SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
----------------------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 33-93722
---------------------------
DENBURY RESOURCES INC.
(Exact name of Registrant as specified in its charter)
Delaware 75-2815171
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
5100 Tennyson Parkway
Suite 3000 75024
Plano, TX (Zip code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (972) 673-2000
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
Common Stock, $.001 par value 45,434,926
DENBURY RESOURCES INC.
INDEX
Part I. Financial Information
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1999 (Unaudited)
and December 31, 1998 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Part II. Other Information
Item 2. Change in Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
2
DENBURY RESOURCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. Dollars and in U.S. GAAP)
March 31, December 31,
1999 1998
--------- ---------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 7,063 $ 2,049
Accrued production receivable 7,155 5,495
Trade and other receivables 11,294 16,390
--------- ----------
Total current assets 25,512 23,934
--------- ----------
Property and equipment (using full cost accounting)
Oil and gas properties 531,654 508,571
Unevaluated oil and gas properties 49,040 65,645
Less accumulated depreciation and depletion (398,660) (393,552)
--------- ----------
Net property and equipment 182,034 180,664
--------- ----------
Other assets 8,835 8,261
--------- ----------
Total assets $ 216,381 $ 212,859
========= ==========
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued liabilities $ 9,503 $ 13,570
Oil and gas production payable 6,028 5,118
--------- ----------
Total current liabilities 15,531 18,688
--------- ----------
Long-term liabilities
Long-term debt 234,630 225,000
Provision for site reclamation costs 1,513 1,436
--------- ----------
Total long-term liabilities 236,143 226,436
--------- ----------
Stockholders' deficit
Preferred stock, $.001 par value, 25,000,000
shares authorized; none issued and outstanding - -
Common stock, $.001 par value, 100,000,000
shares authorized; 26,801,680 shares issued
and outstanding at March 31, 1999 and
December 31, 1998 27 27
Paid-in capital in excess of par 227,769 227,769
Accumulated deficit (263,089) (260,061)
--------- ----------
Total stockholders' deficit (35,293) (32,265)
--------- ----------
Total liabilities and stockholders' deficit $ 216,381 $ 212,859
========= ==========
(See accompanying notes to Condensed Consolidated Financial Statements)
3
DENBURY RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share amounts)
(Unaudited - U.S. dollars and in U.S. GAAP)
Three Months Ended
March 31,
-------------------------
1999 1998
--------- ---------
Revenues
Oil, gas and related product sales $ 14,703 $ 25,188
Interest and other income 361 367
--------- ---------
Total revenues 15,064 25,555
--------- ---------
Expenses
Production 5,855 7,854
General and administrative 1,890 1,776
Interest 4,858 4,391
Depletion and depreciation 5,335 12,387
Franchise taxes 154 200
--------- ---------
Total expenses 18,092 26,608
--------- ---------
Loss before income taxes (3,028) (1,053)
Income tax benefit - 373
--------- ---------
Net loss $ (3,028) $ (680)
========= =========
Net loss per common share
Basic $ (0.11) $ (0.03)
Diluted (0.11) (0.03)
Average number of common shares outstanding 26,802 23,425
========= =========
(See accompanying notes to Condensed Consolidated Financial Statements)
4
DENBURY RESOURCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in thousands of U.S. dollars and in U.S. GAAP)
(Unaudited)
Three Months Ended
March 31,
----------------------
1999 1998
--------- ---------
Cash flow from operating activities:
Net loss $ (3,028) $ (680)
Adjustments needed to reconcile to net
cash flow provided by operations:
Depreciation, depletion and amortization 5,335 12,387
Deferred income taxes - (373)
Other 190 121
--------- ---------
2,497 11,455
Changes in working capital items relating to operations:
Accrued production receivable (1,660) (1,593)
Trade and other receivables 5,096 2,077
Accounts payable and accrued liabilities (4,067) (6,965)
Oil and gas production payable 910 1,371
--------- ---------
Net cash flow provided by operations 2,776 6,345
--------- ---------
Cash flow from investing activities:
Oil and natural gas expenditures (4,678) (26,163)
Acquisition of oil and natural gas properties (1,800) (247)
Net purchases of other assets (439) (279)
--------- --------
Net cash used for investing activities (6,917) (26,689)
--------- ---------
Cash flow from financing activities:
Bank repayments - (200,000)
Bank borrowings 9,630 -
Issuance of senior subordinated debt - 125,000
Issuance of common stock - 93,345
Costs of debt financing (475) (3,518)
Other - (1)
--------- ---------
Net cash provided by financing activities 9,155 14,826
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,014 (5,518)
Cash and cash equivalents at beginning of period 2,049 9,326
--------- ---------
Cash and cash equivalents at end of period $ 7,063 $ 3,808
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the quarter for interest $ 8,183 $ 3,225
(See accompanying notes to Condensed Consolidated Financial Statements)
5
DENBURY RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES
Interim Financial Statements
These financial statements and the notes thereto should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1998. Any capitalized terms used but not defined in these Notes to
Consolidated Financial Statements have the same meaning given to them in the
Form 10-K.
Accounting measurements at interim dates inherently involve greater
reliance on estimates then at year end and the results of operations for the
interim periods shown in this report are not necessarily indicative of results
to be expected for the fiscal year. In the opinion of management of Denbury
Resources Inc. (the "Company" or "Denbury"), the accompanying unaudited
condensed consolidated financial statements include all adjustments (of a normal
recurring nature) necessary to present fairly the consolidated financial
position of the Company as of March 31, 1999 and the consolidated results of its
operations and cash flow for the three months ended March 31, 1999 and 1998.
Net Income and Loss per Common Share
Basic net income or loss per common share is computed by dividing the net
income or loss by the weighted average number of shares of common stock
outstanding. In accordance with generally accepted accounting principles
("GAAP"), the stock options and warrants would be included in the calculation of
diluted earnings per share but were anti-dilutive to the calculations of diluted
losses per share.
