Denbury Celebrates Record Annual and Quarterly Results
Denbury Resources Inc. has reported its fourth quarter and full year 2007 financial and operating results. The Company posted record annual earnings for the full year 2007 of $253.1 million, or $1.05 per basic common share, 25% higher than 2006 net income of $202.5 million, or $0.87 per basic common share. Fourth quarter 2007 net income of $106.0 million, or $0.44 per basic common share, was also a record, 92% higher than fourth quarter 2006 net income of $55.1 million, or $0.23 per basic common share. The higher net income in the 2007 periods was attributable to record high quarterly and annual production levels, higher oil prices and incremental net cash receipts on the Company's derivative contracts, partially offset by higher overall expenses and non-cash fair value adjustments on the Company's derivative contracts. Cash flow from operations for 2007 was $570.2 million, a record annual amount, as compared to $461.8 million for 2006.
Adjusted cash flow from operations (cash flow from operations before changes in assets and liabilities, a non-GAAP measure) for the fourth quarter of 2007 was $207.0 million, 123% higher than fourth quarter 2006 adjusted cash flow from operations of $92.8 million. Net cash flow provided by operations, the GAAP measure, totaled $205.4 million during the fourth quarter of 2007, as compared to $117.5 million during the fourth quarter of 2006. The difference between the two fourth quarter cash flow measures is primarily due to increases or decreases in accounts payables, accrued liabilities, and trade receivables 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 (GAAP), which is the GAAP measure, as opposed to adjusted cash flow from operations, which is the non-GAAP measure discussed above).
Denbury's fourth quarter 2007 production averaged 32,691 Bbls/d and 106.1 MMcf/d, or 50,371 BOE/d, a 38% increase over fourth quarter 2006 production levels, and a 10% increase over the levels in the third quarter of 2007. Production from the Company's tertiary recovery operations was 17,428 Bbls/d in the fourth quarter, resulting in an annual average of 14,767 BOE/d, slightly above the Company's forecasted annual average of 14,750 Bbls/d. This compares to 10,028 BOE/d produced in the fourth quarter of 2006 and 16,101 BOE/d in the third quarter of 2007. Production increases from the Eastern Mississippi Phase II fields of Eucutta, Soso and Martinville, made up 4,352 BOE/d of the increase (59%) from the fourth quarter of 2006 levels, with the balance from Phase I fields other than Little Creek which is on a gradual decline. Included in the fourth quarter of 2007 production is 5,097 BOE/d of production relating to the Louisiana properties sold in late December 2007 and February 2008.
Production from the Barnett Shale averaged 76.4 MMcfe/d (12,729 BOE/d) during the fourth quarter of 2007, more than double the 35.4 MMcfe/d (5,893 BOE/d) average production during the fourth quarter of 2006, primarily as a result of drilling activity. Almost all of the increased production from the Barnett Shale in the fourth quarter of 2007 as compared to the third quarter of 2007 resulted from 2,469 Bbls/d of incremental natural gas liquid production from a majority of the Company's natural gas being processed at a new plant. Fourth quarter of 2007 production in Louisiana was 14% lower than prior fourth quarter levels, averaging 5,638 BOE/d as a result of normal declines and reduced activity pending the sale of these properties.
The Company's net revenue per BOE was 11% higher on an annual basis in 2007 as compared to 2006 per BOE amounts and was 41% higher during the fourth quarter of 2007 as compared to the fourth quarter of 2006, virtually all related to higher oil prices. The combination of 38% higher production levels and 41% higher net commodity prices per BOE resulted in a 94% increase in oil and gas revenues in the fourth quarter of 2007 as compared to revenues during the fourth quarter of 2006.
Company-wide oil price differentials (Denbury's net oil price received as compared to NYMEX prices) in the fourth quarter of 2007 were worse than recent historical levels and the fourth quarter of 2006, primarily as a result of the significantly increased liquid production from the Barnett Shale and high oil prices. Oil price differentials during the fourth quarter of 2007 averaged $7.27 per Bbl less than NYMEX prices, as compared to $5.92 per Bbl below NYMEX prices during the fourth quarter of 2006.
The Company's average NYMEX natural gas differential was a negative variance of $0.55 per Mcf in the fourth quarter of 2007 as compared to a negative variance of $0.64 per Mcf during the fourth quarter of 2006.
The Company incurred more expenses in almost every category during the fourth quarter of 2007 as compared to the fourth quarter of 2006. Lease operating expenses increased $16.7 million (35%) on a gross basis in the fourth quarter of 2007 as compared to levels in the fourth quarter of 2006, primarily as a result of (i) the Company's increasing emphasis on tertiary operations with their generally higher operating costs, (ii) higher overall industry costs, (iii) the continued expansion of the Company's tertiary operations in which the cost of CO2 injection and other operating costs are expensed before a production response from the field, and (iv) additional lease payments for certain of our new tertiary operating facilities. On a per BOE basis, lease operating costs decreased to $13.78 per BOE, a 2% decrease from $13.99 per BOE during the fourth quarter of 2006, as the higher production more than offset the higher expenses. Production taxes and marketing expenses also increased primarily as a result of the increased production and higher prices.
General and administrative expenses increased 79% between the respective fourth quarters on a gross basis and increased 30% on a per BOE basis. General and administrative expenses increased primarily as a result of higher overall compensation resulting from salary increases, a 15% increase in the number of employees during 2007, and higher bonus levels for 2007 paid as a result of the Company's positive performance during 2007. General and administrative expenses averaged $3.09 per BOE in the fourth quarter of 2007 as compared to $2.37 per BOE in the comparable quarter of 2006.
During the fourth quarter of 2007, the Company capitalized approximately $6.6 million of interest expense related to its unevaluated properties, primarily associated with the Company's 2006 and 2007 acquisitions and continued expansion of its tertiary operations, and construction of CO2 pipelines. However, interest expense still increased 70% between the respective fourth quarters resulting from 60% higher average debt levels in the fourth quarter of 2007 than in the comparable period of 2006. These higher debt levels were primarily due to the use of debt to fund the 2006 and 2007 acquisitions and capital spending in excess of cash flow during 2007.
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