SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to________
COMMISSION FILE NUMBER 33-93722
DENBURY RESOURCES INC.
(Exact name of Registrant as specified in its charter)
CANADA NOT APPLICABLE
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
17304 PRESTON RD., SUITE 200
DALLAS, TX 75252
(Address of principal executive offices) (Zipcode)
Registrant's telephone number, including area code: (972)713-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------------- --------------------------------------------
Common Shares ( No Par Value) NASDAQ
=================================== ============================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x/ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 17, 1997, the aggregate market value of the registrant's Common
Shares held by non-affiliates was approximately $140,000,000.
The number of shares outstanding of the registrant's Common Shares as of
March 17, 1997, was 20,101,607.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT INCORPORATED AS TO
1. Notice and Proxy Statement 1. Part III, Items 10, 11, 12, and 13
for the Annual Meeting of
Shareholders to be held
May 21, 1997
2. Annual Report to Shareholders 2. Part I, Item 1 and Part II,
for the year ended Items 5, 6, 7, 8
December 31, 1996
PART I
ITEM 1. BUSINESS
THE COMPANY
Denbury Resources Inc. ("Denbury" or the "Company") is a Canadian corporation
organized under the Canada Business Corporations Act engaged in the acquisition,
development, operation and exploration of oil and gas properties primarily in
the Gulf Coast region of the United States through its indirectly wholly-owned
subsidiary, Denbury Management, Inc., a Texas corporation. Denbury's corporate
headquarters is located at Suite 200, 17304 Preston Road, Dallas, Texas 75252,
U.S.A. and its Canadian office is located at 2550, 140--4th Avenue S.W.,
Calgary, Alberta T2P 3N3. At December 31, 1996, the Company had 122 employees,
56 of which were employed in field operations.
Incorporation and Organization
Denbury was originally incorporated under the laws of Manitoba as a specially
limited company on March 7, 1951, under the name "Kay Lake Mines Limited
(N.P.L.)". In September 1984, the Company was continued under the Canada
Business Corporations Act and changed its name to "Newscope Resources Limited."
The Company has subsequently changed its name three times, including the most
recent change in December, 1995 from "Newscope Resources Ltd." to its current
name of "Denbury Resources Inc.".
The Company has one wholly owned subsidiary, Denbury Holdings Ltd.
("Denbury Holdings"), which in turn has one wholly owned subsidiary, Denbury
Management, Inc. ("Denbury Management"). Denbury Holdings carries on no material
business other than the holding of 100% of the outstanding shares of the capital
stock of Denbury Management. Denbury Management has two active wholly owned
subsidiaries, Denbury Marine, L.L.C. and Brymore Energy Corporation. The
Company's consolidated financial statements include the accounts of the parent
company and all wholly owned subsidiaries.
History
The Company acquired all of the outstanding shares of Denbury Management in a
multi-step transaction in July 1992, in exchange for 2,771,530 Common Shares
(the "Denbury Acquisition"). Upon completion of the Denbury Acquisition, Mr.
Gareth Roberts, the then president of Denbury Management, was appointed the
President and Chief Executive Officer of the Company and was elected to the
Company's board of directors. He has served in that capacity since that time.
The Denbury Acquisition signaled a new direction for the Company and added a new
geographic area of operation (the states of Texas, Louisiana and Mississippi),
and management expertise to the Company.
Prior to 1987, the Company's activities were focused in Manitoba and to a
lesser extent, Saskatchewan. During the years 1988, 1989 and 1990, most of
Denbury's exploration and development program was conducted in Alberta and
during this period, the Company generated and operated most of its exploration
prospects. Effective March 31, 1992, Denbury's Manitoba oil and gas properties
were sold for net proceeds of approximately $1.2 million. In September 1993,
Denbury sold all of its remaining Canadian oil and gas operations for
approximately $3.1 million. These operations consisted primarily of Denbury's
producing oil and gas properties in Saskatchewan and Alberta, undeveloped lands
in the provinces of British Columbia, Alberta, Saskatchewan, and a seismic data
base. As a result, 100% of Denbury's oil and gas operations are now conducted in
the Southern United States through its subsidiary, Denbury Management.
Since 1993, after having disposed of its Canadian oil and natural gas
properties, the Company has focused its operations primarily onshore in
Louisiana and Mississippi. Over the last three years, the Company has achieved
rapid growth in proved reserves, production and cash flow by concentrating on
the acquisition of properties which it believes have significant upside
potential and through the efficient development, enhancement and operation of
those properties.
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1996 CAPITAL ADJUSTMENTS
During 1996, the Company issued 250,000 Common Shares for the conversion of its
6 3/4% Convertible Debentures and 75,000 Common Shares for the exercise of half
of its Cdn. $8.40 Warrants. On October 10, 1996, the Company effected a
one-for-two reverse split of its outstanding Common Shares and effective October
15, 1996, all of the Company's outstanding 9 1/2% Convertible Debentures
("Debentures") were converted by their holders into 316,590 Common Shares. At a
special meeting held on October 9, 1996 the shareholders of the Company approved
an amendment to the terms of the Convertible First Preferred Shares, Series A
("Convertible Preferred") to allow the Company to require the conversion of the
Convertible Preferred at any time, provided that the conversion rate in effect
as of January 1, 1999 would apply to any required conversion prior to that date.
The Company converted all of the 1,500,000 shares of Convertible Preferred on
October 30, 1996 into 2,816,372 Common Shares. The Company also issued an
aggregate of 4,940,000 Common Shares on October 30, 1996 and November 1, 1996 at
a net price to the Company of $12.035 per share as part of a public offering
with net proceeds to the Company of approximately $58.8 million (the "Public
Offering"). The Company's largest shareholder, the Texas Pacific Group ("TPG"),
purchased 800,000 of these shares at $12.035 per share.
