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Delaware | 1311 | 20-0467835 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Donald W. Brodsky Judy G. Gechman Baker & Hostetler LLP 1000 Louisiana Suite 2000 Houston, Texas 77002 (713) 646-1342 | Robert A. Weible Baker & Hostetler LLP 3200 National City Center, 1900 East 9th Street Cleveland, OH 44114 (216) 621-0200 | Jon S. Brumley Chief Executive Officer and President Encore Acquisition Company 777 Main Street, Suite 1400 Fort Worth, Texas 76102 (817) 877-9955 | Stephen A. Massad Christopher J. Arntzen Baker Botts L.L.P. 910 Louisiana Houston, Texas 77002 (713) 229-1234 | Sean T. Wheeler Latham & Watkins LLP 717 Texas Avenue Suite 1600 Houston, Texas 77002 (713) 546-5400 |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
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The information in this joint proxy statement/prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary joint proxy statement/prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
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• | to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of October 31, 2009, by and between Denbury and Encore, which provides for, among other things, the merger of Encore with and into Denbury and the issuance of Denbury common stock to Encore stockholders as part of the merger consideration; | |
• | to consider and vote upon a proposal to adjourn the special meeting, if necessary or appropriate to permit the solicitation of additional proxies if there are not sufficient votes at the time of the special meeting to adopt the foregoing proposal; and | |
• | to transact any other business that may properly come before the special meeting or any adjournment or postponement of the special meeting. |
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• | to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of October 31, 2009, by and between Encore and Denbury pursuant to which Encore will merge with and into Denbury; | |
• | to consider and vote upon a proposal to adjourn the special meeting, if necessary or appropriate to permit the solicitation of additional proxies if there are not sufficient votes at the time of the special meeting to adopt the foregoing proposal; and | |
• | to transact any other business that may properly come before the special meeting or any adjournment or postponement of the special meeting. |
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Denbury Resources Inc. 5100 Tennyson Pkwy., Suite 1200 Plano, Texas 75024 Attention: Investor Relations Telephone:(972) 673-2000 | Encore Acquisition Company 777 Main Street, Suite 1400 Fort Worth, Texas 76102 Attention: Investor Relations Telephone: (817) 877-9955 |
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Q: | What will happen in the merger? |
A: | The proposed merger will combine the businesses of Denbury and Encore. At the effective time of the merger, Encore will merge with and into Denbury. Denbury will be the surviving entity. As a result of the merger, Encore will cease to exist and Denbury will continue as a public company. Following the merger, the combined company will be an independent oil and gas company with an anticipated enterprise value of approximately $[ l ] billion based on the closing price of Denbury common stock on January [ l ] , 2010. |
After the merger, the current stockholders of Denbury and the current stockholders of Encore who receive shares of Denbury common stock in the merger will be the stockholders of Denbury. | ||
Q: | Why am I receiving this document? | |
A: | Denbury and Encore are delivering this document to you because it is a joint proxy statement being used by both the Denbury and Encore boards of directors to solicit proxies of Denbury and Encore stockholders in connection with the special meetings to adopt the merger agreement. In addition, this document is a prospectus being delivered to Encore stockholders because Denbury is offering shares of its common stock to Encore stockholders in exchange for shares of Encore common stock in connection with the merger. | |
Q: | What are holders of Encore common stock being asked to vote on? | |
A: | Holders of Encore common stock are being asked to: | |
• adopt the merger agreement; | ||
• approve the adjournment of the special meeting, if necessary or appropriate to permit the solicitation of additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement; and | ||
• act upon other business that may properly come before the special meeting or any adjournment or postponement of the special meeting. | ||
Q: | What are holders of Denbury common stock being asked to vote on? | |