2. NOTES PAYABLE AND LONG-TERM INDEBTEDNESS
March 31, December 31,
1999 1998
-------- ---------
(Amounts in thousands)
(Unaudited)
Senior bank loan $109,630 $ 100,000
9% Senior Subordinated Notes due 2008 125,000 125,000
-------- ---------
Total long-term debt $234,630 $ 225,000
======== =========
3. CHANGE TO UNITED STATES GAAP; DIFFERENCES IN GAAP BETWEEN UNITED STATES AND
CANADA
In April 1999, the Company moved its corporate domicile from Canada to the
United States as a Delaware corporation (see Note 4). As a result of this move,
the consolidated financial statements have been prepared in accordance with
United States GAAP rather than Canadian GAAP. For the periods presented herein,
there are not any differences between United States and Canadian GAAP.
Historically, the Company has had differences between the two accounting methods
in the areas of diluted earnings per share, the handling of losses on the early
extinguishment of debt and the guidelines regarding full cost ceiling tests.
6
DENBURY RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. 1999 SALE OF EQUITY AND MOVE OF DOMICILE
At a special meeting of the stockholders held on April 20, 1999, the
stockholders approved (i) a move of the Corporate's domicile from Canada to the
United States as a Delaware corporation, (ii) the sale of 18,552,876 common
shares to an affiliate of the Texas Pacific Group ("TPG") for $100 million or
$5.39 per share, and (iii) increases in the number of shares available for
issuance under the Company's stock purchase and stock option plans. The move of
domicile was completed on April 21, 1999 and along with the move, the Company's
wholly-owned subsidiary, Denbury Management Inc. ("DMI"), was merged into the
new Delaware parent company, Denbury Resources Inc. This move of domicile did
not have any effect on the operations and assets of the Company and as part of
the move and merger, Denbury Resources Inc. expressly assumed any and all
liabilities of its subsidiary, DMI, including the obligation for the 9% Senior
Subordinated Notes due 2008 and the outstanding bank credit facility. The
financial statements and notes herein have been modified to reflect the capital
structure of the Company after the move of domicile even though this transaction
occurred after the balance sheet date.
The transaction with TPG was also completed on April 21, 1999. As a result
of the equity transaction, TPG's ownership of the outstanding common stock of
the Company increased from 32% to 60%. The Company intends to use the proceeds
from the equity sale for acquisitions, although in the interim, the funds were
used to reduce the outstanding bank debt to $9.6 million.
The following table sets forth as of March 31, 1999 the actual
capitalization of Denbury, and the pro forma capitalization of Denbury as
adjusted to give effect to the TPG purchase transaction and the use of the net
proceeds from that sale (estimated at $98.5 million after expenses) to reduce
bank debt. This table excludes 3,526,163 outstanding stock options as of March
31, 1999 exercisable at various prices ranging from $4.24 to $22.24 per share
with a weighted average price of approximately $8.93, of which 604,488 were
currently exercisable, and 75,000 common shares reserved for issuance upon
exercise of common share purchase warrants.
As of March 31, 1999
-----------------------
As Adjusted
Company for the TPG
Historical Purchase
---------- ---------
(in thousands)
Cash and cash equivalents............................. $ 7,063 $ 5,563
========== =========
Short-term debt:
Credit Facility.................................... $ - $ -
---------- ---------
Long-term debt:
Credit Facility.................................... 109,630 9,630
9% Senior Subordinated Notes due 2008.............. 125,000 125,000
---------- ---------
Total long-term debt......................... 234,630 134,630
---------- ---------
Stockholders' equity (deficit):
Common stock, $.001 par value; 100,000,000 shares
authorized; 26,801,680 issued and outstanding;
45,354,556 issued and outstanding as
adjusted for the TPG purchase.................... 27 45
Paid-in capital in excess of par................... 227,769 326,251
Accumulated deficit................................ (263,089) (263,089)
---------- ---------
Total stockholders' equity (deficit)............ (35,293) 63,207
---------- ---------
Total capitalization........................ $ 199,337 $ 197,837
========== =========
7
DENBURY RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. PRODUCT PRICE HEDGING CONTRACTS
During June and July 1998, the Company entered into two no-cost financial
contracts ("collars") to hedge a total of 40 million cubic feet of natural gas
per day ("MMcf/d"). The first natural gas contract for 35 MMcf/d covers the
period from July 1998 to June 1999 and has a floor price of $1.90 per million
British Thermal Units ("MMBtu") and a ceiling price of $2.96 per MMBtu. The
second natural gas contract for five MMcf/d covers the period from September
1998 to August 1999 and has a floor price of $1.90 per MMBtu and a ceiling price
of $2.89 per MMBtu. During December 1998, the Company extended these natural gas
hedges through December 2000 by entering into an additional no-cost collar with
a floor price of $1.90 per MMBtu and a ceiling price of $2.58 per MMBtu for the
period of July 1999 through December 2000. This contract hedges 25 MMcf/d for
the months of July and August 1999 and 30 MMcf/d for each month thereafter. The
Company collected $539,000 on these financial contracts during the first quarter
of 1999. These three contracts cover over 100% of the Company's current net
natural gas production. Based on the futures market prices at March 31, 1999,
the Company would not receive or pay any material amounts under these commodity
contracts even though they covered more than the Company's production because
the futures market prices at March 31, 1999 were within the contract collars.
During the fourth quarter of 1998, the Company also modified certain of its
oil sales contracts. The new contracts, which are generally for a period of
eighteen months, provide that approximately 45% of the Company's oil production
as of January 31, 1999, has a price floor of between $8.00 and $10.00 per Bbl.
This equates to a NYMEX oil price of between $15.00 and $16.00 per Bbl. As
compensation for the price floors, the contracts provide that the premiums
received on the posted prices decrease as oil prices rise.