BUSINESS STRATEGY
The Company believes that its growth to date in proved reserves, production
and cash flow is a direct result of its adherence to several fundamental
principles. The Company seeks to achieve attractive returns on capital through
prudent acquisitions, development and exploratory drilling and efficient
operations; maintain a conservative balance sheet to preserve maximum financial
and operational flexibility; and create strong employee incentives through
equity ownership. These fundamental principles are at the core of the Company's
long-term growth strategy.
REGIONAL FOCUS. By focusing its efforts in the Gulf Coast region, primarily
Louisiana and Mississippi, the Company has been able to accumulate substantial
geological, reservoir and operating data which it believes provides it with a
significant competitive advantage. Given its experience in the Gulf Coast
region, the Company believes it is better able to proactively identify and
evaluate potential acquisitions, negotiate and close selected acquisitions on
favorable terms, and develop and operate the properties in an efficient and
low-cost manner once acquired. The Company believes the Gulf Coast represents
one of the most attractive regions in North America given the region's prolific
production history and the new opportunities that have been created by advanced
technologies such as 3-D seismic and various drilling, completion and recovery
techniques. Moreover, because of the region's proximity to major pipeline
networks serving attractive northeastern U.S. markets, the Company typically
realizes natural gas prices in excess of those realized in many other producing
regions.
DISCIPLINED ACQUISITION STRATEGY. The Company acquires properties where it
believes significant additional value can be created. Such properties are
typically characterized by: (i) long production histories; (ii) complex
geological formations which have multiple producing zones and substantial
exploitation potential; (iii) a history of limited operational attention and
capital investment, often due to their relatively small size and limited
strategic importance to the previous owner; and (iv) the potential for the
Company to gain control of operations. By maintaining conservative levels of
debt, the Company is able to respond quickly to acquisitions that fit within its
criteria. The Company believes that due to continuing rationalization of
properties, primarily by major integrated and independent energy companies, a
strong backlog of acquisition opportunities should continue. In addition, the
Company seeks to maintain a well-balanced portfolio of oil and natural gas
development, exploitation and exploration projects in order to minimize the
overall risk profile of its investment opportunities while still providing
significant upside potential. The Company's recent Hess and Ottawa Acquisitions
are illustrative of the type of opportunities the Company seeks.
OPERATION OF HIGH WORKING INTEREST PROPERTIES. The Company typically seeks to
acquire working interest positions that give the Company operational control or
which the Company believes may lead to operational control. As the operator of
properties comprising approximately two-thirds of its total PV10 Value, the
Company is better able to manage and monitor production and more effectively
control expenses, the allocation of capital and the timing of field development.
Once a property is acquired, the Company employs its technical and operational
expertise in fully evaluating a field for
2
future potential and, if favorable, consolidates working interest positions
primarily through negotiated transactions which tend to be attractively priced
compared to acquisitions available in competitive situations. The consolidation
of ownership allows the Company to: (i) enhance the effectiveness of its
technical staff by concentrating on relatively few wells; (ii) increase
production while adding virtually no additional personnel; and (iii) increase
ownership in a property to the point where the potential benefits of value
enhancement activities justify the allocation of Company resources.
EXPLOITATION OF PROPERTIES. The Company seeks to maximize the value of its
properties by either increasing production, increasing recoverable reserves or
reducing operating costs, and often through a combination of all three. The
Company utilizes a variety of techniques to achieve this goal, including: (i)
undertaking surface improvements such as rationalizing, upgrading or redesigning
production facilities; (ii) making downhole improvements such as resizing
downhole pumps or reperforating existing production zones; (iii) reworking
existing wells into new production zones with additional potential; (iv)
conducting developmental drilling to access undrained portions of the field
which can only be produced from a new wellbore; and (v) utilizing exploratory
drilling, which is frequently based on various advanced technologies such as 3-D
seismic. The Company believes that by employing a full range of value
enhancement techniques it is better able to extract the maximum value from its
properties.
PERSONNEL. The Company believes it has assembled a highly competitive team
of experienced and technically proficient employees who are motivated through a
positive work environment and by ownership in the Company, which is encouraged
through the Company's stock option and stock purchase plans. The Company's
geological and engineering professionals have an average of over 15 years of
experience in the Gulf Coast region. The Company believes that employee
ownership is essential for attracting, retaining and motivating quality
personnel. Approximately 96% of Denbury's eligible employees were participating
in the Company's stock purchase plan as of December 31, 1996.
ACQUISITIONS OF OIL AND GAS PROPERTIES
Information as to recent acquisitions by the Company is set forth under
Acquisition of Oil and Natural Gas Properties, appearing on pages 10 through 11
of the Annual Report. Such information is incorporated herein by reference.
OIL AND GAS OPERATIONS
Information regarding selected operating data and a discussion of the Company's
two significant operating areas and the primary properties within those two
areas is set forth under Selected Operating Data, Oil and Natural Gas
Operations, Louisiana Operations and Mississippi Operations, appearing on pages
8 and 9 and pages 11 through 20 of the Annual Report. Such information is
incorporated herein by reference.