A: | Holders of Denbury common stock are being asked to: | |
• adopt the merger agreement, which provides for, among other things, the merger of Encore with and into Denbury and the issuance of Denbury common stock to Encore stockholders as part of the merger consideration; | ||
• approve the adjournment of the special meeting, if necessary or appropriate to permit the solicitation of additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement; and | ||
• act upon other business that may properly come before the special meeting or any adjournment or postponement of the special meeting. | ||
Adoption of the merger agreement will constitute stockholder approval of the issuance of Denbury common stock as part of the merger consideration for purposes of the New York Stock Exchange rule requiring that approval. |
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Q: | Why have Denbury and Encore decided to merge? | |
A: | Denbury and Encore believe that the merger will provide strategic and financial benefits to stockholders, customers and employees, including: | |
• creation of one of the largest crude oil focused independent exploration and production companies in North America; |
• nearly doubling Denbury’s potential oil reserves (prior to the Conroe acquisition) recoverable through enhanced oil recovery techniques, or EOR, and increasing potential for further EOR growth in the Gulf Coast and Rocky Mountain regions; |
• payment to Encore stockholders of a premium over the closing price of Encore’s common stock immediately before announcement of the merger agreement, the closing price of Encore’s common stock on the 20th trading day prior to the date of the Encore board meeting and the52-week high closing price of Encore’s common stock, with collar protection, and an ability to participate in equity ownership of the combined company following the merger; and |
• accretions to cash flow and proved reserves per share for Denbury stockholders, anticipated reductions in combined general and administrative and operational costs through the realization of synergies and, a potential reduction in cost of capital through the size, scale and diversification of the combined company. | ||
Q: | Why is my vote important? | |
A: | If you do not return your proxy card by mail or submit your proxy by telephone or over the Internet or vote in person at your special meeting, it may be difficult for Denbury and Encore to obtain the necessary quorums to hold their respective special meetings. | |
In addition, if you are a Denbury stockholder,your failure to vote will have the same effect as a vote “against” adoption of the merger agreement.With respect to the proposal to adjourn the special meeting, if necessary or appropriate in order to solicit additional proxies, an abstention will have the same effect as a vote “against” the proposal.Denbury’s board of directors recommends unanimously that Denbury stockholders vote “FOR” the adoption of the merger agreement and “FOR” the adjournment of the Denbury special meeting, if necessary or appropriate to permit further solicitation of proxies. | ||
If you are an Encore stockholder,your failure to vote will have the same effect as a vote “against” adoption of the merger agreement.With respect to the proposal to adjourn the special meeting, if necessary or appropriate in order to solicit additional proxies, an abstention will have the same effect as a vote “against” the proposal.Encore’s board of directors recommends unanimously that Encore stockholders vote “FOR” the adoption of the merger agreement and “FOR” the adjournment of the Encore special meeting, if necessary or appropriate to permit further solicitation of proxies. | ||
No matter how many shares you own, you are encouraged to vote. | ||
Q: | When and where are the special meetings? |
A: | The Denbury special meeting will take place on [ l ] , 2010 at [ l ] , local time, at 5100 Tennyson Parkway, Plano, Texas 75024. |
The Encore special meeting will take place on [ l ] , 2010 at [ l ] , local time, at the [ l ]. |
For additional information relating to the Denbury and Encore special meetings, see “The Stockholder Meetings” beginning on page 41. |
Q: | What will I receive in the merger in exchange for my shares of Encore common stock? | |
A: | Under the merger agreement, Encore stockholders may elect to receive consideration consisting of cash, shares of Denbury common stock or a combination of both in exchange for their shares of Encore common stock, subject to a proration feature. Encore stockholders electing to receive a mix of cash and stock consideration and non-electing stockholders will receive $15.00 in cash and between 2.0698 and 2.6336 shares |