During March and April, 1999, the Company entered into two no-cost
financial contracts to hedge a portion of its oil production. The first contract
was a fixed price swap for 3,000 Bbls/d for the period of April through
December, 1999 at a price of $14.24 per Bbl. The second contract was a collar to
hedge 3,000 Bbls/d for the period of May, 1999 through December, 2000 with a
floor price of $14.00 per Bbl and a ceiling price of $18.05 per Bbl. No funds
were paid or received on these contracts during the first quarter of 1999. These
two oil financial contracts hedge approximately 60% of the Company's current oil
production. For further discussion regarding the Company's derivative financial
instruments, see "Market Risk Management" in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
8
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Company's financial
statements contained herein and in Form 10-K for the year ended December 31,
1998, along with Management's Discussion and Analysis contained in such Form
10-K. Any capitalized terms used but not defined in the following discussion
have the same meaning given to them in the Form 10-K.
Denbury is an independent energy company engaged in acquisition,
development and exploration activities in the U.S. Gulf Coast region, primarily
onshore in Louisiana and Mississippi. The Company's growth in proved reserves,
production and cash flow over the years has been achieved 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.
1999 SALE OF EQUITY AND MOVE OF DOMICILE. At a special meeting of the
stockholders held on April 20, 1999, the stockholders approved (i) a move of the
Corporate's domicile from Canada to the United States as a Delaware corporation,
(ii) the sale of 18,552,876 common shares to an affiliate of the Texas Pacific
Group ("TPG") for $100 million or $5.39 per share, and (iii) increases in the
number of shares available for issuance under the Company's stock purchase and
stock option plans. The move of domicile was completed April 21, 1999 and along
with the move, the Company's wholly-owned subsidiary, Denbury Management Inc.
("DMI"), was merged into the new Delaware parent company, Denbury Resources Inc.
This move of domicile did not have any effect on the operations and assets of
the Company and as part of the move and merger, Denbury Resources Inc. expressly
assumed any and all liabilities of its subsidiary, DMI, including the obligation
for the 9% Senior Subordinated Notes due 2008 and the outstanding bank credit
facility.
The sale of equity to TPG was also completed on April 21, 1999. As a result
of this transaction, TPG's ownership of the outstanding common stock of the
Company increased from 32% to 60%. The Company has approximately 45.4 million
common shares outstanding after this transaction. The Company intends to use the
proceeds from the equity sale for acquisitions, although in the interim, the
funds were used to reduce its outstanding bank debt.
The following table sets forth as of March 31, 1999 the actual
capitalization of Denbury, and the pro forma capitalization of Denbury as
adjusted to give effect to the TPG purchase transaction and the use of the net
proceeds from that sale (estimated at $98.5 million after expenses) to reduce
bank debt. This table excludes 3,526,163 outstanding stock options as of March
31, 1999 exercisable at various prices ranging from $4.24 to $22.24 per share
with a weighted average price of approximately $8.93, of which 604,488 were
currently exercisable, and 75,000 common shares reserved for issuance upon
exercise of common share purchase warrants.
9
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As of March 31, 1999
-----------------------
As Adjusted
Company for the TPG
Historical Purchase
---------- ---------
(in thousands)
Cash and cash equivalents............................. $ 7,063 $ 5,563
========== =========
Short-term debt:
Credit Facility.................................... $ - $ -
---------- ---------
Long-term debt:
Credit Facility.................................... 109,630 9,630
9% Senior Subordinated Notes due 2008.............. 125,000 125,000
---------- ---------
Total long-term debt......................... 234,630 134,630
---------- ---------
Stockholders' equity (deficit):
Common stock, $.001 par value; 100,000,000 shares
authorized; 26,801,680 issued and outstanding;
45,354,556 issued and outstanding as adjusted
for the TPG purchase............................ 27 45
Paid-in capital in excess of par................... 227,769 326,251
Accumulated deficit................................ (263,089) (263,089)
---------- ---------
Total stockholders' equity (deficit)............ (35,293) 63,207
---------- ---------
Total capitalization........................ $ 199,337 $ 197,837
========== =========
FEBRUARY 1999 AMENDMENT TO BANK CREDIT FACILITY. On February 19, 1999, the
Company completed an amendment to its credit facility with Bank of America, as
agent for a group of eight other banks. This amendment set the borrowing base at
$110 million, of which $60 million was considered by the banks to be within
their normal credit guidelines. The credit facility continues with its other
restrictions such as a prohibition on the payment of dividends and a prohibition
on most debt, liens and corporate guarantees. This amendment:
o provided certain relief on the minimum equity and interest coverage
tests;
o changed the facility to one secured by substantially all of the
Company's oil and natural gas properties;
o requires that as long as the borrowing base is larger than a borrowing
base that conforms to normal credit guidelines (currently $60 million),
that at least 75% of the funds borrowed subsequent to the closing of
the TPG purchase must be used for either qualifying acquisitions or
capital expenditures made to maintain, enhance or develop its proved
reserves; and
o increased the interest rate to a range from LIBOR plus 1.0% to LIBOR
plus 1.75% (depending on the amounts outstanding) and LIBOR plus 2.125%
if the outstanding debt exceeds the borrowing base under normal credit
guidelines, currently set at $60 million.
After the repayment in April, 1999 with the proceeds from the sale of
equity to TPG, there was approximately $9.6 million outstanding on the facility,
leaving a total borrowing capacity of approximately $100 million. The next
scheduled re-determination of the borrowing base will be as of October 1, 1999,
based on June 30, 1999 assets and proved reserves. There can be no assurance
that the banks will not reduce the borrowing base at that time, as such
10
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
redetermination will depend on current and expected oil and natural gas prices
at that time, the Company's development and acquisition results during 1999, the
current level of debt and several other factors, some of which are beyond the
Company's control.
CAPITAL RESOURCES AND LIQUIDITY
As more fully described under "Results of Operations" below, through 1998
and continuing into the first quarter of 1999, the Company's average net oil
product prices were from 24% to 40% lower than during the prior comparable
period. Due to this drop in oil prices, the Company's cash flow and results of
operations were significantly reduced during 1998 and the first quarter of 1999.
This reduction in cash flow has also contributed to an increase in the Company's
debt levels, which as a multiple of cash flow, are at historic highs as of March
31, 1999. Because of the downturn in the oil and gas industry during 1998,
resulting from the decreases in oil and natural gas prices, the Company sought
additional capital in order to have funds to pursue acquisitions and in December
1998 entered into an agreement to sell $100 million of common shares to TPG.
