1.44) (1.17) 23%
-------------------- --------------------
Production netback 21.00 17.21 22%
CO2 operating cash flow 0.43 0.57 -25%
General and administrative (1.61) (1.12) 44%
Net cash interest expense (1.39) (1.69) -18%
Current income taxes and other (2.28) - N/A
Changes in asset and liabilities relating to operations (0.08) 0.40 >100%
-------------------- --------------------
Cash flow from operations 16.07 15.37 5%
==================== ====================
(1) See "Non-GAAP Measures" at the end of this report.
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Denbury CEO adopts 10b5-1 plan
- ------------------------------
In September 2004, Ashley Petroleum Inc., a corporation controlled by Mr.
Gareth Roberts, Denbury's President and CEO, entered into a 10b5-1 plan pursuant
to which it will sell up to 60,000 shares of common stock over the next twelve
months, subject to minimum price restrictions, commencing in November 2004.
Ashley Petroleum Inc. currently owns a total of 138,330 shares of common stock.
Mr. Roberts currently controls approximately 955,730 shares of common stock,
including 261,885 shares related to vested and unvested stock options, 138,330
shares owned by Ashley Petroleum Inc. and 235,000 shares of unvested restricted
stock.
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 it is important to consider
this measure 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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