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of Denbury common stock in exchange for each Encore share. Subject to proration, Encore stockholders electing to receive all cash will receive $50.00 per Encore share and Encore stockholders electing to receive only Denbury common stock will receive between 2.9568 and 3.7622 shares of Denbury common stock in exchange for each Encore share. The actual number of shares of Denbury common stock to be issued to Encore stockholders receiving either all stock or a mix of cash and stock consideration will be determined under a collar mechanism based upon the volume weighted average price of Denbury common stock for the20-day trading period ending on the second full trading day prior to the effective time of the merger (which is referred to as the Denbury20-day average price in this joint proxy statement/prospectus). For a more complete description of what Encore stockholders will be entitled to receive pursuant to the merger, see “Terms of the Merger Agreement — Conversion of Encore Stock” on page 92. |
Q: | Is the value of the per share consideration that I receive for my Encore shares expected to be substantially equivalent regardless of which election I make? | |
A: | Encore stockholders receiving all cash consideration will receive $50.00 in cash per Encore share. Encore stockholders receiving consideration that includes Denbury common stock will receive either only Denbury common stock, or a combination of cash and Denbury common stock, that will have a value, as calculated based on the Denbury20-day average price, of $50.00 per Encore share if theDenbury 20-day average price is between $13.29 per share and $16.91 per share. The value those stockholders will receive, as calculated based on theDenbury 20-day average price, will exceed $50.00 per Encore share if theDenbury 20-day average price is higher than $16.91 per share, and will be less than $50.00 per Encore share if theDenbury 20-day average price is lower than $13.29 per share. However, the consideration received by Encore stockholders receiving consideration that includes Denbury common stock may have a current value that is higher or lower than $50.00 per Encore share on the date the consideration is received, as calculated based on Denbury common stock trading prices prevailing at that time, even if theDenbury 20-day average price is between $13.29 per share and $16.91 per share. | |
Q: | If I am an Encore stockholder, when must I elect the type of merger consideration that I prefer to receive? |
A: | Holders of Encore common stock who wish to elect the type of merger consideration they prefer to receive pursuant to the merger should review and follow carefully the instructions set forth in the election form provided to Encore stockholders together with this joint proxy statement/prospectus or in a separate mailing. These instructions require that a properly completed and signed election form be received by the exchange agent by the election deadline, which is 5:00 p.m., New York time, on [ l ] , 2010. If an Encore stockholder does not submit a properly completed and signed election form to the exchange agent by the election deadline, that stockholder will receive a mix of cash and stock consideration consisting of $15.00 in cash and between 2.0698 and 2.6336 shares of Denbury common stock in exchange for each Encore share. |
Q: | What vote is required to approve the merger and related matters? | |
A: | For Denbury, the affirmative vote of a majority of its shares of common stock outstanding and entitled to vote as of the record date is required to adopt the merger agreement, which provides for, among other things, the merger of Encore with and into Denbury and the issuance of Denbury common stock to Encore stockholders as part of the merger consideration. | |
For Encore, the affirmative vote of a majority of its shares of common stock outstanding and entitled to vote as of the record date is required to adopt the merger agreement. |
For additional information on the vote required to approve the merger and related matters, see “The Stockholder Meetings” beginning on page 41. |
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Q: | Is the consummation of the merger subject to any conditions other than the approval of the stockholders of Denbury and Encore? | |
A: | Yes. In addition to stockholder approval, the consummation of the merger is contingent upon the following: | |
• the absence of any law or court order that prohibits the merger; | ||