This sale of equity was approved by stockholders on April 20, 1999 and closed on
April 21, 1999 (see "1999 Sale of Equity and Move of Domicile" above).
As a result of the equity infusion, the Company's bank debt was reduced to
$9.6 million outstanding as of April 30, 1999 and the Company's stockholders'
deficit was eliminated with a pro forma March 31, 1999 positive balance of $63.2
million. In addition, oil prices have climbed from a first quarter average NYMEX
price of approximately $13.00 per Bbl to current levels above $18.00 per Bbl.
Both the improved product prices and the reduction of debt will have a
significant positive impact on the Company's earnings and cash flow for future
periods and will allow the Company to pursue oil development opportunities that
were uneconomical at low oil prices which prevailed in the second half of 1998
and first quarter of 1999. However, there can be no assurance that the recent
increase in oil prices will be sustained.
In addition, the Company intends to pursue oil and gas acquisitions with
the funds from the equity sale to TPG which, if accomplished, should also be
accretive to the Company's operating results. However, there can be no assurance
that suitable acquisitions will be identified in the future or that any such
acquisitions will be successful in achieving desired profitability objectives.
Without suitable acquisitions or the capital to fund such acquisitions, the
Company's future growth could be limited or even eliminated.
The Company plans to keep its development budget for 1999 at approximately
$35 million, the upper end of the previously announced range, as the intent is
to minimize the use of the bank credit facility for anything other than
acquisitions. Although the level of the Company's projected cash flow is highly
variable and difficult to predict due to volatility in product prices, the
success of its drilling and other developmental work and other factors, the
Company does not expect its 1999 development spending to cause debt to increase
substantially. The Company also expects that this spending level should be
sufficient to cause a slight increase in production levels throughout the year.
Furthermore, if acquisitions are unavailable at attractive rates, the Company
does have an inventory of potential development projects that it could commence,
subject to the availability and allocation of capital resources.
SOURCES AND USES OF FUNDS
During the first quarter of 1999, the Company spent approximately $4.7
million on exploration and development expenditures and approximately $1.8
million on acquisitions. The exploration and development expenditures included
approximately $1.0 million spent on drilling, $1.5 million on geological,
geophysical and acreage expenditures and $2.2 million on workover costs. These
expenditures were funded by bank debt and cash flow from operations.
11
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the first quarter of 1998, the Company spent approximately $26.2
million on oil and natural gas development expenditures and approximately
$247,000 on acquisitions. The development expenditures included approximately
$17.6 million spent on drilling, $4.1 million on geological, geophysical and
acreage expenditures and the balance of $4.5 million was spent on workover
costs. These expenditures were funded by cash flow from operations and bank
debt.
RESULTS OF OPERATIONS
Operating Income
Operating income dropped 49% for the first quarter of 1999 as compared to
the first quarter of 1998 comprised of a 28% drop in production and a 19% drop
in prices on a BOE basis, as further set forth below.
Three Months Ended
March 31,
- --------------------------------------------------------------
1999 1998
- --------------------------------------------------------------
OPERATING INCOME (THOUSANDS)
Oil sales $ 8,532 $ 16,173
Natural gas sales 6,171 9,015
Less production expenses (5,855) (7,854)
--------------------
Operating income $ 8,848 $ 17,334
--------------------
UNIT PRICES
Oil price per barrel ("Bbl") $ 9.22 $ 12.20
Gas price per thousand cubic
feet ("Mcf") 2.23 2.49
NETBACK PER BOE (1):
Sales price $ 10.60 $ 13.05
Production expenses (4.22) (4.07)
--------------------
Production netback $ 6.38 $ 8.98
--------------------
AVERAGE DAILY PRODUCTION VOLUME:
Bbls 10,281 14,728
Mcf 30,818 40,275
BOE 15,417 21,441
- --------------------------------------------------------------
<FN>
(1) Barrel of oil equivalent using the ratio of one barrel of oil to 6 Mcf of
natural gas ("BOE").
</FN>
Production for the first quarter of 1999 averaged 15,417 BOE/d, a drop of
28% from the first quarter of 1998 but only a 4% decrease from the fourth
quarter of 1998 average of 16,108 BOE/d despite a sharply reduced development
program since July, 1998. Production peaked in the second quarter of 1998 at
21,927 BOE/d before the Company curtailed its horizontal drilling program and
sharply reduced all its development expenditures, causing a decrease in
production each subsequent quarter. However, with the recent response from the
Company's East waterflood unit at Heidelberg, the production in recent months
has began to increase even though development spending for the first quarter of
1999 was only $4.7 million, the lowest level of development spending per quarter
in several years. The Company plans to increase spending during the second
quarter and the remainder of 1999 with a total budget of $35 million for the
year, which should result in production increases later this year.
Production during the first quarter of 1999 from the Company's two key
prior acquisitions, the properties acquired from Amerada Hess in 1996 and from
Chevron in 1997, averaged 4,544 and 4,541 BOE/d respectively. This compares to
9,393 and 2,992 BOE/d for the first quarter of 1998 on these properties and
5,736 and 4,255 BOE/d for the fourth
12
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
quarter of 1998. The production from the Chevron properties (Heidelberg Field)
represents the fifth consecutive quarterly increase since its purchase in late
1997. However, the Amerada Hess properties peaked in the second quarter of 1998
at 9,730 BOE/d and have declined since that time due to production declines on
horizontal oil wells drilled at Eucutta Field in late 1997 and early 1998 and
the lack of subsequent development work to replace this production.
Oil and gas revenue decreased as a result of the decrease in production and
also due to a decline in both oil and natural gas product prices. Between the
first quarter of 1998 and 1999, oil product prices decreased 24% ($2.98 per Bbl)
and natural gas product prices declined by 10% ($0.26 per Mcf). Included in the
gas revenue for the first quarter of 1999 was $523,000 related to a settlement
of a gas imbalance and $539,000 relating to a gain on the Company's natural gas
hedge contracts. These two items caused the average natural gas price per Mcf to
increase by $0.38 per Mcf. Without these two items, natural gas product prices
would have decreased by 26% ($0.64 per Mcf) from the comparable period in 1998.