Oil and Gas Acreage
The following table sets forth Denbury's acreage position at December 31,
1996:
DEVELOPED UNDEVELOPED
----------------------------------- ---------------------------------
GROSS NET GROSS NET
--------------- --------------- --------------- -------------
Louisiana 29,328 20,374 10,137 7,812
Mississippi 17,511 11,138 19,180 8,002
Other 1,710 1,260 1,709 722
--------------- --------------- --------------- -------------
Total 48,549 32,772 31,026 16,536
=============== =============== =============== =============
3
Productive Wells
This table sets forth both the gross and net productive wells at December
31, 1996:
PRODUCING OIL WELLS PRODUCING GAS WELLS TOTAL
--------------------------- --------------------------- -------------------------
GROSS NET GROSS NET GROSS NET
----------- ---------- ----------- ----------- ---------- ----------
Louisiana 44 24.8 66 38.1 110 62.9
Mississippi 142 106.0 28 14.8 170 120.8
Other 4 2.0 12 5.3 16 7.3
----------- ---------- ----------- ----------- ---------- ----------
Total 190 132.8 106 58.2 296 191.0
=========== ========== =========== =========== ========== ==========
Drilling Activity
The following table sets forth the results of drilling activities during
each of the three fiscal years in the period ended December 31, 1996.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994
------------------- ------------------ -------------------
GROSS NET GROSS NET GROSS NET
-------- -------- -------- -------- -------- --------
EXPLORATORY WELLS:
Productive............................ - - - - - -
Nonproductive......................... 1 1.0 2 1.0 3 0.8
DEVELOPMENT WELLS:
Productive............................ 9 7.9 2 1.5 4 2.9
Nonproductive......................... - - - - 1 1.0
-------- -------- -------- -------- -------- --------
Total.................... 10 8.9 4 2.5 8 4.7
======== ======== ======== ======== ======== ========
<FN>
(1) An exploratory well is a well drilled either in search of a new, as-yet
undiscovered oil or gas reservoir or to greatly extend the known limits of a
previously discovered reservoir. A developmental well is a well drilled
within the presently proved productive area of an oil or gas reservoir, as
indicated by reasonable interpretation of available data, with the objective
of completing in that reservoir.
(2) A producing well is an exploratory or development well found to be capable
of producing either oil or gas in sufficient quantities to justify
completion as an oil or gas well.
(3) A dry well is an exploratory or development well that is not a producing well.
</FN>
There was one well in the process of drilling at December 31, 1996.
TITLE TO PROPERTIES
Customarily in the oil and gas industry, only a perfunctory title
examination is conducted at the time properties believed to be suitable for
drilling operations are first acquired. Prior to commencement of drilling
operations, a thorough drill site title examination is normally conducted, and
curative work is performed with respect to significant defects. During
acquisitions, title reviews are performed on all properties; however, formal
title opinions are obtained on only the higher value properties.
PRODUCTION
The following tables summarize sales volume, sales price and production cost
information for the Company's net oil and gas production for each year of the
three-year period ended December 31, 1996. "Net" production is production that
is owned by the Company and produced for its interest after deducting royalties
and other similar interests.
4
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ---------- ----------
NET PRODUCTION VOLUME
Crude oil - (Mbbls) 1,500 728 489
Natural gas - (Mmcf) 8,933 4,844 3,326
Equivalent - MBOE (1) 2,989 1,535 1,043
AVERAGE SALES PRICE
Crude oil - ($/bbl) $ 18.98 $ 14.90 $ 13.84
Natural gas - ($/Mcf) 2.73 1.90 1.78
Per equivalent BOE (1) 17.69 13.05 12.17
AVERAGE PRODUCTION COST
Per equivalent BOE (1) $ 4.51 $ 4.42 $ 4.13
<FN>
(1)Based on a 6 Mcf to 1 Bbl gas to oil conversion ratio.
</FN>
SIGNIFICANT OIL AND GAS PURCHASERS
Oil and gas sales are made on a day-to-day basis under short-term contracts at
the current area market price. The loss of any purchaser would not be expected
to have a material adverse effect upon the Company. For the year ended December
31, 1996, the Company sold 10% or more of its net production of oil and gas to
the following purchasers: Natural Gas Clearinghouse (20%), PennUnion Energy
Services (19%), Enron Oil Trading & Transportation (13%), and Hunt Refining
(15%).
GEOGRAPHIC SEGMENTS
All Canadian oil and gas properties were disposed of in 1993 and thus, all of
the Company's operations are now in the United States.
COMPETITION
The oil and gas industry is highly competitive in all its phases. The
Company encounters strong competition from many other oil and gas producers, in
acquiring economically desirable producing properties and drilling prospects,
and in obtaining equipment and labor to operate and maintain its properties. In
addition, many producers possess larger staffs and greater financial resources
than the Company.
PRICE VOLATILITY
The revenues generated by the Company are highly dependent upon the
prices of oil and natural gas. The marketing of oil and natural gas is affected
by numerous factors beyond the control of the Company. These factors include
crude oil imports, the availability of adequate pipeline and other
transportation facilities, the marketing of competitive fuels, and other factors
affecting the availability of a ready market, such as fluctuating supply and
demand.
PRODUCT MARKETING
Denbury's production is primarily from developed fields close to major
pipelines or refineries and established infrastructure. As a result, Denbury has
not experienced any difficulty in finding a market for all of its product as it
becomes available or in transporting its product to these markets.
5
Oil Marketing
Denbury markets its oil to a variety of purchasers, most of which are
large, established companies. The oil is generally sold under a one-year
contract with the sales price based on an applicable posted price, plus a
negotiated premium. This price is determined on a well-by-well basis and the
purchaser generally takes delivery at the wellhead. Mississippi oil, which
accounted for approximately 73% of the Company's oil production in 1996, is
primarily light sour crude and sells at a discount to the published West Texas
Intermediate posting. The balance of the oil production, Louisiana oil, is
primarily light sweet crude, which typically sells at a slight premium to the
West Texas Intermediate posting.
Natural Gas Marketing
Virtually all of Denbury's natural gas production is close to existing
pipelines and consequently, the Company generally has a variety of options to
market its natural gas. The Company sells the majority of its natural gas on one
year contracts with prices fluctuating month-to-month based on published
pipeline indices with slight premiums or discounts to the index.