• the shares of Denbury common stock to be issued pursuant to the merger will have been approved for listing on the New York Stock Exchange; | ||
• the effectiveness of the registration statement onForm S-4, of which this joint proxy statement/prospectus is a part, and no pending stop order or proceeding seeking a stop order relating thereto; | ||
• the receipt of tax opinions from counsel for each of Denbury and Encore to the effect that the merger will be treated as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (which is referred to as the Code in this joint proxy statement/prospectus), and that each of Denbury and Encore will be a party to the reorganization within the meaning of Section 368(b) of the Code; | ||
• Denbury’s receipt of financing as contemplated in the merger agreement; and | ||
• other customary conditions, including the absence of a material adverse effect on Denbury or Encore. | ||
Q: | What do I need to do now? |
A: | After reading and considering carefully the information contained in this joint proxy statement/prospectus, please vote promptly by calling the toll-free number listed on your proxy card, accessing the Internet website listed on your proxy card or completing, signing, dating and returning your proxy card in the enclosed postage-paid envelope. If you hold your stock in “street name” through a bank or broker, you must direct your bank or broker to vote in accordance with the instructions you have received from your bank or broker. Submitting your proxy by telephone, Internet or mail or directing your bank or broker to vote your shares will ensure that your shares are represented and voted at your special meeting. For additional information on voting procedures, see “The Stockholder Meetings” beginning on page 41. |
Q: | How will my proxy be voted? | |
A: | If you vote by telephone, over the Internet or by completing, signing, dating and returning your signed proxy card, your proxy will be voted in accordance with your instructions. The proxy confers discretionary authority to the named proxies. Accordingly, if you complete, sign, date and return your proxy card and do not indicate how you want to vote, your shares will be voted as follows: | |
• in the case of Denbury, “FOR” adoption of the merger agreement and “FOR” the adjournment of the Denbury special meeting, if necessary or appropriate to permit further solicitation of proxies; and | ||
• in the case of Encore, “FOR” the adoption of the merger agreement, and “FOR” the adjournment of the Encore special meeting, if necessary or appropriate to permit further solicitation of proxies. |
For additional information on voting procedures, see “The Stockholder Meetings” beginning on page 41. |
Q: | If my broker holds my shares in “street name,” will my broker automatically vote my shares for me? | |
A: | No. If you do not provide your broker with instructions on how to vote your “street name” shares, your broker will not be permitted to vote them on your behalf.Therefore, you should be sure to provide your broker with instructions on how to vote your shares, following the directions your broker provides to you. Please check the voting form used by your broker to see if the broker offers telephone or Internet voting. | |
Q: | What if I fail to instruct my broker? | |
A: | If you fail to instruct your broker to vote your shares and the broker submits an unvoted proxy, referred to as a broker non-vote, the broker non-vote will be counted toward a quorum at your special meeting, but |
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effectively will be treated as a vote “against” the proposal to adopt the merger agreement, unless you appear and vote in person at your special meeting. |
For information on changing your vote if your shares are held in “street name,” see “The Stockholder Meetings” beginning on page 41. |
Q: | Is the merger expected to be taxable to Encore stockholders? | |
A: | It is expected that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code and, therefore, it is expected that holders of Encore common stock will not recognize any gain or loss for federal income tax purposes to the extent they exchange their shares of Encore common stock for shares of Denbury common stock pursuant to the merger. However, to the extent holders of Encore common stock exchange their Encore common stock for cash, the merger will be taxable. |
You should read “Material U.S. Federal Income Tax Consequences of the Merger”beginning on page 106 for a description of the material United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular situation.You should consult your tax advisors to determine the tax consequences of the merger to you. |
