Denbury Resources Inc. Reports Operating Results (10-Q)
Denbury Resources Inc. has a market cap of $4.4 billion; its shares were traded at around $16.78 with a P/E ratio of 29.96 and P/S ratio of 4.95. Denbury Resources Inc. had an annual average earning growth of 8.1% over the past 10 years.DNR is in the portfolios of RS Investment Management, Stanley Druckenmiller of Duquesne Capital Management, LLC, NWQ Managers of NWQ Investment Management Co, Diamond Hill Capital of Diamond Hill Capital Management Inc, George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC.
Highlight of Business Operations: First Quarter Operating Highlights. We recognized net income of $96.9 million, or $0.33 per basic common share, during the first quarter of 2010 as compared to a net loss of $18.3 million, or $0.07 per basic common share, in the first quarter of 2009. Our first quarter 2010 financial results include the results of operations for Encore from the date of this acquisition on March 9, 2010 through March 31, 2010. The increase in net income between the periods is primarily due to a $101.6 million ($63.0 million after tax) gain on the sale of our interests in Genesis and non-cash income due to the changes in fair value of our commodity derivative contracts, partially offset by $45.0 million ($30.8 million after tax) of transaction costs related to the Encore acquisition, incremental interest expense of $6.9 million for approximately one month for the $1.0 billion in subordinated debt issued in mid-February 2010 to complete the Encore Merger on March 9, 2010 ($4.3 million after tax), and an increase in deferred tax expense resulting from a rate increase related to the Merger with Encore ($10.0 million).
Oil and natural gas prices continued to trend upwards during the first quarter of 2010. Our average revenue per BOE, excluding the impact of oil and natural gas derivative contracts, was $69.21 per BOE in the first quarter of 2010, as compared to $34.97 per BOE in the first quarter of 2009, a 98 percent increase between the two periods. The increase in commodity prices increased our oil and natural gas revenues during the first quarter of 2010 by 98 percent as compared to the first quarter of 2009. However, our average revenue per BOE including commodity derivative contracts was $56.70 per BOE in the first quarter of 2010, compared to $52.82 per BOE during the first quarter of 2009. We did not realize most of the benefit of higher commodity prices during the first quarter of 2010 due to settlements paid on our oil derivative contracts (swaps) on 25,000 Bbls/d at $51.85 per Bbl, resulting in cash payments made by us on our oil derivative contracts during the period of $63.6 million. These particular swaps expired at the end of the first quarter.
Net cash settlements paid on our commodity derivative contracts during the first quarter of 2010 were $59.8 million, compared to $85.8 million of cash settlements received during the first quarter of 2009. During the first quarter of 2010, we had a non-cash fair value gain on our commodity derivative contracts of $100.8 million, compared to a non-cash fair value loss of $106.4 million in the first quarter of 2009. Coupled together, our total adjustments on commodity derivative contracts resulted in a net change between the first quarters of 2009 and 2010 of $61.5 million of additional income in the first quarter of 2010.
Sale of Interests in Genesis. On February 5, 2010, we sold our interest in Genesis Energy, LLC, the general partner of Genesis, to an affiliate of Quintana Capital Group L.P. for net proceeds of approximately $84 million, after giving effect to the change of control provision of the incentive compensation agreement with Genesis management which was triggered and under which we paid a total of $14.9 million, comprised of deferred compensation of $1.9 million and change of control redemption of $13.0 million. In the first quarter of 2010, we recognized G&A expense of $1.1 million associated with the $14.9 million payment. The remainder of the payment had been previously accrued in our financial statements as of December 31, 2009. In March 2010, we sold all of our common units in Genesis in a secondary public offering for net proceeds of approximately $79 million. As a result, we no longer hold any interest in Genesis. We recognized a pre-tax gain of $101.6 million ($63.0 million after tax) on these dispositions.
As discussed above in Overview Merger with Encore Acquisition Company, the primary sources of cash for the acquisition of Encore included a new $1.6 billion revolving credit agreement, which replaced our then-existing $900 million revolving credit agreement, and $1.0 billion of new 2020 Notes. We structured the financing of the acquisition to provide $600 million to $700 million of availability on our new $1.6 billion revolving credit agreement upon closing the transaction; this provides a level of liquidity similar to that available to us prior to the transaction, and a portion of those funds are available for the capital expenditures discussed above. In addition, net proceeds from the sale of the Southern Assets discussed above will help to cover capital expenditures in excess of cash flow from operations, reduce debt levels, and provide additional liquidity.
The amounts shown above for the acquisition of Encore during the first quarter of 2010 include approximately $2.1 billion of our common stock issued to Encore stockholders in the Merger, based upon 135.2 million shares valued at the closing price of $15.43 per share on March 9, 2010, and approximately $1.1 billion of the total Merger consideration was assigned to goodwill. Please read Note 3 to the Unaudited Condensed Consolidated Financial Statements for additional information regarding the Encore Merger. Our capital expenditures for the first quarter of 2010, excluding the acquisition of Encore, were funded with $113.2 million of cash flow from operations and proceeds from the sale of our interests in Genesis. See Overview Merger with Encore Acquisition Company for a discussion of the financing of that acquisition. Our capital expenditures for the first quarter of 2009 were funded with $112.6 million of cash flow from operations, $15.0 million of net bank borrowings, and $381.4 million of proceeds from the February 2009 issuance of 9.75% Senior Subordinated Notes.
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