Production Price Hedging
For 1995, the Company entered into financial contracts to hedge 75% of
the Company's net natural gas production and 43% of the Company's net oil
production. The net effect of these hedges was to increase oil and natural gas
revenues by approximately $750,000 during 1995. The Company did not have any
hedge contracts in place as of December 31, 1996 although it may have such
contracts in the future.
REGULATIONS
The availability of a ready market for oil and gas production depends upon
numerous factors beyond the Company's control. These factors include regulation
of natural gas and oil production, federal and state regulations governing
environmental quality and pollution control, state limits on allowable rates of
production by well or proration unit, the amount of natural gas and oil
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
State and federal regulations generally are intended to prevent waste of natural
gas and oil, protect rights to produce natural gas and oil between owners in a
common reservoir, control the amount of natural gas and oil produced by
assigning allowable rates of production and control contamination of the
environment. Pipelines are subject to the jurisdiction of various federal, state
and local agencies. The following discussion summarizes the regulation of the
United States oil and gas industry and is not intended to constitute a complete
discussion of the various statutes, rules, regulations and governmental orders
to which the Company's operations may be subject.
Regulation of Natural Gas and Oil Exploration and Production
The Company's operations are subject to various types of regulation at
the federal, state and local levels. Such regulation includes requiring permits
for drilling wells, maintaining bonding requirements in order to drill or
operate wells and regulating the location of wells, the method of drilling and
casing wells, the surface use and restoration of properties upon which wells are
drilled, the plugging and abandoning of wells and the disposal of fluids used in
connection with operations. The Company's operations are also subject to various
conservation laws and regulations. These include the regulation of the size of
drilling and spacing units or proration units and the density of wells which may
be drilled in and the unitization or pooling of oil and gas properties. In
addition, state conservation laws establish maximum rates of production from oil
and gas wells, generally prohibit the venting or flaring of gas and impose
certain requirements regarding the ratability of production. The effect of these
regulations may limit the amount of oil and gas the Company can produce from its
wells and may limit the number of wells or the locations at which the Company
can drill. The regulatory burden on the oil and gas industry increases the
Company's costs of doing business and, consequently, affects
6
its profitability. Inasmuch as such laws and regulations are frequently
expanded, amended and reinterpreted, the Company is unable to predict the future
cost or impact of complying with such regulations.
Federal Regulation of Sales and Transportation of Natural Gas
Federal legislation and regulatory controls in the U.S. have
historically affected the price of the natural gas produced by the Company and
the manner in which such production is marketed. The Federal Energy Regulatory
Commission (the "FERC") regulates the interstate transportation and sale for
resale of natural gas by interstate and intrastate pipelines. The FERC
previously regulated the maximum selling prices of certain categories of gas
sold in "first sales" in interstate and intrastate commerce under the Natural
Gas Policy Act. Effective January 1, 1993, however, the Natural Gas Wellhead
Decontrol Act (the "Decontrol Act") deregulated natural gas prices for all
"first sales" of natural gas, which includes all sales by the Company of its own
production. As a result, all sales of the Company's domestically produced
natural gas may be sold at market prices, unless otherwise committed by
contract. The FERC's jurisdiction over natural gas transportation and gas sales
other than first sales was unaffected by the Decontrol Act.
The Company's natural gas sales are affected by the regulation of
intrastate and interstate gas transportation. In an attempt to restructure the
interstate pipeline industry with the goal of providing enhanced access to, and
competition among, alternative natural gas supplies, the FERC, commencing in
April 1992, issued Order Nos. 636, 636-A and 636-B ("Order No. 636") which have
altered significantly the interstate transportation and sale of natural gas.
Among other things, Order No. 636 required interstate pipelines to unbundle the
various services that they had provided in the past, such as sales, transmission
and storage, and to offer these services individually to their customers. By
requiring interstate pipelines to "unbundle" their services and to provide their
customers with direct access to pipeline capacity held by them, Order No. 636
has enabled pipeline customers to choose the levels of transportation and
storage service they require, as well as to purchase natural gas directly from
third-party merchants other than the pipelines and obtain transportation of such
gas on a non-discriminatory basis. The effect of Order No. 636 has been to
enable the Company to market its natural gas production to a wider variety of
potential purchasers. The Company believes that these changes generally have
improved the Company's access to transportation and have enhanced the
marketability of its natural gas production. To date, Order No. 636 has not had
any material adverse effect on the Company's ability to market and transport its
natural gas production. However, the Company cannot predict what new regulations
may be adopted by the FERC and other regulatory authorities, or what effect
subsequent regulations may have on the Company's activities. In addition, Order
No. 636 and a number of related orders were appealed. Recently, the United
States Court of Appeals for the District of Columbia Circuit issued an opinion
largely upholding the basic features and provision of Order No. 636. However,
even though Order No. 636 itself has been judicially approved, several related
FERC orders remain subject to pending appellate review and further changes could
occur as a result of court order or at the FERC's own initiative.
In recent years the FERC also has pursued a number of other important
policy initiatives which could significantly affect the marketing of natural
gas. Some of the more notable of these regulatory initiatives include (i) a
series of orders in individual pipeline proceedings articulating a policy of
generally approving the voluntary divestiture of interstate natural gas
pipeline-owned gathering facilities to pipeline affiliates, (ii) the completion
of a rulemaking involving the regulation of interstate natural gas pipelines
with marketing affiliates under Order No. 497, (iii) FERC's on-going efforts to
promulgate standards for pipeline electronic bulletin boards and electronic data
exchange, (iv) a generic inquiry into the pricing of interstate pipeline
capacity, (v) efforts to refine FERC's regulations controlling the operation of
the secondary market for released interstate natural gas pipeline capacity, and
(vi) a policy statement regarding market-based rates and other non-cost-based
rates for interstate pipeline transmission and storage capacity. Several of
these initiatives are intended to enhance competition in natural gas markets.