Q: | What does it mean if I receive more than one set of materials? | |
A: | This means you own shares of both Denbury and Encore or you own shares of Denbury or Encore that are registered under different names. For example, you may own some shares directly as a stockholder of record and other shares through a broker, or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. You must complete, sign, date and return all of the proxy cards or follow the instructions for any alternative voting procedures on each of the proxy cards you receive in order to vote all of the shares you own. Each proxy card you receive will come with its own postage-paid return envelope; if you vote by mail, make sure you return each proxy card in the return envelope that accompanied that proxy card. | |
Q: | What can I do if I want to change or revoke my vote? | |
A: | Regardless of the method you used to cast your vote, if you are a holder of record, you may change your vote: | |
• by completing, signing, dating and returning a new proxy card with a later date; |
• by calling the toll-free number listed on the proxy card or by accessing the Internet website listed on the proxy card by 11:59 p.m. New York time on [ l ] , 2010; or |
• by attending your special meeting and voting by ballot at your special meeting. |
You may also revoke your proxy card by sending a notice of revocation, which must be received prior to your special meeting, to the designated representative of the applicable company at the address provided under “Where You Can Find More Information” on page 115. |
If you hold your shares in “street name” and wish to change or revoke your vote, please refer to the information on the voting instruction form included with these materials and forwarded to you by your bank, broker, custodian or other record holder to see your voting options. |
For additional information on changing your vote, see “The Stockholder Meetings” beginning on page 41. |
Q: | What will happen to Encore’s stock options and restricted stock in the merger? | |
A: | At the effective time of the merger, each outstanding option to purchase shares of Encore common stock will fully vest and will be converted into an obligation of Denbury to pay to the option holder an amount in cash equal to the product of (i) the number of shares of Encore common stock subject to the option and (ii) the excess, if any, of the aggregate consideration per share (or with respect to certain pre-2005 options, the highest price per share paid within 60 days prior to the merger) over the exercise price per share previously subject to the option. | |
Immediately prior to the effective time of the merger, each outstanding award of Encore restricted stock granted by Encore will become fully vested and each holder will have the right to make the same elections |
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as a holder of Encore common stock, except that any shares of Encore restricted stock granted as a 2009 bonus pursuant to the Encore annual incentive program will be converted into restricted shares of Denbury common stock. For more information, see “Terms of the Merger Agreement — Employee Stock Options; Restricted Shares” beginning on page 93. |
Q: | If I am a holder of Encore common stock with shares represented by stock certificates, should I send in my Encore stock certificates now? | |
A: | No. Please do not send in your Encore stock certificates with your proxy card. Rather, prior to the election deadline, send your completed, signed election form, together with your Encore common stock certificates (or a properly completed notice of guaranteed delivery) to the exchange agent. The election form for your Encore shares and your instructions will be delivered to you together with this joint proxy statement/prospectus or in a separate mailing. If your shares of Encore common stock are held in “street name” by your broker or other nominee, you should follow your broker’s or nominee’s instructions for making an election. | |
Q: | Are Encore stockholders entitled to appraisal rights? |
A: | Encore stockholders may, under certain circumstances, be entitled to appraisal rights under Section 262 of the General Corporation Law of the State of Delaware, or the DGCL. For more information regarding appraisal rights, see “The Merger — Appraisal Rights” beginning on page 85. In addition, a copy of Section 262 of the DGCL is attached to this joint proxy statement/prospectus as Annex D. |
Q: | Are there any risks in the merger that I should consider? |
A: | Yes. There are risks associated with all business combinations, including the proposed merger. We have described certain of these risks and other risks in more detail under “Risk Factors” beginning on page 34. |