Production and operating expenses decreased 25% between the first quarter
of 1998 and 1999 as a result of cost savings measures, shut-in wells and a
decline in production. On a BOE basis, operating expenses increased slightly
(4%) due to the declines in production. For the properties acquired from Amerada
Hess, the operating expenses declined from the 1996 level of $5.35 per BOE to
$3.39 per BOE for 1998, but had a slight increase to $3.81 for the first quarter
of 1999 as a result of the production declines. Operating expense per BOE on the
properties acquired from Chevron continued to decrease from their initial level
of $6.38 per BOE when acquired in late 1997 to an average of $5.04 per BOE
during 1998 and further reduced to an average of $4.79 per BOE for the first
quarter of 1999. These reductions result from general cost saving measures and
increased productivity per well through overall production increases at
Heidelberg.
General and Administrative Expenses
The net general and administrative ("G&A") expenses increased as set forth
below.
Three Months Ended
March 31,
- ------------------------------------------------------------
1999 1998
- ------------------------------------------------------------
NET G&A EXPENSES (THOUSANDS)
Gross expenses $ 4,788 $ 4,902
State franchise taxes 154 200
Operator overhead charges (2,167) (2,475)
Capitalized exploration expenses (731) (651)
--------------------
Net expenses $ 2,044 $ 1,976
--------------------
Average G&A cost per BOE $ 1.47 $ 1.02
Employees as of March 31 197 199
- ------------------------------------------------------------
Gross G&A expenses decreased 2% between the first quarter of 1998 and 1999
as a result of general cost saving measures, even though the Company incurred
approximately $175,000 of additional non-recurring expenses during the first
quarter of 1999 as part of the cost of the move of domicile from Canada to the
United States (see "1999 Sale of Equity and Move of Domicile"). However, the
respective well operating agreements allow the Company, when it is the operator,
to charge a well with a specified overhead rate during the drilling phase and to
also charge a monthly fixed overhead rate for each producing well. As a result
of the decreased drilling activity in the first quarter of 1999, the
13
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
percentage of gross G&A recovered through these types of allocations (listed in
the above table as "Operator overhead charges") decreased when compared to the
corresponding period in 1998. During the first quarter of 1998, approximately
50% of gross G&A was recovered by operator overhead charges, while during the
first quarter of 1999 this recovery was reduced to 45%. The net effect was a
slight increase (3%) in net G&A expense during the first quarter of 1999. On a
BOE basis, G&A costs increased 44% from the first quarter of 1998 to the
comparable quarter in 1999 primarily because of decreased production on both an
absolute and per well basis.
Interest and Financing Expenses
Three Months Ended
March 31,
- ---------------------------------------------------------------
AMOUNTS IN THOUSANDS EXCEPT PER UNIT AMOUNTS 1999 1998
- ---------------------------------------------------------------
Interest expense $ 4,858 $ 4,391
Non-cash interest expense (191) (121)
------------------
Cash interest expense 4,667 4,270
Interest and other income (361) (367)
------------------
Net interest expense $ 4,306 $ 3,903
- ---------------------------------------------------------------
Average interest expense per BOE $ 3.10 $ 2.02
Average debt outstanding 229,932 211,685
- ---------------------------------------------------------------
In December 1997, the Company borrowed $202 million to fund the Chevron
Acquisition resulting in $240 million of outstanding bank debt during January
and most of February 1998. On February 26, 1998 this debt was refinanced with
proceeds from the issuance of equity and subordinated notes, leaving a bank
balance of $40 million for the rest of the first quarter of 1998, plus $125
million of debt from the issuance of the subordinated notes. During the first
quarter of 1999, the Company began the year with $225 million of total debt and
further increased this to $234.6 million by the end of the period. Furthermore,
the bank amendment in February 1999 (see "February 1999 Amendment to Bank Credit
Facility") resulted in higher bank interest rates as the margins over LIBOR
rates were increased at that time. The cumulative effect of an overall higher
level of average debt plus the increased interest rates from the bank amendment
resulted in an increase of $467,000 (11%) in interest expense during the first
quarter of 1999 as compared to the first quarter of 1998. The 53% increase in
interest expense on a BOE basis was due to the overall increase in costs and was
further compounded by the decrease in production. The overall debt level was
decreased by approximately $100 million in April 1999 with the proceeds from the
sale of equity to TPG (see "1999 Sale of Equity and Move of Domicile").
Depletion, Depreciation and Site Restoration
The Company's depletion, depreciation and amortization ("DD&A") rate
dropped from $6.42 per BOE for the first quarter of 1998 (an average of $7.26
for 1998) to $3.85 per BOE for the comparable period in 1999. This resulted from
an increase in the proved reserve quantities since December 31, 1998 related to
improved oil prices at the end of the first quarter of 1999 and the reduced oil
and gas property basis after the 1998 full cost pool writedowns.
Under full cost accounting rules, each quarter the Company is required to
perform a ceiling test calculation. In determining the limitation on property
carrying values, U.S. accounting rules require the discounting of estimated
future net revenues from its proved reserves at 10% using constant current
prices following the guidelines of the Securities and Exchange Commission
("SEC"). The accounting guidelines also allow Company to exclude acquired
properties
14
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
from a ceiling test calculation in certain circumstances. Due to the higher
product prices as of March 31, 1999, the Company did not have any ceiling test
limitation at that date. However, for the first quarter of 1998, the Company
excluded the value of the properties acquired from Chevron in December 1997 from
the ceiling test calculation. Had these properties been included, the Company
would have had a write-down of the property carrying costs as of March 31, 1998
of approximately $35 million.
The Company also provides for the estimated future costs of well
abandonment and site reclamation, net of any anticipated salvage, on a
unit-of-production basis. This provision is included in the DD&A expense.