While any resulting FERC action would affect the Company only indirectly, the
ongoing, or, in some instances, preliminary evolving nature of these regulatory
initiatives makes it impossible at this time to predict their ultimate impact
upon the Company's activities.
Oil Price Controls and Transportation Rates
Sales of crude oil, condensate and gas liquids by the Company are not
currently regulated and are made at market prices. Commencing in October 1993,
the FERC has modified its regulation of oil pipeline rates and services in order
to comply with the Energy Policy Act of 1992. That Act mandated the FERC to
streamline oil pipeline ratemaking by
7
abandoning its old, cumbersome procedures and issue new procedures to be
effective January 1, 1995. In response, the FERC issued a series of rules (Order
Nos. 561 and 561-A) establishing an indexing system under which oil pipelines
will be able to change their transportation rates, subject to prescribed ceiling
levels. The FERC's new oil pipeline ratemaking methodology was recently affirmed
by the Court. The Company is not able at this time to predict the effects of
Order Nos. 561 and 561-A, if any, on the transportation costs associated with
oil production from the Company's oil producing operations.
Environmental Regulations
The Company's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. Public interest in the protection of the
environment has increased dramatically in recent years. The trend of more
expansive and stricter environmental legislation and regulations could continue.
To the extent laws are enacted or other governmental action is taken that
restricts drilling or imposes environmental protection requirements that result
in increased costs to the oil and gas industry in general, the business and
prospects of the Company could be adversely affected.
The EPA and various state agencies have limited the approved methods of
disposal for certain hazardous and nonhazardous wastes. Certain wastes generated
by the Company's oil and natural gas operations that are currently exempt from
treatment as "hazardous wastes" may in the future be designated as "hazardous
wastes," and therefore be subject to more rigorous and costly operating and
disposal requirements.
The Company currently owns or leases numerous properties that for many
years have been used for the exploration and production of oil and gas. Most of
these properties have been operated by prior owners, operators and third parties
whose treatment and disposal or release of hydrocarbons or other wastes was not
under the Company's control. These properties and the wastes disposed thereon
may be subject to Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), Federal Resource Conservation and Recovery Act and
analogous state laws. Under such laws, the Company could be required to remove
or remediate previously disposed wastes (including wastes disposed of or
released by prior owners or operators) or property contamination (including
groundwater contamination) or to perform remedial plugging operations to prevent
future contamination.
The Company's operations may be subject to the Clean Air Act ("CAA")
and comparable state and local requirements. Certain provisions of CAA may
result in the gradual imposition of certain pollution control requirements with
respect to air emissions from the operations of the Company. The EPA and states
have been developing regulations to implement these requirements. The Company
may be required to incur certain capital expenditures in the next several years
for air pollution control equipment in connection with maintaining or obtaining
operating permits and approvals addressing other air emission-related issues.
However, the Company does not believe its operations will be materially
adversely affected by any such requirements.
Federal regulations require certain owners or operators of facilities
that store or otherwise handle oil, such as the Company, to prepare and
implement spill prevention, control, countermeasure and response plans relating
to the possible discharge of oil into surface waters. The Oil Pollution Act of
1990 ("OPA") contains numerous requirements relating to the prevention of and
response to oil spills into waters of the United States. The OPA subjects owners
of facilities to strict joint and several liability for all containment and
cleanup costs and certain other damages arising from a spill, including but not
limited to, the costs of responding to a release of oil to surface waters.
Regulations are currently being developed under the OPA and state laws
concerning oil pollution prevention and other matters that may impose additional
regulatory burdens on the Company.
The Company also is subject to a variety of federal, state, and local
permitting and registration requirements relating to protection of the
environment. Management believes that the Company is in substantial compliance
with current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse impact on
the Company.
8
TAXATION
Since all of the Company's oil and natural gas operations are located
in the United States, the Company's primary tax concerns relate to U.S. tax
laws, rather than Canadian laws. Certain provisions of the United States
Internal Revenue Code of 1986, as amended, are applicable to the petroleum
industry. Current law permits the Company to deduct currently, rather than
capitalize, intangible drilling and development costs ("IDC") incurred or borne
by it. The Company, as an independent producer, is also entitled to a deduction
for percentage depletion with respect to the first 1,000 barrels per day of
domestic crude oil (and/or equivalent units of domestic natural gas) produced by
it (if such percentage of depletion exceeds cost depletion). Generally, this
deduction is 15% of gross income from an oil and natural gas property, without
reference to the taxpayer's basis in the property. Percentage depletion can not
exceed the taxable income from any property (computed without allowance for
depletion), and is limited in the aggregate to 65% of the Company's taxable
income. Any depletion disallowed under the 65% limitation, however, may be
carried over indefinitely. See Note 4 of the Consolidated Financial Statements
for additional tax disclosures.
ESTIMATED NET QUANTITIES OF PROVED OIL AND GAS RESERVES AND PRESENT VALUE OF
ESTIMATED FUTURE NET REVENUES
Net proved oil and gas reserves as of December 31, 1996 and 1995, have
been prepared by Netherland, Sewell and Associates, Inc. and the net oil and gas
reserves as of December 31, 1994 were prepared by the Scotia Group, Inc., both
independent petroleum engineers are located in Dallas, Texas. See Note 10 to the
Consolidated Financial Statements for disclosure of reserve amounts.
