DENBURY RESOURCES INC.
P R E S S R E L E A S E
Denbury Resources Announces 2004 Results
Tertiary Oil Production Hits New High
News Release
Released at 7:30 AM CDT
DALLAS - February 24, 2005 - Denbury Resources Inc. (NYSE symbol: DNR)
("Denbury" or the "Company") today announced its fourth quarter and 2004
financial and operating results. The Company posted earnings for the full year
2004 of $82.4 million or $1.50 per share, a 46% increase over 2003 net income of
$56.6 million or $1.05 per share, the increase primarily due to higher commodity
prices. Fourth quarter 2004 net income was $22.5 million, or $0.41 per share, a
48% increase over fourth quarter 2003 net income of $15.2 million or $0.28 per
share.
Adjusted cash flow from operations (cash flow from operations before
changes in assets and liabilities, a non-GAAP measure) for the fourth quarter of
2004 was $48.6 million, slightly higher than fourth quarter 2003 adjusted cash
flow from operations of $47.8 million. Net cash flow provided by operations, the
GAAP measure, totaled $17.7 million during the fourth quarter of 2004, as
compared to $51.8 million during the fourth quarter of 2003. The difference
between fourth quarter 2004 adjusted cash flow and cash flow from operations is
due to the significant reduction of accounts payables and accrued liabilities
during the quarter. (Please see the accompanying schedules for a reconciliation
of net cash flow provided by operations, as defined by generally accepted
accounting principles (GAAP), which is the GAAP measure, as opposed to adjusted
cash flow from operations, which is the non-GAAP measure).
Review of Financial Results
- ---------------------------
Denbury's fourth quarter 2004 production averaged 19,644 Bbls/d and 56.0
MMcf/d, or 28,977 BOE/d, a 4% increase over third quarter 2004 levels and a 4%
increase over fourth quarter 2003 production levels, all after adjusting for the
sale of offshore properties. Production from the Company's tertiary recovery
operations set another quarterly record in the fourth quarter of 2004, averaging
7,242 BOE/d, a 4% increase over third quarter 2004 levels, and a 30% increase
over the fourth quarter of 2003 average of 5,579 BOE/d. During the month of
January 2005, production from these tertiary operations continued to increase,
averaging over 8,300 BOE/d (approximately 27% of the Company's total
production). Production from the Barnett Shale averaged 5.8 MMcf/d (962 BOE/d)
during the fourth quarter of 2004, an almost threefold increase over the 1.6
MMcf/d (268 BOE/d) average production during the fourth quarter of 2003.
Production during the fourth quarter of 2004 was 68% oil as compared to 55% oil
for the comparable quarter of 2003, primarily as a result of the sale of
Denbury's offshore properties in July 2004.
Despite an overall lower production level as a result of this offshore
sale, total revenues in the fourth quarter of 2004 increased $7.7 million (9%),
as compared to revenues in the fourth quarter of 2003, primarily as a result of
higher commodity prices, partially offset by higher hedging payments and lower
production levels. In the fourth quarter of 2004, NYMEX oil prices averaged
approximately $48.34 per Bbl, and natural gas NYMEX prices averaged
approximately $7.25 per Mcf, as compared to NYMEX averages of approximately
$31.20 per Bbl and $5.40 per Mcf in the fourth quarter of 2003. Denbury's
weighted average price received per BOE was $13.82 higher per BOE (excluding
hedges) in the fourth quarter of 2004 than in the comparable period of 2003.
However, the Company paid $8.31 more per BOE on hedges during the 2004 quarterly
period than payments a year earlier, reducing the net realized per BOE price
increase between the respective fourth quarters to $5.51 per BOE.
Oil price differentials (Denbury's net oil price received as compared to
NYMEX prices) deteriorated during 2004, particularly in the last quarter, as the
price of heavy, sour crude produced primarily in the Company's East Mississippi
properties dropped significantly relative to NYMEX prices. The Company's average
NYMEX differential increased from $3.54 per Bbl during the fourth quarter of
2003 to $6.48 per Bbl during the fourth quarter of 2004, a $2.94 per Bbl
decrease in the price the Company received relative to NYMEX prices. For the
full year periods, the average oil price differential was $3.60 per Bbl during
2003 as compared to $4.91 per Bbl during 2004.
Overall, expenses were lower in the fourth quarter of 2004 than in the
prior year's comparable quarter. Lease operating expenses were $1.3 million less
on a gross basis as a result of the offshore sale, but increased from $6.78 per
BOE in the fourth quarter of 2003 to $7.60 per BOE in the fourth quarter of
2004. The primary reasons for the higher cost per BOE were continued expansion
of CO2 tertiary projects, which typically have a higher operating cost per BOE
than conventional oil operations, higher lease fuel costs to inject and recycle
CO2 due to high natural gas prices, and the cost of leased recycling facilities.