Three Months Ended
March 31,
- --------------------------------------------------------------
AMOUNTS IN THOUSANDS EXCEPT PER UNIT AMOUNTS 1999 1998
- --------------------------------------------------------------
Depletion and depreciation $ 5,258 $12,298
Site restoration provision 77 89
-----------------
Total amortization $ 5,335 $12,387
-----------------
Average DD&A cost per BOE $ 3.85 $ 6.42
- --------------------------------------------------------------
Income Taxes
Due to a net operating loss of the Company for tax purposes, the Company
does not have any current tax provision. The deferred income tax provision as a
percentage of net income varies slightly depending on the mix of Canadian and
U.S. expenses.
In addition, as a result of the net pre-tax loss of $3.0 million for the
quarter ended March 31, 1999, an income tax provision for that quarter using the
effective tax rate of 37% would have resulted in a $1.1 million income tax
benefit and an increase to the deferred tax asset. Since the Company currently
has a large tax net operating loss and it was uncertain whether this total tax
asset will ultimately be realized, the Company has impaired the tax benefit
generated in the first quarter of 1999, resulting in no effective income tax
provision.
Three Months Ended
March 31,
- --------------------------------------------------------------
1999 1998
- --------------------------------------------------------------
Deferred income tax benefit (thousands) $ - $ (373)
Average income tax costs per BOE $ - $ (0.19)
Effective tax rate - 35%
- --------------------------------------------------------------
Results of Operations
Primarily as a result of the decreased production and product prices
between the quarters, net income and cash flow from operations decreased on both
a gross and per share basis between the first quarter of 1998 and the first
quarter of 1999 as set forth below.
15
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended
March 31,
- --------------------------------------------------------------
AMOUNTS IN THOUSAND EXCEPT PER SHARE AMOUNTS 1999 1998
- --------------------------------------------------------------
Net loss $(3,028) $ (680)
Net loss per common share:
Basic $ (0.11) $ (0.03)
Diluted (0.11) (0.03)
Cash flow from operations (1) $ 2,497 $11,455
- --------------------------------------------------------------
<FN>
(1) Represents cash flow provided by operations, exclusive of the net change in
non-cash working capital balances.
</FN>
The following table summarizes the cash flow, DD&A and results of
operations on a BOE basis for the comparative periods. Each of the individual
components are discussed above.
Three Months Ended
March 31,
- ---------------------------------------------------------
Per BOE Data 1999 1998
- ---------------------------------------------------------
Revenue $ 10.60 $ 13.05
Production expenses (4.22) (4.07)
- ---------------------------------------------------------
Production netback 6.38 8.98
General and administrative (1.47) (1.02)
Interest and other income (3.10) (2.02)
- ---------------------------------------------------------
Cash flow from operations (a) 1.81 5.94
DD&A (3.85) (6.42)
Deferred income taxes - 0.19
Other non-cash items (0.14) (0.06)
- ---------------------------------------------------------
Net loss $ (2.18) $ (0.35)
- ---------------------------------------------------------
<FN>
(a) Represents cash flow provided by operations, exclusive of the net change in
non-cash working capital balances.
</FN>
Market Risk Management
The Company uses fixed and variable rate debt to partially finance budgeted
expenditures. These agreements expose the Company to market risk related to
changes in interest rates. The Company does not hold or issue derivative
financial instruments for trading purposes. The carrying and fair value of these
debt instruments have not changed materially since year-end.
The Company also enters into various financial contracts to hedge its
exposure to commodity price risk associated with anticipated future gas
production. These contracts consist of price ceilings and floors (no-cost
collars). During June and July 1998, the Company entered into two no-cost
financial contracts ("collars") to hedge a total of 40 million cubic feet of
natural gas per day ("MMcf/d"). The first natural gas contract for 35 MMcf/d
covers the period from July 1998
16
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
to June 1999 and has a floor price of $1.90 per million British Thermal Units
("MMBtu") and a ceiling price of $2.96 per MMBtu. The second natural gas
contract for five MMcf/d covers the period from September 1998 to August 1999
and has a floor price of $1.90 per MMBtu and a ceiling price of $2.89 per MMBtu.
During December 1998, the Company extended these natural gas hedges through
December 2000 by entering into an additional no-cost collar with a floor price
of $1.90 per MMBtu and a ceiling price of $2.58 per MMBtu for the period of July
1999 through December 2000. This contract hedges 25 MMcf/d for the months of
July and August 1999 and 30 MMcf/d for each month thereafter. The Company
collected $539,000 on these financial contracts during the first quarter of
1999. These three contracts cover over 100% of the Company's current net natural
gas production. Based on the futures market prices at March 31, 1999, the
Company would not receive or pay any material amounts under these commodity
contracts even though they covered more than the Company's production because
prices at March 31, 1999 were within the contract collars.
During the fourth quarter of 1998, the Company also modified certain of its
oil sales contracts. The new contracts which are generally for a period of
eighteen months, provide that approximately 45% of the Company's oil production
as of January 31, 1999, has a price floor of between $8.00 and $10.00 per Bbl.
This equates to a NYMEX oil price of between $15.00 and $16.00 per Bbl. As
compensation for the price floors, the contracts provide that the premiums
received on the posted prices decrease as oil prices rise.
During March and April, 1999, the Company entered into two no-cost
financial contracts to hedge a portion of its oil production. The first contract
was a fixed price swap for 3,000 Bbls/d for the period of April through
December, 1999 at a price of $14.24 per Bbl. The second contract was a collar to
hedge 3,000 Bbls/d for the period of May, 1999 through December, 2000 with a
floor price of $14.00 per Bbl and a ceiling price of $18.05 per Bbl. No funds
were paid or received on these contracts during the first quarter of 1999. These
two oil financial contracts hedge approximately 60% of the Company's current oil
production.
These contracts in effect at March 31, 1999 expire at various dates with
the latest being December 2000. Gain or loss on these derivative commodity
contracts would be offset by a corresponding gain or loss on the hedged
commodity positions. Based on future market prices at March 31, 1999, the
Company would expect to pay approximately $1.78 million on the oil hedge
contracts and neither pay or receive anything on the natural gas hedge
contracts. If the futures market prices were to increase 10% from those in
effect at March 31, 1999, the Company would be required to make additional cash
payments under the commodity contracts of approximately $1.95 million. If the
futures market prices were to decline 10% from those in effect as March 31,
1999, the Company would receive cash payments under the natural gas commodity
contacts of approximately $270,000 and reduce the payments due under the oil
contracts by $1.36 million.