Q: | Will Denbury stockholders receive any shares as a result of the merger? | |
A: | No. Denbury stockholders will continue to hold the Denbury shares they currently own. | |
Q: | When do you expect to complete the merger? | |
A: | Denbury and Encore expect to complete the merger during the first quarter of 2010, although completion by any particular date cannot be assured. | |
Q: | Where can I find more information about the companies? | |
A: | Both Denbury and Encore file periodic reports and other information with the SEC. You may read and copy this information at the SEC’s public reference facility. Please call the SEC at1-800-SEC-0330 for information about this facility. This information is also available through the SEC’s website athttp://www.sec.gov and at the offices of the New York Stock Exchange. Both companies also maintain websites. You can obtain Denbury’s SEC filings athttp://www.denbury.com and you can obtain Encore’s SEC filings athttp://www.encoreacq.com. We do not intend for information contained on or accessible through our respective websites to be part of this joint proxy statement/prospectus, other than the documents that we file with the SEC that are incorporated by reference into this joint proxy statement/prospectus. |
In addition, you may obtain some of this information directly from the companies. For a more detailed description of the information available, see “Where You Can Find More Information” on page 115. |
Q: | Whom should I call if I have questions about the special meeting or the merger? |
A: | Denbury stockholders should call Georgeson Inc., Denbury’s proxy solicitor, at 1-866-482-4969. |
Encore stockholders should call BNY Mellon Shareowner Services, Encore’s proxy solicitor, at [ • ]. |
If you have more questions about the merger, please call the Investor Relations Department of Denbury at(972) 673-2000 or the Investor Relations Department of Encore at(817) 877-9955. |
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• | remain focused in specific regions where Denbury either has, or believes it can create, a competitive advantage as a result of its ownership or use of CO2 reserves, oil fields and CO2 infrastructure; |
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• | acquire properties where management believes additional value can be created through tertiary recovery operations and a combination of other exploitation, development, exploration and marketing techniques; | |
• | acquire properties that give Denbury a majority working interest and operational control or where management believes Denbury can ultimately obtain them; | |
• | maximize the value of company properties by increasing production and reserves while controlling costs; and | |
• | maintain a highly competitive team of experienced and incentivized personnel. |
• | the Cedar Creek Anticline, or CCA, in the Williston Basin in Montana and North Dakota; | |
• | the Permian Basin in west Texas and southeastern New Mexico; | |
• | the Rockies, which includes non-CCA assets in the Williston, Big Horn and Powder River Basins in Wyoming, Montana and North Dakota and the Paradox Basin in southeastern Utah; and | |
• | the Mid-Continent region, which includes the Arkoma and Anadarko Basins in Oklahoma, the North Louisiana Salt Basin and the East Texas Basin. |
(Page 46)
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(Pages 63 and 72)
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(Page 80)
(Page 41)
• | to consider and vote upon a proposal to adopt the merger agreement, which provides for, among other things, the merger of Encore with and into Denbury and the issuance of Denbury common stock to Encore stockholders as part of the merger consideration; | |
• | to consider and vote upon any adjournment of the special meeting, if necessary or appropriate to solicit additional proxies in favor of the foregoing proposal; and | |
• | to transact any other business that may properly come before the special meeting or any adjournment or postponement of the special meeting. |
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• | to consider and vote upon a proposal to adopt the merger agreement; | |
• | to consider and vote upon any adjournment of the special meeting, if necessary or appropriate to solicit additional proxies in favor of the foregoing proposal; and | |
• | to transact any other business that may properly come before the special meeting or any adjournment or postponement of the special meeting. |
(Page 42)
(Page 42)
(Page 42)
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(Page 34)
