Exhibit 99
DEGOLYER AND MACNAUGHTON
4925 Greenville Avenue, Suite 400
One Energy Square
Dallas, Texas 75206
APPRAISAL REPORT
as of
DECEMBER 31, 2004
on
PROVED RESERVES
of
CERTAIN PROPERTIES
owned by
DENBURY RESOURCES INC.
SEC CASE
DeGolyer and MacNaughton
TABLE of CONTENTS
Page
----
FOREWARD.....................................................................1
Scope of Investigation.....................................................1
Authority..................................................................2
Source of Information......................................................2
CLASSIFICATION of RESERVES...................................................3
ESTIMATE of RESERVES.........................................................5
VALUATION of RESERVES........................................................6
SUMMARY and CONCLUSIONS......................................................9
DEGOLYER AND MACNAUGHTON
4925 Greenville Avenue, Suite 400
One Energy Square
Dallas, Texas 75206
APPRAISAL REPORT
as of
DECEMBER 31, 2004
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, 2004,
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, 2004 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, 2004. 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 $43.45 per barrel and $6.149 per million British
thermal units (MMBtu). No escalation has been applied to prices and costs.
Degolyer and MacNaughton 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 3
CLASSIFICATION of RESERVES
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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 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 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 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, 2004, 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
2004.
The following table presents estimates of the proved
reserves, as of December 31, 2004, 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 Proved Reserves
Developed Producing 102,966 270 103,236 233,923
Developed Nonproducing 22,247 279 22,526 64,020
Undeveloped 57,027 166 57,193 115,319
---------------- --------------- ---------- ---------
Total Gross Reserves 182,240 715 182,955 413,262
Net Proved Reserves
Developed Producing 39,411 139 39,550 68,568
Developed Nonproducing 16,302 147 16,449 26,005
Undeveloped 45,203 85 45,289 73,911
---------------- --------------- ---------- ---------
Total Net Reserves 100,916 371 101,288 168,484
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, 2004, are estimated to be 2,128,692 MMcf. This
amount includes 1,529,477 MMcf of developed reserves and 599,215 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 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 $43.45 per barrel and held
constant thereafter. The weighted average price
over the lives of the properties was $36.77 per
barrel.
Natural Gas Liquids Prices
Natural gas liquids prices were calculated using
the 2003 average ratio to the NYMEX oil price of
$43.45 per barrel. These prices were held constant
over the lives of the properties. The average
price over the lives of the properties is $26.88
per barrel.
Natural Gas Prices
Natural gas prices were calculated for each lease
using differentials furnished by Denbury to a
NYMEX price of $6.149 per MMBtu and held constant
thereafter. The weighted average price over the
lives of the properties was $6.06 per thousand
cubic feet.
Operating Expenses and Capital Costs
Current operating expenses and capital costs,
based on information provided by Denbury, were
used in estimating future costs required to
operate the properties. In certain cases, future
costs, either higher or lower than current costs,
may have been used because of anticipated changes
in operating conditions. These costs were not
escalated for inflation.
The future revenue to be derived from the production and
sale of the proved reserves, as of December 31, 2004, of the properties
appraised is estimated as follows:
DeGolyer and MacNaughton 8
Proved
------------------------------------------------------
Developed Developed Total
Producing Nonproducing Undeveloped Proved
------------------------------------------------------
Future Gross Revenue, M$ 1,754,596 777,921 2,209,758 4,742,275
Production and Ad Valorem Taxes, M$ 77,195 35,410 86,847 199,452
Operating Expenses, M$ 588,992 150,680 570,155 1,309,827
Capital Costs, M$ 8,859 20,257 297,970 327,086
Abandonment Costs, M$ 13,474 (194) 512 13,792
Future Net Revenue, M$ 1,066,076 571,768 1,254,273 2,892,118
Present Worth at 10 Percent, M$ 710,278 327,744 605,266 1,643,289
<FN>
1. Numbers in table may not add due to rounding.
2. Future income taxes have not been taken into account in the preparation of these estimates.
</FN>
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 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, 2004, 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 Proved Reserves
Developed Producing 39,411 139 39,550 68,568
Developed Nonproducing 16,302 147 16,449 26,005
Undeveloped 45,203 85 45,289 73,911
---------------- --------------- ---------- ---------
Total 100,916 371 101,288 168,484
The estimated revenue and expenditures attributable to
Denbury's interests in the proved reserves, as of December 31, 2004, 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$ 1,754,596 777,921 2,209,758 4,742,275
Production and Ad Valorem Taxes, M$ 77,195 35,410 86,847 199,452
Operating Expenses, M$ 588,992 150,680 570,155 1,309,827
Capital Costs, M$ 8,859 20,257 297,970 327,086
Abandonment Costs, M$ 13,474 (194) 512 13,792
Future Net Revenue, M$ 1,066,076 571,768 1,254,273 2,892,118
Present Worth at 10 Percent, M$ 710,278 327,744 605,266 1,643,289
<FN>
1. Numbers in table may not add due to rounding.
2. Future income taxes have not been taken into account in the preparation of these estimates.
</FN>
DeGolyer and MacNaughton 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,
SIGNED: March 9, 2005 /s/ DeGolyer and MacNaughton
----------------------------
DeGolyer and MacNaughton
/s/ Paul J. Szatkowski, P.E.
----------------------------
Paul J. Szatkowski, P.E.
Senior Vice President
DeGolyer and MacNaughton