FORWARD-LOOKING INFORMATION
The statements contained in this Annual Report on Form 10-K ("Annual
Report") that are not historical facts, including, but not limited to,
statements found in this Item 1. Business and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations, are
forward-looking statements, as that term is defined in Section 21E of the
Securities and Exchange Act of 1934, as amended, that involve a number of risks
and uncertainties. The actual results of the future events described in such
forward-looking statements in this Annual Report could differ materially from
those stated in such forward-looking statements. Among the factors that could
cause actual results to differ materially are: fluctuations of the prices
received or demand for the Company's oil and natural gas, the uncertainty of
drilling results and reserve estimates, operating hazards, acquisition risks,
requirements for capital, general economic conditions, competition and
government regulations, as well as the risks and uncertainties discussed in this
Annual Report, including, without limitation, the portions referenced above, and
the uncertainties set forth from time to time in the Company's other public
reports, filings and public statements.
ITEM 2. PROPERTIES
See Item 1. Business - Oil and Gas Operations, Oil and Gas Acreage,
Productive Wells and Estimated Net Quantities of Proved Oil and Gas Reserves and
Present Value of Estimated Future Net Revenues. The Company also has various
operating leases for rental of office space, office equipment, and vehicles. See
Note 7 "Commitments and Contingencies" of the Consolidated Financial Statements
for the future minimum rental payments.
ITEM 3. LEGAL PROCEEDINGS
On July 19, 1996, KCS Medallion Resources Inc. filed a lawsuit against
the Company and other working interest owners in U.S. District Court - Western
District of Louisiana, Lafayette Division, alleging damages of $3.9 million plus
certain expenses from a dispute in the interpretation of an operating agreement.
Management believes that any settlement of this lawsuit will not be material to
the financial position, operation or cash flows of the Company.
On November 18, 1996 a class action lawsuit was filed against the
Company in the 32nd Judicial District Court, Terrebonne Parish, Louisiana
seeking undisclosed damages for personal injury as a result of a gas eruption at
Gibson
9
Field, Louisiana. Management believes that any settlement of this lawsuit will
not be material to the financial position, operations or cash flow of the
Company.
There are no other potentially material pending legal proceedings to
which the Company or any of its subsidiaries is a party or of which any of their
property is the subject. However, due to the nature of its business, certain
legal or administrative proceedings arise from time to time in the ordinary
course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Special meeting held on October 9, 1996, the common
shareholders of the Company approved the following (as allowed under Canadian
regulations, abstentions were not counted). These votes have been adjusted for
the one-for-two reverse stock split approved at the Special Meeting and also
exclude the votes of any related party in the second and third resolutions.
FOR AGAINST
------------------- ----------------
1. A Special Resolution, amending the Articles of Continuance of the 7,276,960 2,925
Corporation to consolidate the number of issued and outstanding
Common Shares of the Corporation on the basis of one (1) Common
Share for each two (2) Common Shares outstanding.
2. A Special Resolution, amending the Articles of Continuance of the 2,965,344 310
Corporation by modifying the conversion provisions attaching to the
Convertible First Preferred Shares, Series A (the "Preferred Shares") which
will give the Corporation the right to require the holders of the Preferred
Shares to convert their Preferred Shares into Common Shares at any time,
provided that the conversion rate in effect as of January 1, 1999 will be
used for any required conversion prior to such date.
3. An Ordinary Resolution, to authorize the Corporation to issue 7,069,435 2,186
Common Shares at an issue price of Cdn. $7.36 per share in payment
of the interest that would be due on the 9 1/2% Convertible Debentures of
the Corporation from the conversion date (following shareholder approval of
the Ordinary Resolution), to and including April 13, 1997, if the holders of
such debentures convert their debentures into Common Shares prior to April
13, 1997.
PART II
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED MATTERS
Information as to the markets in which the Company's Common Stock is
traded, the quarterly high and low prices for such stock, the dividends declared
with respect to the Common Stock during the last two years, and the approximate
number of stockholders of record at February 1, 1997, is set forth under
Quarterly Stock Information, appearing on page 47 of the Annual Report.
Information as to restrictions on the payment of dividends with respect to the
Corporation's Common Stock is set forth in Note 5 to Financial statements,
appearing on page 37 of the Annual Report. Such information is incorporated
herein by reference. The closing price of the Company's stock on NASDAQ and the
TSE on March 17, 1997 was $13.11 and $18.00 respectively.
10
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the Company for each of the last five years
are set forth under Financial Highlights, appearing on page 3 of the Annual
Report. All such information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information as to the Company's financial condition, changes in
financial condition and results of operations and other matters is set forth in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, appearing on pages 21 through 27 of the Annual Report, and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, accounting policy
disclosures, note to financial statements, business segment information and
independent auditors' report are presented on pages 28 through 46 of the Annual
Report. Selected quarterly financial data are set forth under Unaudited
Quarterly Information appearing on page 46 of the Annual Report. All such
information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS OF THE COMPANY
Information as to the names, ages, positions and offices with Denbury,
terms of office, periods of service, business experience during the past five
years and certain other directorships held by each director or person nominated
to become a director of Denbury is set forth in the Election of Directors
segment of the Proxy Statement and is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the executive officers of Denbury is set forth
in the Executive Officers report of the Proxy Statement and is incorporated
herein by reference.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's executive officers and directors, and persons
who beneficially own more than ten percent (10%) of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and exchanges and to
furnish the Company with copies. Based solely on its review of the copies of
such forms received by it, or written representations from such persons, the
Company is not aware of any person who failed to file any reports required by
Section 16(a) to be filed for fiscal 1996 except for the late filing of Form 3
by Mr. David Bonderman after he first became a director on May 15, 1996.
