Denbury Resources Sets Quarterly Production Record.Announces Near-Record Third Quarter Results DALLAS -- Denbury Resources Inc. (NYSE NYSE See: New York Stock Exchange : DNR See dynamic noise reduction and domain name resolver. ) ("Denbury" or the "Company") today announced its third quarter 2006 financial and operating results. Production of 37,561 BOE/d in the third quarter of 2006, a Company quarterly record, was slightly higher than production in this year's second quarter. The Company also posted near-record earnings for the quarter of $59.3 million, or $0.50 per basic common share, as compared to earnings of $38.5 million, or $0.34 per basic common share, for the third quarter of 2005. Included in third quarter 2006 results are several non-cash items (discussed below) which were not present in the prior year period's results: (i) a $14.6 million gain associated with mark-to-market fair value adjustments related to the Company's oil and natural gas derivative contracts, (ii) $2.0 million of stock compensation expense related to the adoption of SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 123(R) effective January 1, 2006, and (iii) $3.7 million of capitalized interest Capitalized interest Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing. relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc significant unevaluated properties associated with the Company's 2006 acquisitions. Adjusted cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses (cash flow from operations before changes in assets and liabilities, a non-GAAP measure) for the third quarter of 2006 was $119.0 million, a 36% increase over third quarter of 2005 adjusted cash flow from operations of $87.3 million. Net cash flow provided by operations, the GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure, totaled $135.4 million during the third quarter of 2006, a Company quarterly record, as compared to $76.3 million during the third quarter of 2005. The difference between the adjusted cash flow and cash flow from operations is due primarily to the changes in receivables, accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. during the quarter. (Please see the accompanying schedules for a reconciliation of net cash flow provided by operations, as defined by generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP), which is the GAAP measure, as opposed to adjusted cash flow from operations, which is the non-GAAP measure). Third Quarter 2006 Financial Results Earnings and cash flow from operations were at near-record levels for the third quarter of 2006, primarily as a result of record quarterly production and high commodity prices (although commodity prices were approximately the same on a BOE BOE Based on Experience BOE Board of Education BOE Boletín Oficial del Estado (Spanish) BOE Bank of England BOE Board of Equalization BOE Board of Elections BOE Barrel of Oil Equivalent BOE Bind on Equip basis between the respective third quarters). The Company set a new quarterly production level during the third quarter, averaging 37,561 BOE/d, a 37% increase over third quarter 2005 levels. Third quarter of 2005 production was negatively affected by Hurricanes Katrina and Rita, with an estimated 3,800 BOE/d of production deferred during that period. If last year's third quarter production is adjusted to include the estimated deferred production, the production increase between the comparative quarters is reduced to approximately 21%, or an increase of approximately 6,400 BOE/d. Approximately one-third of the production increase was attributable to the acquisition that closed January 31, 2006, which added 2,339 BOE/d to the third quarter average. This was supplemented by higher production in the Company's Barnett Shale The Barnett Shale is a geological formation of economic significance. It consists of sedimentary rocks of Mississippian age in the U.S. State of Texas. The formation is estimated to stretch from the city of Dallas to west of the city of Fort Worth and south, covering 5,000 square area and higher natural gas production in Louisiana following several exploratory successes during 2005. Oil production from the Company's tertiary tertiary (tûr`shēârē), in the Roman Catholic Church, member of a third order. The third orders are chiefly supplements of the friars—Franciscans (the most numerous), Dominicans, and Carmelites. operations averaged 10,114 BOE/d in the third quarter of 2006, a 14% increase over third quarter 2005 levels, but approximately the same as second quarter of 2006 tertiary production. The Company does not believe that these temporary fluctuations in tertiary production indicate any issue with the proved and potential oil reserves Oil reserves refer to portions of oil in place that are claimed to be recoverable under economic constraints. Oil in the ground is not a "reserve" unless it is claimed to be economically recoverable, since as the oil is extracted, the cost of recovery increases incrementally recoverable with CO2 because the correlation between historical oil production and CO2 injections remains high, as expected. The lag in production is due to a series of different types of delays in obtaining equipment or completing facilities causing the Company's CO2 injections to be below forecasted amounts. Production from the Barnett Shale increased to 4,952 BOE/d in the third quarter of 2006, a 130% increase from 2,150 BOE/d produced in the third quarter of 2005, and a 7% increase over second quarter 2006 production levels, as a result of the increased drilling activity during late 2005 and 2006. In addition, the Company's onshore on·shore adj. 1. Moving or directed toward the shore: an onshore wind. 2. Located on the shore: an onshore beacon; an onshore patrol. adv. Louisiana production for the third quarter of 2006 averaged 8,221 BOE/d, a 59% increase over the 5,169 BOE/d produced in the third quarter of 2005, but slightly less than the second quarter of 2006 peak rate of 8,623 BOE/d, with the most significant production increases at Thornwell and South Chauvin Fields as a result of 2005 drilling activity in those areas. In addition to the higher production, during the third quarter of 2006 the Company recognized $14.6 million of income associated with non-cash mark-to-market fair value changes on the Company's oil derivative contracts as commodity prices decreased during the quarter. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , during the third quarter of 2005, the Company recognized mark-to-market fair value and other non-cash expenses Noun 1. non-cash expense - an expense (such as depreciation) that is not paid for in cash disbursal, disbursement, expense - amounts paid for goods and services that may be currently tax deductible (as opposed to capital expenditures) of $8.1 million associated with derivative contracts in place at that time as commodity prices increased during that period. Average commodity prices on a per BOE basis were approximately the same between the respective third quarters of 2006 and 2005, even though the changes in oil and natural gas commodity prices during the respective quarters were in opposite directions. Overall industry costs continue to increase, which is the primary reason for continued high operating costs operating costs npl → gastos mpl operacionales and an increase in the depreciation, depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able and amortization ("DD&A") rate per BOE. DD&A increased to $11.92 per BOE in the third quarter of 2006, as compared to the Company's second quarter DD&A rate of $10.60 per BOE, and a rate of $9.68 per BOE in the third quarter of 2005, with the increase primarily due to rising costs. A downward reserve adjustment associated with the Company's Westervelt well and a loss of reserve quantities associated with declining commodity prices also contributed to the higher DD&A rate in the third quarter of 2006 than earlier in the year. Lease operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. increased between the comparable third quarters on both a per BOE basis and on an absolute dollar basis. Lease operating expenses averaged $12.22 per BOE in the third quarter of 2006, up from $10.33 per BOE in the third quarter of 2005, and about the same per BOE as the $12.24 spent during the second quarter of 2006. The increase over prior year third quarter levels was primarily a result of (i) increasing emphasis on tertiary operations with their inherently higher operating costs, (ii) general cost inflation in the industry, (iii) increased personnel and related costs, (iv) higher fuel and energy costs to operate Company properties, and (v) additional lease payments for certain tertiary operating facilities. Administrative expenses increased 18%, primarily due to a 29% increase in the number of employees since September 30, 2005 related to the Company's growth. The Company had two partially offsetting non-recurring administrative expense items in the respective third quarters. During the third quarter of 2006, the Company expensed approximately $750,000 related to the retirement of the Company's Vice President of Marketing, as compared to approximately $1.4 million expensed for food, water, gasoline gasoline or petrol, light, volatile mixture of hydrocarbons for use in the internal-combustion engine and as an organic solvent, obtained primarily by fractional distillation and "cracking" of petroleum, but also obtained from natural gas, by and other supplies provided as part of the Company's hurricane relief efforts in the third quarter of 2005. The Company adopted SFAS No. 123(R) as of January 1, 2006, which for the third quarter of 2006 resulted in a non-cash charge Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. related to equity compensation of approximately $1.7 million to general and administrative expense, approximately $0.3 million to lease operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. and approximately $0.3 million to capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. oil and gas properties. During the third quarter of 2006, the Company capitalized approximately $3.7 million of interest expense primarily related to the unevaluated properties associated with the Company's two 2006 acquisitions. This reduced the overall increase in interest expense to 11%, even though average debt levels were 81% higher in the third quarter of 2006 than in the comparable period of 2005. These higher debt levels were primarily due to the use of debt to partially fund the $250 million acquisition which closed in January 2006 and to fully fund the $50 million Delhi acquisition in the second quarter of 2006, both acquisitions of future tertiary flood properties. The Company's net effective tax rate increased in the third quarter of 2006 to 37.6%, up from 34.2% in the third quarter of 2005, primarily because the Company will not earn any enhanced oil recovery Enhanced Oil Recovery (EOR) is a generic term for techniques for increasing the amount of oil that can be extracted from an oil field. Using EOR, 30-60 %, or more, of the reservoir's original oil