Year 2000 Modifications
Year 2000 issues relate to the ability of computer programs or equipment to
accurately calculate, store or use dates after December 31, 1999. These dates
can be handled or interpreted in a number of different ways, but the most common
error is for the system to contain a two digit year which may cause the system
to interpret the year 2000 as 1900. Errors of this type can result in system
failures, miscalculations and the disruption of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business. In response to the Year 2000 issues, the
Company has developed a strategic plan divided into the following phases:
inventory, product compliance based on vendor representations and in-house
testing, third party integration and development of a contingency plan.
17
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All of the Company's processing needs are handled by third party systems,
none of which have been substantially modified and all of which have been
purchased within the last few years. Therefore, the Company's initial review of
its in-house systems with regard to Year 2000 issues required an inventory of
its systems and a review of the vendor representations. The Company has
completed this initial review of its information systems. The licensor of the
Company's core financial software system has certified that such software is
Year 2000 compliant. Additionally, most other less critical software systems,
various types of equipment and non-information technology have been reviewed,
and based on vendor representations, are either compliant, will be compliant
with the next forthcoming software release or are systems that are not date
specific.
The Company's non-information technology consists primarily of various oil
and gas exploration and production equipment. The initial review has established
that the primary non-information technology systems functions are either not
date sensitive or are Year 2000 compliant based on vendor representations, and
are therefore predicted to operate in customary manners when faced with Year
2000 issues. However, the Company has determined that in the event such systems
are unable to address the Year 2000, employees can manually perform most, if not
all, functions. In anticipation of Year 2000 issues, the Company is also
evaluating the Year 2000 readiness status of its third party service suppliers.
In addition to reviewing Year 2000 readiness statements issued by the third
parties handling the Company's processing needs, to date the Company has
received, and is relying upon, Year 2000 readiness reports periodically issued
by its financial services and electrical service providers, vendors and
purchasers of the Company's oil and natural gas products. The Company is
continuing to review Year 2000 readiness of third party service suppliers and,
based on their representations, does not currently foresee material disruptions
in the Company's business as a result of Year 2000 issues. Unanticipated
prolonged losses of certain services, such as electrical power, could cause
material disruptions for which no economically feasible contingency plan has
been developed.
The Company is continuing to conduct in-house testing of the core systems
and non-information technology, and to date either all systems tested have
adequately addressed possible Year 2000 scenarios or the Company has a plan in
place to remedy the deficiency. The Company expects testing to be completed
during the second quarter of 1999. After the completion of its Year 2000 review
and testing, the Company will further develop a contingency plan as required,
including replacing or upgrading by December 31, 1999 any system incapable of
addressing the Year 2000. This final step is expected to be completed during the
third quarter of 1999.
Although the effects of Year 2000 issues cannot be predicted with
certainty, the Company believes that the potential impact, if any, of such
events will, at most, require employees to manually complete otherwise automated
tasks or calculations, other than those which might occur in a "worst case"
scenario as described below, which the Company does not anticipate will occur.
After considering Year 2000 effects on in-house operations, the Company
does not expect that any additional training would be required to perform these
tasks on a manual basis due to the level of experience of its personnel and the
routine nature of the tasks being performed. If, based on the results of its
in-house testing, the Company should determine that certain systems are not Year
2000 compliant and it appears as though the system is not likely to be compliant
within a reasonable time period, the Company will either elect to perform the
task manually or will attempt to purchase a different system for that particular
task and convert before December 31, 1999. The Company does not believe that
either option would impact the Company's ability to continue exploration,
drilling, production or sales activities, although the tasks may require
additional time and personnel to complete the same function or may require
incremental time and personnel during 1999 for a conversion to a new system.
18
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's core business consists primarily of oil and gas acquisition,
development and exploration activities. The equipment which is deemed "mission
critical" to the Company's activities requires external power sources such as
electricity supplied by third parties. Although the Company maintains limited
on-site secondary power sources such as generators, it is not economically
feasible to maintain secondary power supplies for any major component of its
"mission critical" equipment. Therefore, the most reasonably likely worst case
Year 2000 scenario for the Company would involve a disruption of third party
supplied electrical power, which would result in a substantial decrease in the
Company's oil production. Such event could result in a business interruption
that could materially affect the Company's operations, liquidity or capital
resources.
The Company has initiated the third party integration phase and will
continue to have formal communications with its significant suppliers, business
partners and key customers to determine the extent to which the Company is
vulnerable to either the third parties' or its own failure to correct their Year
2000 issues. The Company has been communicating with such third parties to keep
them informed of the Company's internal assessment of its Year 2000 review and
plans. This portion of the review and discussions with third parties is expected
to be completed during the second quarter of 1999. To date, approximately
one-half of these third parties have provided certain favorable representations
as to their Year 2000 readiness and received similar representations from the
Company. There can be no guarantee that the systems of other companies on which
the Company relies will be timely converted or that the conversion will be
compatible with the Company's systems. However, after reviewing and estimating
the effects of such events, the Company's contingency plan involves identifying
and arranging for other vendors, purchasers and third party contractors to
provide such services, if necessary, in order to maintain its normal operations.
The Company has, and will continue to, utilize both internal and external
resources to complete tasks and perform testing necessary to address the Year
2000 issue. The Company has not incurred, and does not anticipate that it will
incur, any significant costs relating to the assessment and remediation of Year
2000 issues.
Forward-Looking Information
The statements contained in this Quarterly Report on Form 10-Q ("Quarterly
Report") that are not historical facts, including, but not limited to,
statements found in this 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. Such forward-looking
statements may be or may concern, among other things, capital expenditures,
drilling activity, acquisition plans and proposals and dispositions, development
activities, cost savings, production efforts and volumes, hydrocarbon reserves,
hydrocarbon prices, liquidity, regulatory matters and competition. Such
forward-looking statements generally are accompanied by words such as "plan,"
"estimate," "budgeted," "expect," "predict," "anticipate," "projected,"
"should," "assume," "believe" or other words that convey the uncertainty of
future events or outcomes. Such forward-looking information is based upon
management's current plans, expectations, estimates and assumptions and is
subject to a number of risks and uncertainties that could significantly affect
current plans, anticipated actions, the timing of such actions and the Company's
financial condition and results of operations. As a consequence, actual results
may differ materially from expectations, estimates or assumptions expressed in
or implied by any forward-looking statements made by or on behalf of the
Company. 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 Quarterly 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.