Production taxes and marketing expenses also increased primarily as a result of
the higher commodity prices.
General and administrative expenses increased $1.8 million (38%) between
the fourth quarter of 2003 and 2004, averaging $2.38 per BOE in the fourth
quarter of 2004, up from $1.44 per BOE in the comparable quarter of 2003. The
biggest portion of the increase relates to higher bonus levels for employees in
2004 as a result of the Company's strong performance during the year, non-cash
amortization of the deferred compensation related to restricted stock issued to
the officers and directors during the last half of 2004, increased litigation
expenses, and incremental costs related to the Sarbanes-Oxley Act.
Interest expense decreased 12% in the fourth quarter of 2004 as compared to
the fourth quarter 2003, due to lower overall debt levels following the
Company's $50 million debt reduction during 2003 and $75 million debt reduction
during 2004. At December 31, 2004, the Company had approximately $140 million of
net debt (long-term debt less working capital), one of the lowest leverage
positions in the Company's history.
Depletion, depreciation and amortization ("DD&A") expenses decreased $4.2
million (16%) in the fourth quarter of 2004 as compared to DD&A in the prior
year fourth quarter. The DD&A rate in the fourth quarter of 2004 was $7.98 per
BOE, about the same as the $8.00 per BOE in the prior year fourth quarter. DD&A
expense on a per BOE basis decreased due to the sale of the Company's offshore
properties in July 2004, which was partially offset by increasing estimates of
future development costs due to rising industry costs.
During 2004, the Company paid out $84.6 million on its hedges and incurred
a net expense of $1.3 million primarily related to hedging transactions
surrounding the Company's sale of its offshore properties. The total of $85.9
million is reflected in the income statement as $70.5 million of payments on the
Company's effective hedges and $15.4 million of expenses on the Company's
ineffective hedges. This compares to total payments during 2003 of $62.2 million
2
and $3.6 million of other non-cash income relating to hedging. The hedge
payments are expected to be substantially less in 2005 as most of the Company's
existing hedges are price floors, which means the Company will retain any
commodity price increases. Effective January 1, 2005, the Company plans to no
longer use hedge accounting, which means that any changes in the fair value
(i.e. mark-to-market) of the Company's derivative contracts will be charged to
earnings each quarter rather than being charged to other comprehensive income.
2005 Outlook
- ------------
Denbury's 2005 development and exploration budget (excluding acquisitions)
is currently set at $305 million, including $45 million to build the Company's
CO2 pipeline to East Mississippi which the Company may finance on a long-term
basis upon completion. Over 60% of the combined 2005 capital budget is related
to tertiary operations, as compared to approximately 43% of 2004 capital
expenditures. The Company has adjusted its 2005 forecasted average production to
approximately 31,000 BOE/d, an increase of approximately 500 BOE/d to adjust for
the anticipated production from its High Island A-6 well, a well excluded from
the offshore sale package that should commence production late in the first
quarter. The adjusted production target represents an 11% increase in production
over the Company's 2004 production levels, excluding 2004 offshore production.
Production from the Company's tertiary operations is expected to increase from a
2004 average of 6,784 BOE/d to a projected 2005 average of almost 10,000 BOE/d,
a 47% increase.
Gareth Roberts, Chief Executive Officer, said: "2004 was one of our best
years ever. During the year we (i) sold our offshore division for a good price,
which also allowed us to further reduce debt, (ii) added approximately 1 Tcf of
additional proven CO2 reserves, (iii) initiated Phase II (East Mississippi
phase) of our CO2 program by commencing the construction of a CO2 pipeline to
East Mississippi, (iv) accelerated our Phase I (Southwest Mississippi phase) CO2
program, (v) drilled five successful horizontal wells in the Barnett Shale with
plans to accelerate this program during 2005, (vi) saw most of our
out-of-the-money hedges expire, and (vii) completed a dramatic improvement in
our float over the last two years with the final sale of stock by our former
largest shareholder, the Texas Pacific Group. All of these factors, combined
with high commodity prices, helped our stock reach new highs during 2004."
"Our decision to focus on tertiary operations continues to be a winning
strategy and the backbone of our Company. Tertiary oil production continues to
grow and we added almost 19 million barrels of proved tertiary oil reserves at
Brookhaven Field this past year, and we expect our growth in tertiary oil
production and reserves to continue. We are enthusiastic about the inventory of
assets we have compiled, while continuing to look for additional tertiary
opportunities for a future Phase III and IV program. With the proceeds from the
offshore sale, we have reduced our debt to minimal levels and historically low
leverage ratios, giving us the ultimate financial flexibility for the future. We
expect to grow our tertiary oil production almost 50% during 2005 and our total
corporate production by approximately 11%, all from internal organic growth. We
are bullish on oil prices even though we still use much lower oil prices for our
internal economic evaluations. With our significant inventory of oil projects,
we believe we have ideally positioned Denbury as any price increase will enhance
the value of both our current proved reserves and our future potential
reserves."