11
ITEM 11. EXECUTIVE COMPENSATION
Information concerning remuneration received by Denbury's executive
officers and directors is presented under the caption "Statement of Executive
Compensation" in the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to the number of shares of Denbury's equity securities
beneficially owned as of February 28, 1997, by each of its directors and
nominees for director, its five most highly compensated executive officers and
its directors and executive officers as a group is presented under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information on related transactions is presented under the caption
"Compensation Committee Interlocks and Insider Participation" and "Interests of
Insiders in Material Transactions" in the Proxy Statement and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES. Financial statements filed as a part of
this report are presented on pages 28 through 46 of the Annual Report and
are incorporated herein by reference. The following schedules are filed as
part of this report:
Schedule I: Condensed Financial Information of the Registrant.
EXHIBITS. The following exhibits are filed as a part of this report.
EXHIBIT NO. EXHIBIT
3(a) Articles of Continuance of the Company, as amended (incorporated by
reference as Exhibits 3(a), 3(b), 3(c), 3(d) of the Registrant's
Registration Statement on Form F-1 dated August 25, 1995, Exhibit 4(e)
of the Registrant's Registration Statement on Form S-8 dated February
2, 1996 and Exhibit 3(a) of the Pre- effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-1 dated October 22,
1996).
3(b) General By-Law No. 1: A By-Law Relating Generally to the Conduct of
the Affairs of the Company, as amended (incorporated by reference as
Exhibit 3(e) of the Registrant's Registration Statement on Form F-1
dated August 25, 1995 and Exhibit 4(d) of the Registrant's
Registration Statement on Form S-8 dated February 2, 1996).
12
EXHIBIT NO. EXHIBIT
4(a) "Common Shares" section of Schedule "A" to Articles of Amendment of
Newscope Resources Limited dated December 13, 1990, exhibited in full
at 3(a) (incorporated by reference as Exhibit 4(a) of the Registrant's
Registration Statement on Form F-1 dated August 25, 1995).
4(b) Section 1.05 of General By-Law No. 1, exhibited in full at 3(b)
(incorporated by reference as Exhibit 4(b) of the Registrant's
Registration Statement on Form F-1 dated August 25, 1995).
4(c) Pages 8-14 of General By-Law No. 1, exhibited in full at 3(b)
(incorporated by reference as Exhibit 4(c) of the Registrant's
Registration Statement on Form F-1 dated August 25, 1995).
10(a)Shelf Registration Agreement dated April 24, 1995, by and among
Newscope Resources Ltd. and holders of Special Warrants (incorporated
by reference as Exhibit 10(a) of the Registrant's Registration
Statement on Form F-1 dated August 25, 1995).
10(b)Credit Agreement between Denbury Management Inc., Borrower, Denbury
Resources Inc., Guarantor, Denbury Holdings, Ltd., Guarantor, and
NationsBank of Texas N.A. as agent dated May 31, 1996 (incorporated by
reference as Exhibit 10(b) of the Registrant's Post-effective
Amendment No. 2 to Form F-1 on Form S-1 dated June 25, 1996).
10(c)Common Share Purchase Warrant representing right of Internationale
Nederlanden (U.S.) Capital Corporation to purchase 150,000 Common
Shares of Newscope Resources Ltd. (incorporated by reference as
Exhibit 10(c) of the Registrant's Registration Statement on Form F-1
dated August 25, 1995).
10(d)Registration Rights Agreement dated May 5, 1995, between
Internationale Nederlanden (U.S.) Capital Corporation and Newscope
Resources Ltd. (incorporated by reference as Exhibit 10(d) of the
Registrant's Registration Statement on Form F-1 dated August 25,
1995).
10(e)Denbury Resources Inc. Stock Option Plan (incorporated by reference
as Exhibit 4(f) of the Registrant's Registration Statement on Form S-8
dated February 2, 1996).
10(f)Denbury Resources Inc. Stock Purchase Plan (incorporated by reference
as Exhibit 4(g) of the Registrant's Registration Statement on Form S-8
dated February 2, 1996).
10(g)Form of indemnification agreement between Newscope Resources Ltd. and
its officers and directors (incorporated by reference as Exhibit 10(h)
of the Registrant's Form 10-K for the year ended December 31, 1995).
10(h)Securities Purchase Agreement and exhibits between Newscope Resources
Ltd. and TPG Partners, L.P. as of November 13, 1995 (incorporated by
reference as Exhibit 10(i) of the Registrant's Form 10-K for the year
ended December 31, 1995).
13
EXHIBIT NO. EXHIBIT
10(i)First Amendment to the November 13, 1995 Securities Purchase
Agreement between Newscope Resources Ltd. and TPG Partners, L.P. as of
December 21, 1995 (incorporated by reference as Exhibit 10(j) of the
Registrant's Form 10-K for the year ended December 31, 1995).
10(j)Stock Purchase Agreement between TPG Partners, L.P. and Denbury
Resources Inc. dated as of October 2, 1996, (incorporated by reference
as Exhibit 10(k) of the Post-effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-1 dated October 22, 1996
11* Statement re-computation of per share earnings.
13* Annual Report to the Security Holders.
21* List of Subsidiaries of Denbury Resources Inc.
23* Consent of Deloitte & Touche.
27* Financial Data Schedule.
* Filed herewith.
(b) 8-K'S FILED DURING THE FOURTH QUARTER OF 1996.
None
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DENBURY RESOURCES INC.
