OilVoice - Denbury Reports 2009 Year-End Proved Reserves

Denbury Reports 2009 Year-End Proved Reserves

Monday, February 01, 2010

Denbury Resources Inc. has announced that its total proved oil and natural gas reserves as of December 31, 2009, were 207.5 million barrels of oil equivalent ("MMBOE"), consisting of 192.9 million barrels ("MMBbls") of crude oil, condensate and natural gas liquids and 88.0 billion cubic feet ("Bcf") (14.7 MMBOE) of natural gas. Adjusted for the sale of the Company's Barnett Shale properties, the Company's reserve quantities increased approximately 19% from similarly adjusted year-end 2008 estimates (174.2 MMBOE). The Company also announced that its proved carbon dioxide ("CO2") reserves were 6.3 trillion cubic feet ("Tcf") at year-end 2009, a 12% increase over Denbury's year-end 2008 CO2 reserves of 5.6 Tcf. The independent reservoir engineering firm of DeGolyer and MacNaughton prepared Denbury's year-end reserve report, including its proved CO2 reserve quantities, for the ninth consecutive year. Denbury's year-end 2009 proved reserves are 93% oil, 62% are proved developed, and 65% of the year-end reserves are proved tertiary oil reserves.

Proved Reserves and Analysis
Denbury added 48.8 MMBOE of proved reserves during 2009 (before netting out 2009 production and property sales) replacing approximately 253% of its currently estimated 2009 production. The most significant reserve additions during 2009 were approximately 17.6 MMBbls added in the Company's tertiary oil operations, 18.4 MMBOE related to the acquisition of Conroe Field, 9.6 MMBOE related to the acquisition of Hastings Field and 4.2 MMBOE related to commodity price revisions. The Company's tertiary-related oil reserves added during the year were primarily at Cranfield Field (10.9 MMBbls) and Eucutta Field (2.5 MMBbls). Based on estimated fourth quarter 2009 production levels, the Company's tertiary oil reserves have a 14.0 R/P ratio (reserve life in years based on current production levels). The Company sold approximately 74.2 MMBOE of proved reserves during 2009 through the divestiture of its Barnett Shale natural gas properties.

The Company added incremental CO2 reserves of 940 Bcf during 2009 resulting in total proved CO2 reserves of 6.3 Tcf at December 31, 2009, (on a working interest basis) after deducting estimated 2009 production of 249 Bcf. The reserves additions resulted from the drilling of one additional CO2 source well, expansion of an existing unit and upward revisions of prior estimates. During 2010, the Company plans to drill three additional CO2 wells in the Jackson Dome area.

Preliminary unaudited estimates of 2009 capital spending include approximately $305 million spent for oil and natural gas development and exploration activities (before proceeds from equipment sale/leasebacks of $49 million in 2009), approximately $630 million spent on Denbury's CO2 pipelines, producing wells and facilities, and approximately $670 million expended on acquisitions, primarily related to the acquisition of Conroe and Hastings Fields in southeast Texas. The oil and natural gas capital expenditures included $14.3 million of capitalized interest during 2009 and the CO2 expenditures included $54.2 million of capitalized interest. The Company received approximately $475 million in net proceeds from the sale of oil and natural gas properties during 2009, primarily from the sale of its Barnett Shale properties. These capital expenditures included approximately $253 million incurred on unproved properties, primarily on new tertiary properties for which there were no proved reserves as of December 31, 2009.

Based on these preliminary and unaudited 2009 estimates, 2009 finding costs, including the net change in future development cost for proved reserves, are currently estimated to be $16.50 per BOE. Using the more common "short-cut" method of computing finding cost which excludes the changes in future development costs and unevaluated properties, the Company's 2009 finding costs would be estimated at $18.98 per BOE.

Following is a preliminary reconciliation of the changes in the Company's proved oil and natural gas reserve quantities between December 31, 2008, and December 31, 2009:

MMBOE
Balance at 12/31/2008: 250.5
Sale of proved reserves: (74.2)
Estimated revisions due to price changes: 4.2
Extensions, discoveries, improved recoveries, and other revisions: 15.9
Acquisitions: 28.7
Estimated 2009 production: (17.6)
Balance at 12/31/2009: 207.5

2009 Production
Based on preliminary data, the Company's estimated average daily production rate for its tertiary oil production during the fourth quarter of 2009 is approximately 26,300 Bbls/d, an 8% sequential increase over its third quarter 2009 average tertiary production of 24,347 Bbls/d. Estimated 2009 average tertiary oil production is approximately 24,343 Bbls/d, slightly ahead of the Company's guidance of 24,200 Bbls/d. The Company's preliminary fourth quarter total production is approximately 44,940 BOE/d, a 5% sequential increase over the third quarter of 2009 average of 42,659 BOE/d. This results in an average annual production rate for 2009 of approximately 48,280 BOE/d. The Company anticipates that it will have a $60 million non-cash fair value pre-tax loss on the Company's derivative commodity contracts during the fourth quarter.

Phil Rykhoek, Chief Executive Officer, said:
"We are very pleased to report the addition of almost one Tcf of incremental CO2 reserves during 2009. This increase provides most of the CO2 needed for our recent Conroe acquisition, once the deliverability and transportation logistics have been worked out. In addition, we have one well currently drilling at Jackson Dome and we plan to drill two additional wells later this year, with a goal of further increasing both our reserves and deliverability.

"Our oil and natural gas reserves came in much as expected. Based on our projected development program, we would expect our oil reserve additions to be higher during 2010 and 2011 as we focus more of our capital spending on oil fields rather than building CO2 pipelines, the primary focus of our 2009 capital program. Our Green Pipeline (CO2) is nearly complete from Louisiana to Oyster Bayou, our planned tertiary flood located just east of Galveston Bay. We plan to cross Galveston Bay during 2010 and continue on to Hastings Field, with an anticipated completion of the line late this year. This pipeline will provide the foundation for many years of production growth in the Gulf Coast area, which coupled with the oil properties we have acquired and the anticipated Encore acquisition in 2010, puts us on a path to potentially recognize and develop, over time, more than a billion barrels of oil. We have a lot of work to do to develop this potential, but we are extremely pleased about how the Company is currently positioned to exploit our premier CO2 franchise. We continue to be excited about the Encore acquisition, which is moving forward as planned, which will enable us to expand our successful program to a new growth area."