Conference Call
- ---------------
The public is invited to listen to the Company's conference call set for
today, February 24, 2005, 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
3
for approximately 30 days and will also be available for playback for one month
after the call by dialing (888) 203-1112 or (719) 457-0820.
Annual Meeting
- --------------
The Company today announced its 2004 Annual Meeting of Shareholders will be
held on Wednesday, May 11th at 3:00 P.M., local time, at the offices of the
Company located at 5100 Tennyson Parkway, Plano, Texas. The record date for
determination of shareholders entitled to vote at the annual meeting will be the
close of business on March 31, 2005.
Financial and Statistical Data Tables
- -------------------------------------
Following are financial highlights for the comparative fourth quarters and
annual periods ended December 31, 2004 and December 31, 2003. All production
volumes and dollars are expressed on a net revenue interest basis with gas
volumes converted to equivalent barrels at 6:1.
FOURTH QUARTER FINANCIAL HIGHLIGHTS
(Amounts in thousands of U.S. dollars, except per share and unit data)
Three Months Ended
December 31,
---------------------------------- Percentage
2004 2003 Change
------------ ------------ ------------
Revenues:
Oil sales 75,645 48,444 56%
Gas sales 36,757 41,747 -12%
CO2 sales and transportation fees 1,654 1,316 26%
Loss on effective hedge contracts (24,012) (9,138) >100%
Interest and other income 830 840 -1%
------------ ------------
Total revenues 90,874 83,209 9%
------------ ------------
Expenses:
Lease operating expenses 20,268 21,589 -6%
Production taxes and marketing expense 5,256 3,695 42%
CO2 operating costs 730 257 >100%
General and administrative 6,338 4,577 38%
Interest 4,551 5,155 -12%
Depletion, depreciation and accretion 21,262 25,459 -16%
(Gain) loss on ineffective hedge contracts (1,282) 124 >100%
------------ ------------
Total expenses 57,123 60,856 -6%
------------ ------------
Income before income taxes 33,751 22,353 51%
Income tax provision (benefit)
Current income taxes 884 (214) >100%
Deferred income taxes 10,386 7,35 41%
------------ ------------
NET INCOME 22,481 15,210 48%
============ ============
Net income per common share:
Basic 0.41 0.28 46%
Diluted 0.39 0.27 44%
Weighted average common shares outstanding:
Basic 55,259 54,051 2%
Diluted 58,076 55,714 4%
Production (daily - net of royalties)
Oil (barrels) 19,644 19,020 3%
Gas (mcf) 56,002 93,424 -40%
BOE (6:1) 28,977 34,590 -16%
Unit sales price (including hedges)
Oil (per barrel) 29.63 24.85 19%
Gas (per mcf) 5.64 4.37 29%
Unit sales price (excluding hedges)
Oil (per barrel) 41.86 27.69 51%
Gas (per mcf) 7.13 4.86 47%
5
Three Months Ended
December 31,
---------------------------------- Percentage
2004 2003 Change
------------ ------------ ------------
Reconciliation of Non-GAAP
Financial Measure to GAAP (1)
Adjusted cash flow from
operations (non-GAAP measure) 48,632 47,836 2%
Net change in assets and liabilities relating to
operations (30,951) 3,939 >100%
------------ ------------
Cash flow from operations (GAAP measure) 17,681 51,775 -66%
============ ============
Oil & gas capital investments 48,464 38,860 25%
CO2 capital investments 7,299 6,665 10%
Proceeds from sales of oil and gas properties 9,296 82 >100%
BOE data (6:1)
Revenue 42.16 28.34 49%
Loss on settlements of derivative contracts (11.18) (2.87) >100%
Lease operating costs (7.60) (6.78) 12%
Production taxes and marketing expense (1.97) (1.16) 70%
------------ ------------
Production netback 21.41 17.53 22%
CO2 operating cash flow 0.35 0.33 6%
General and administrative (2.38) (1.44) 65%
Net cash interest expense (1.28) (1.36) -6%
Current income taxes and other 0.14 (0.03) >100%
Changes in asset and liabilities (11.61) 1.24 >100%
------------ ------------
Cash flow from operations 6.63 16.27 -59%
============ ============
(1) See "Non-GAAP Measures" at the end of this report.