Company
March 19, 1997 /s/ Phil Rykhoek
---------------------------
Phil Rykhoek
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
March 19, 1997 /s/ Ronald G. Greene
--------------------
Ronald G. Greene
Chairman of the Board and Director
March 19, 1997 /s/ Gareth Roberts
------------------
Gareth Roberts
Director, President and Chief Executive Officer
(Principal Executive Officer)
March 19, 1997 /s/ Phil Rykhoek
----------------
Phil Rykhoek
Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
March 19, 1997 /s/ David M. Stanton
--------------------
David M. Stanton
Director
March 19, 1997 /s/ Wieland F. Wettstein
------------------------
Wieland F. Wettstein
Director
15
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Denbury Resources Inc.
We have audited the financial statements of Denbury Resources Inc. as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, and have issued our report thereon dated February 21, 1997,
such financial statements and report are included elsewhere in this Form 10-K.
Our audits also included the financial statement schedule of Denbury Resources
Inc., listed in Item 14. This financial statement schedule is the responsibility
of the Corporation's management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Deloitte & Touche
Chartered Accountants
Calgary, Alberta
February 21, 1997
1
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DENBURY RESOURCES INC.
UNCONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. dollars)
December 31,
------------------------------------
1996 1995
------------- -------------
Assets
CURRENT ASSETS
Cash and cash equivalents $ 274 $ 8
TRADE AND OTHER RECEIVABLES 6 7
------------- -------------
TOTAL CURRENT ASSETS 280 15
------------- -------------
INVESTMENT IN SUBSIDIARIES (EQUITY METHOD) 140,763 70,130
LOAN RECEIVABLE FROM SUBSIDIARY 1,558 1,563
OTHER ASSETS 2 28
------------- -------------
Total assets $ 142,603 $ 71,736
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 99 $ 9
LONG-TERM DEBT - 3,226
------------- -------------
99 3,235
------------- -------------
Convertible First Preferred Shares, Series A
1,500,000 shares authorized; issued and
outstanding at December 31, 1995 - 15,000
------------- -------------
SHAREHOLDERS' EQUITY
Common shares, no par value
unlimited shares authorized;
outstanding - 20,055,757 shares at December 31, 1996
and 11,428,809 shares at December 31, 1995 130,323 50,064
RETAINED EARNINGS 12,181 3,437
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 142,504 53,501
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 142,603 $ 71,736
============= =============
(SEE NOTES TO CONDENSED FINANCIAL STATEMENTS)
2
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DENBURY RESOURCES INC.
UNCONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share amounts)
(U.S. dollars)
Year Ended December 31,
---------------------------------------------------
1996 1995 1994
----------- ----------- -----------
REVENUES
Interest income and other $ 179 $ 460 $ 1
----------- ----------- -----------
EXPENSES
General and administrative 161 178 149
Interest 304 282 76
Imputed preferred dividends 1,281 - -
Depletion and depreciation - - 2
----------- ----------- -----------
Total expenses 1,746 460 227
----------- ----------- -----------
Loss before the following: (1,567) - (226)
Equity in net earnings of subsidiaries 10,311 714 1,389
----------- ----------- -----------
Income before income taxes 8,744 714 1,163
Provision for federal income taxes - - -
----------- ----------- -----------
NET INCOME $ 8,744 $ 714 $ 1,163
=========== =========== ===========
NET INCOME PER COMMON SHARE
Primary $ 0.67 $ 0.10 $ 0.19
Fully diluted 0.62 0.10 0.19
Average number of common shares outstanding 13,104 6,870 6,240
=========== =========== ===========
(See Notes to Condensed Financial Statements)
3
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DENBURY RESOURCES INC.
UNCONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of U.S. dollars)
Year Ended December 31,
------------------------------------------
1996 1995 1994
----------- ----------- ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 8,744 $ 714 $ 1,163
Adjustments needed to reconcile to net cash flow provided by operations:
Depreciation, depletion and amortization - - 2
Imputed preferred dividend 1,281 - -
Other 114 17 9
Equity in net earnings of subsidiaries (10,311) (714) (1,389)
----------- ----------- ------------
(172) 17 (215)
Changes in working capital items relating to operations:
Trade and other receivables - (4) 8
Accounts payable and accrued liabilities 90 (12) (77)
----------- ----------- ------------
NET CASH FLOW PROVIDED BY (USED BY) OPERATIONS (82) 1 (284)
----------- ----------- ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Investments in subsidiaries (60,316) (43,569) (1,518)
Net purchases of other assets - 7 (15)
----------- ----------- ------------
NET CASH USED FOR INVESTING ACTIVITIES (60,316) (43,562) (1,533)
----------- ----------- ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of subordinated debt - 1,772 1,451
Issuance of common stock 60,664 26,825 367
Issuance of preferred stock - 15,000 -
Costs of debt financing - (35) -
----------- ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 60,664 43,562 1,818
----------- ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 266 1 1
Cash and cash equivalents at beginning of year 8 7 6
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 274 $ 8 $ 7
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 277 $ 282 $ 76
(See Notes to Condensed Financial Statements)
4
DENBURY RESOURCES INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Consolidation - The financial statements of Denbury Resources Inc. have been
prepared in accordance with Canadian generally accepted accounting principles
and reflect the investment in subsidiaries using the equity method.
Income Taxes - No provision for income taxes has been made in the Statement
of Income because the Company has losses for Canadian tax purposes.
NOTE 2. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the Consolidated Financial Statements and related
notes of Denbury Resources Inc. and Subsidiaries for additional information.
NOTE 3. DEBT AND GUARANTEES
Information on the long-term debt of Denbury Resources Inc. is disclosed in
Note 3 to the Consolidated Financial Statements. Denbury Resources Inc. has
guaranteed the subsidiaries' bank credit line.
NOTE 4. DIVIDENDS RECEIVED
Subsidiaries' of Denbury Resources Inc. do not make formal cash dividend
declarations and distributions to the parent and are currently restricted from
doing so under the subsidiaries bank loan agreement.
5