(Page 106)
(Page 79)
(Page 85)
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(Page 89)
(Page 102)
• | the adoption of the merger agreement by Encore’s stockholders; | |
• | the adoption of the merger agreement by Denbury’s stockholders; | |
• | the absence of any law or court order that would prohibit, prevent or enjoin the merger; | |
• | the effectiveness of the registration statement onForm S-4 of which this joint proxystatement/prospectus is a part, and no pending stop order or proceeding seeking a stop order relating thereto; | |
• | the approval of the shares of Denbury common stock to be issued pursuant to the merger agreement to be listed on the New York Stock Exchange; | |
• | the receipt of tax opinions from counsel for each of Denbury and Encore to the effect that the merger will be treated as a reorganization under Section 368(a) of the Code and that each of Denbury and Encore will be a party to the reorganization within the meaning of Section 368(b) of the Code; | |
• | Denbury’s receipt of the financing contemplated by the merger agreement; and | |
• | other customary conditions, including the absence of a material adverse effect on Denbury or Encore. |
(Page 89)
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(Page 103)
• | if the merger has not occurred on or before May 31, 2010, but neither party may terminate the merger agreement if that party’s breach of any provision of the merger agreement has contributed to, or otherwise resulted in, the failure of the merger to occur on or before May 31, 2010; | |
• | if a court or other governmental authority issues a final, non-appealable order restraining, enjoining or otherwise prohibiting the merger; | |
• | if Encore’s stockholders or Denbury’s stockholders fail to adopt the merger agreement; | |
• | if the Denbury financing condition is not satisfied on or before May 31, 2010; or | |
• | if the other party is in material breach of the merger agreement such that certain conditions set forth in the merger agreement are not capable of being satisfied and such breach is not cured prior to the earlier of 30 days after notice of the breach or May 31, 2010. |
(Page 104)
(Page 80)
• | a lump sum cash payment to each of Encore’s executive officers in the amount of2-3 times their respective annual salaries and bonus; | |
• | continued medical, dental and life insurance coverage for up to three years for Encore’s executive officers; | |
• | payments to compensate for the imposition of certain federal excise taxes imposed on Encore’s executive officers; |
• | the vesting of Encore restricted stock and options to purchase shares of Encore’s common stock held by Encore’s executive officers and directors at the effective time of the merger and conversion of that stock into the right to receive the merger consideration (other than restricted stock granted as a 2009 bonus); |
• | entitlement for Encore’s executive officers to receive an incentive award that would vest over time from Denbury if they remain employed by Denbury for 30 days following the effective time of the merger; and |
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• | indemnification by Denbury with respect to acts or omissions performed by Encore’s directors and executive officers in their capacities as such. |
(Page 98)
• | the receipt, existence or terms of an acquisition proposal for Denbury or of any information or any communication that could lead to any acquisition by Denbury of any business or assets other than Encore, or any consequence thereof; | |
• | any failure to arrange or receive the financing, or any of the terms or consequences of the financing; or | |
• | any change in, or event or condition generally affecting, the oil and natural gas industry or exploration and production companies, including, without limitation, any change in oil or natural gas prices or differentials. |
(Page 109)
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Nine Months Ended | ||||||||||||||||||||||||||||
September 30, | Year Ended December 31, | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006(a) | 2005 | 2004 | ||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||||||||||
Revenues and other income: | ||||||||||||||||||||||||||||
Oil, natural gas and related product sales | $ | 600,942 | $ | 1,128,548 | $ | 1,347,010 | $ | 952,788 | $ | 716,557 | $ | 549,055 | $ | 444,777 | ||||||||||||||
CO2 sales and transportation fees | 9,708 | 9,705 | 13,858 | 13,630 | 9,376 | 8,119 | 6,276 | |||||||||||||||||||||
Loss on effective hedge contract(b) | — | — | — | — | — | — | (70,469 | ) | ||||||||||||||||||||