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TWELVE MONTH FINANCIAL HIGHLIGHTS
(Amounts in thousands of U.S. dollars, except per share and unit data)
Twelve Months Ended
December 31,
---------------------------------- Percentage
2004 2003 Change
------------ ------------ ------------
Revenues:
Oil sales 256,843 189,442 36%
Gas sales 187,934 196,021 -4%
CO2 sales and transportation fees 6,276 8,188 -23%
Loss on effective hedge contracts (70,469) (62,210) 13%
Interest and other income 2,252 1,829 23%
------------ ------------
Total revenues 382,836 333,270 15%
------------ ------------
Expenses:
Lease operating expenses 87,107 89,439 -3%
Production taxes and marketing expense 18,737 14,819 26%
CO2 operating costs 1,338 1,710 -22%
General and administrative 21,461 15,189 41%
Interest 19,468 23,201 -16%
Loss on early retirement of debt - 17,629 >100%
Depletion, depreciation and accretion 97,527 94,708 3%
(Gain) loss on ineffective hedge contracts 15,358 (3,578) >100%
------------ -------------
Total expenses 260,996 253,117 3%
------------ -------------
Income before income taxes 121,840 80,153 52%
Income tax provision (benefit)
Current income taxes 22,929 (91) >100%
Deferred income taxes 16,463 26,303 -37%
------------ -------------
Income before cumulative effect of change
in accounting principle 82,448 53,941 53%
Cumulative effect of change in accounting
principle, net of income taxes of $1,600 - 2,612 >100%
------------ -------------
NET INCOME 82,448 56,553 46%
============ =============
Net income per common share - basic:
Income before cumulative effect of change
in accounting principle 1.50 1.00 50%
Cumulative effect of change in accounting
principle - 0.05 >100%
------------ -------------
Net income per common share - basic 1.50 1.05 43%
============ =============
Net income per common share - diluted:
Income before cumulative effect of change
in accounting principle 1.44 0.97 48%
Cumulative effect of change in accounting
principle - 0.05 >100%
------------ -------------
Net income per common share - diluted 1.44 1.02 41%
============ =============
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Twelve Months Ended
December 31,
---------------------------------- Percentage
2004 2003 Change
------------ ------------ ------------
Weighted average common shares outstanding:
Basic 54,871 53,881 2%
Diluted 57,301 55,464 3%
Production (daily - net of royalties)
Oil (barrels) 19,247 18,894 2%
Gas (mcf) 82,224 94,858 -13%
BOE (6:1) 32,951 34,704 -5%
Unit sales price (including hedges)
Oil (per barrel) 27.36 24.52 12%
Gas (per mcf) 5.57 4.45 25%
Unit sales price (excluding hedges)
Oil (per barrel) 36.46 27.47 33%
Gas (per mcf) 6.24 5.66 10%
Reconciliation of Non-GAAP
Financial Measure to GAAP: (1)
Adjusted cash flow from
operations (non-GAAP measure) 200,353 189,802 6%
Net change in assets and liabilities relating to
operations (31,701) 7,813 >100%
------------ ------------
Cash flow from operations (GAAP measure) 168,652 197,615 -15%
------------ ------------
Oil & gas capital investments 178,070 158,444 12%
CO2 capital investments 50,265 22,673 >100%
Proceeds from sales of oil and gas properties 197,575 29,410 >100%
Cash and cash equivalents 54,889 24,188 >100%
Short-term investments 35,321 - N/A
Total assets 992,706 982,621 1%
Total long-term debt (excluding discount) 229,184 300,000 -24%
Total stockholders' equity 541,672 421,202 29%
BOE data (6:1)
Revenue 36.88 30.43 21%
Loss on settlements of derivative contracts (7.01) (4.91) 43%
Lease operating costs (7.22) (7.06) 2%
Production taxes and marketing expense (1.55) (1.17) 32%
------------ ------------
Production netback 21.10 17.29 22%
CO2 operating cash flow 0.41 0.51 -20%
General and administrative (1.78) (1.20) 48%
Net cash interest expense (1.34) (1.61) -17%
Current income taxes and other (1.78) (0.01) >100%
Changes in asset and liabilities (2.63) 0.62 >100%
------------ ------------
Cash flow from operations 13.98 15.60 -10%
============ ============
(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 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 CO2 used for tertiary oil recovery
east of the Mississippi River, and holds key operating acreage in the onshore
Louisiana and Texas Barnett Shale 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 and uncertainties including
expected reserve quantities and values relating to the Company's proved
reserves, the Company's potential reserves from its tertiary operations,
forecasted production levels relating to the Company's tertiary operations and
overall production levels, estimated capital expenditures for 2005, and other
risks and uncertainties detailed in the Company's filings with the Securities
and Exchange Commission, including Denbury's most recent reports on Form 10-K
and Form 10-Q. These risks and uncertainties are incorporated by this reference
as though fully set forth herein. These statements are based on engineering,
geological, financial and operating 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