can be extracted [1] compared with 20-40% [2] credits during 2006, as high oil prices have caused the credits to be unavailable. Outlook The Company is reviewing the impact that delays have had on its production forecasts and plans to provide an update of such forecasts at its analyst meeting on November 8th and 9th. The presentation for this meeting will be available on the Company's website by November 8th. Currently, the Company anticipates that its overall production guidance for 2006 of 37,000 BOE/d will either remain unchanged or be slightly reduced. These anticipated forecasted amounts would represent total growth of 24% over average 2005 production levels, with approximately 72% of that growth coming from internal organic projects. The Company anticipates that its tertiary production for 2006 will either be at the low end of its previous guidance of 10,500 BOE/d to 11,500 BOE/d, or slightly less than that range. In addition to updating its 2006 guidance at the analyst meeting, the Company plans to provide preliminary 2007 guidance. Denbury's current 2006 development and exploration budget is approximately $550 million. Any acquisitions made by the Company would be in addition to these capital budget amounts. Denbury's total debt (principal amount excluding capital leases) as of October 31, 2006 was approximately $459 million, of which $84 million was bank debt. Gareth Roberts Gareth Roberts may refer to:
Conference Call The public is invited to listen to the Company's conference call set for today, November 1, 2006 at 10:00 A.M. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT . The call will be broadcast live over the Internet at the Company's web site: www.denbury.com. If you are unable to participate during the live broadcast, the call will be archived on the Denbury web site for approximately 30 days and will also be available for playback Playback could mean:
Financial and Statistical Data Tables Following are financial highlights for the comparative three and nine month periods ended September 30, 2006 and 2005. All production volumes and dollars are expressed on a net revenue interest basis with gas volumes converted at 6:1. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] Non-GAAP Measures Adjusted cash flow from operations is a non-GAAP measure that represents cash flow provided by operations before changes in assets and liabilities, as summarized from the Company's Consolidated Statements of Cash Flows. Adjusted cash flow from operations measures the cash flow earned or incurred from operating activities without regard to the collection or payment of associated receivables or payables. The Company believes that it is important to consider this measure separately, as it believes it can often be a better way to discuss changes in operating trends in its business caused by changes in production, prices, operating costs and other operating factors, without regard to whether the earned or incurred item was collected or paid during that period. For a further discussion, see "Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial of Financial Condition and Results of Operations - Operating Results" in the Company's latest Form 10-Q Form 10-Q See 10-Q. or Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. . Denbury Resources Inc. ( www.denbury.com ) is a growing independent oil and gas company. The Company is the largest oil and natural gas operator in Mississippi, owns the largest reserves of CO2 used for tertiary oil recovery east of the Mississippi River Mississippi River River, central U.S. It rises at Lake Itasca in Minnesota and flows south, meeting its major tributaries, the Missouri and the Ohio rivers, about halfway along its journey to the Gulf of Mexico. , and holds key operating acreage in the onshore Louisiana and Texas Barnett Shale areas. The Company increases the value of acquired properties in its core areas through a combination of exploitation drilling and proven engineering extraction practices. This press release, other than historical financial information, contains forward looking statements that involve risks and uncertainties including expected reserve quantities and values relating to the Company's proved reserves proved reserves The quantity of minerals expected to be recoverable under current economic and operating conditions. The amount of proved reserves is important in valuing the stock of a company with significant holdings in natural resources. , the Company's potential reserves from its tertiary operations, forecasted production levels relating to the Company's tertiary operations and overall production levels, estimated capital expenditures for 2006, estimated costs and predictions of increases in those costs, pricing assumptions based on current and projected oil and natural gas prices, and other risks and uncertainties detailed in the Company's filings with the Securities and Exchange Commission, including Denbury's most recent reports on Form 10-K and Form 10-Q. These risks and uncertainties are incorporated by this reference as though fully set forth herein. These statements are based on engineering, geological, financial and operating assumptions that management believes are reasonable based on currently available information; however, management's assumptions and the Company's future performance are both subject to a wide range of business risks, and there is no assurance that these goals and projections can or will be met. Actual results may vary materially. |
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