19
DENBURY RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In assessing Year 2000 issues, the Company has relied on certain
representations of third parties and has attempted to predict and address all
possible scenarios which could arise. However, uncertainties exist which could
cause Year 2000 effects to be more significant than the Company anticipates.
Such uncertainties include the success of the Company in identifying systems and
programs that are not Year 2000 compliant, the nature and amount of programming
required to up-grade or replace each of the affected programs, the availability,
rate and magnitude of related labor and consulting costs and the success of the
Company's vendors in addressing the Year 2000 issue.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information required by Item 3 is set forth under "Market Risk
Management" in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
20
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds.
(a) In connection with the move of corporate domicile of the Company from
Canada to Delaware, the Delaware Certificate of Incorporation and Bylaws of the
Company which are included in this report as Exhibits 3(a) and 3(b) now define
the rights of the holders of the Company's shares of common stock, par value
$.001 per share. The effects of the modification of the rights of the Company's
common stockholders resulting from the move of domicile are described in detail
in the Company's Registration Statement No. 333-69577 on Form S-4, specifically
the sections of the Proxy Statement/Prospectus dated March 19, 1999 contained
therein under the captions "Moving the Corporate Domicile--Effects of the Move
of Corporate Domicile and Merger" and "--Comparison of Shareholders' Rights,"
and under "Description of Capital Stock", which are incorporated herein by
reference and made a part hereof.
By means of a Supplemental Indenture dated April 21, 1999, which is
included in this report as Exhibit 4(a), Denbury Resources Inc., a Delaware
corporation, has become directly liable for the 9% Senior Subordinated Notes Due
2008 originally issued in February 1998 by its former wholly-owned subsidiary
Denbury Management, Inc., a Texas corporation. Denbury Management, Inc. was
merged into the Delaware corporation in connection with the Company's move of
corporate domicile, all effective April 21, 1999. Accordingly, Denbury Resources
Inc., a Delaware corporation, has succeeded to and assumed all of the
obligations relating to these Notes pursuant to the Supplemental Indenture.
(c) On April 21, 1999, the Company closed the sale of 18,552,876 shares of
common stock, par value $.001 per share, of Denbury Resources Inc., a Delaware
corporation, to affiliates of the Texas Pacific Group, the Company's largest
shareholder, for U.S. $100 million, or $5.39 per share. The transaction was
described in detail in the Company's Proxy Statement/Prospectus dated March 19,
1999 contained as part of Registration Statement No. 333-69577 on Form S-4 first
filed with the Securities and Exchange Commission ("SEC") on December 23, 1998.
There was no underwriter engaged in connection with such sale. This sale was
made in reliance upon an exemption from the registration provisions of the
Securities Act of 1933, as amended, provided in Section 4(2) thereof, based on
the sophistication of the purchasers and their extensive knowledge of the
Company. This sale was approved by the stockholders of the Company at a special
meeting of stockholders held on April 20, 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
On April 20, 1999, the Company held a special meeting of stockholders to
(i) approve the move of the Company's corporate domicile from Canada to
Delaware, (ii) approve the sale of 18,552,876 of Denbury's common shares to
affiliates of the Texas Pacific Group and (iii) increase the number of common
shares available for issuance under the Company's employee stock purchase and
stock option plans. All of these matters are described in detail in the
Company's Proxy Statement/Prospectus dated March 19, 1999 contained in
Registration Statement No. 333-69577 on Form S-4. All of the proposals before
the special meeting were approved by stockholders of the Company as follows:
Absentions
or
Votes Votes Broker
For Against Non-Votes
---------- --------- -----------
Move of corporate domicile 18,128,069 1,413,929 2,540
Sale of shares to TPG affiliates (1) 10,781,517 41,383 200
Additional shares under employee stock
purchase plan 19,339,214 198,453 6,871
Additional shares under stock option 15,488,648 4,014,664 41,226
plan
<FN>
(1) Excludes 8,721,438 shares held by TPG.
</FN>
21
Item 6. Exhibits and Reports on Form 8-K during the First Quarter of 1999
Exhibits:
3(a)* Certificate of Incorporation of Denbury Resources Inc. filed
with the Delaware Secretary of State April 20, 1999.
3(b)* Bylaws of Denbury Resources Inc., a Delaware corporation,
adopted April 20, 1999.
4(a)* First Supplemental Indenture dated as of April 21, 1999,
between Denbury Resources Inc., a Delaware corporation, and
Chase Bank of Texas, National Association, as Trustee,
relating to Denbury Management, Inc.'s 9% Senior Subordinated
Notes due 2008.
10(a) Fourth Amendment to First Restated Credit Agreement, by and
among Denbury Management, as borrower, Denbury Resources Inc.,
as guarantor, NationsBank of Texas, N.A., as administrative
agent, and NationsBank of Texas, N.A., as bank, entered into
as of February 19, 1999 (incorporated by reference to Exhibit
10(m) of the Registrant's Form 10-K for the year ended
December 31, 1998).
10(b)* Fifth amendment to First Restated Credit Agreement dated April
21, 1999 between the Company and NationsBank of Texas, N.A.,
as agent, and each of the financial institutions described on
the signature page therein.
27* Financial Data Schedule (EDGAR version only).
*Filed herewith.
Reports on Form 8-K:
None
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENBURY RESOURCES INC.
(Registrant)
By: /s/ Phil Rykhoek
-------------------------------
Phil Rykhoek
Chief Financial Officer
By: /s/ Mark Allen
-------------------------------
Mark Allen
Chief Accounting Officer & Controller
Date: May 11, 1999
23