Interest income and other | 1,948 | 3,525 | 4,834 | 6,642 | 5,603 | 3,218 | 2,388 | |||||||||||||||||||||
�� | ||||||||||||||||||||||||||||
Total revenues | 612,598 | 1,141,778 | 1,365,702 | 973,060 | 731,536 | 560,392 | 382,972 | |||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||
Lease operating expenses | 241,908 | 228,134 | 307,550 | 230,932 | 167,271 | 108,550 | 87,107 | |||||||||||||||||||||
Production taxes and marketing expenses | 24,294 | 50,978 | 55,770 | 43,130 | 31,993 | 23,553 | 17,569 | |||||||||||||||||||||
Transportation expense — Genesis | 6,143 | 5,623 | 7,982 | 5,961 | 4,358 | 4,029 | 1,168 | |||||||||||||||||||||
CO2 operating expenses | 3,442 | 2,836 | 4,216 | 4,214 | 3,190 | 2,251 | 1,338 | |||||||||||||||||||||
General and administrative | 79,828 | 45,821 | 60,374 | 48,972 | 43,014 | 28,540 | 21,461 | |||||||||||||||||||||
Interest, net of amounts capitalized(c) | 36,960 | 23,988 | 32,596 | 30,830 | 23,575 | 17,978 | 19,468 | |||||||||||||||||||||
Depletion, depreciation and amortization | 177,145 | 160,896 | 221,792 | 195,900 | 149,165 | 98,802 | 97,527 | |||||||||||||||||||||
Commodity derivative expense (income) | 177,061 | 43,591 | (200,053 | ) | 18,597 | (19,828 | ) | 28,962 | 15,358 | |||||||||||||||||||
Abandoned acquisition cost(d) | — | 30,426 | 30,601 | — | — | — | — | |||||||||||||||||||||
Write-down of oil and natural gas properties(d) | — | — | 226,000 | — | — | — | — | |||||||||||||||||||||
Total expenses | 746,781 | 592,293 | 746,828 | 578,536 | 402,738 | 312,665 | 260,996 | |||||||||||||||||||||
Equity in net income (loss) of Genesis | 5,802 | 3,796 | 5,354 | (1,110 | ) | 776 | 314 | (136 | ) | |||||||||||||||||||
Income (loss) before income taxes | (128,381 | ) | 553,281 | 624,228 | 393,414 | 329,574 | 248,041 | 121,840 | ||||||||||||||||||||
Income tax provision (benefit): | ||||||||||||||||||||||||||||
Current income taxes | 18,140 | 44,769 | 40,812 | 30,074 | 19,865 | 27,177 | 22,929 | |||||||||||||||||||||
Deferred income taxes | (67,869 | ) | 163,909 | 195,020 | 110,193 | 107,252 | 54,393 | 16,463 | ||||||||||||||||||||
Net income (loss) | $ | (78,652 | ) | $ | 344,603 | $ | 388,396 | $ | 253,147 | $ | 202,457 | $ | 166,471 | $ | 82,448 | |||||||||||||
Net income (loss) per share — basic(e) | $ | (0.32 | ) | $ | 1.41 | $ | 1.59 | $ | 1.05 | $ | 0.87 | $ | 0.74 | $ | 0.38 | |||||||||||||
Net income (loss) per share — diluted(e) | $ | (0.32 | ) | $ | 1.36 | $ | 1.54 | $ | 1.00 | $ | 0.82 | $ | 0.70 | $ | 0.36 | |||||||||||||
Weighted average common shares outstanding:(e) | ||||||||||||||||||||||||||||
Basic | 246,156 | 243,604 | 243,935 | 240,065 | 233,101 | 223,485 | 219,482 | |||||||||||||||||||||
Diluted | 246,156 | 252,708 | 252,530 | 252,101 | 247,547 | 239,267 | 229,206 | |||||||||||||||||||||
Consolidated Statements of Cash Flows Data: | ||||||||||||||||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||||||||||
Operating activities | $ | 406,434 | $ | 632,771 | $ | 774,519 | $ | 570,214 | $ | 461,810 | $ | 360,960 | $ | 168,652 | ||||||||||||||
Investing activities | (736,390 | ) | (617,677 | ) | (994,659 | ) | (762,513 | ) | (856,627 | ) | (383,687 | ) | (93,550 | ) | ||||||||||||||
Financing activities | 334,576 | 100,109 | 177,102 | 198,533 | 283,601 | 154,777 | (66,251 | ) |
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As of September 30, | As of December 31, | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Consolidated Balance Sheets Data: | ||||||||||||||||||||||||||||
Total assets | $ | 3,903,260 | $ | 3,468,532 | $ | 3,589,674 | $ | 2,771,077 | $ | 2,139,837 | $ | 1,505,069 | $ | 992,706 | ||||||||||||||
Total long-term debt | 1,196,061 | 776,991 | 852,767 | 680,330 | 507,786 | 373,591 | 223,397 | |||||||||||||||||||||
Stockholders’ equity | 1,790,659 | 1,787,985 | 1,840,068 | 1,404,378 | 1,106,059 | 733,662 | 541,672 |
(a) | Effective January 1, 2006, Denbury adopted new guidance issued by the Financial Accounting Standard Board (“FASB”) in the “Compensation-Stock Compensation” topic of the FASB Accounting Standards Codificationtm (“FASC”) which prospectively required Denbury to record compensation expense for stock incentive awards. | |
(b) | Amount represents Denbury’s net loss on commodity contracts that qualified for hedge accounting treatment, prior to Denbury’s discontinuance of hedge accounting effective January 1, 2005. | |
(c) | Denbury’s capitalized interest was $48.7 million and $19.5 million for the nine months ended September 30, 2009 and 2008, respectively, and $29.2 million, $20.4 million, $11.3 million, $1.6 million and $0 for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively. | |
(d) | In 2008, Denbury had a full cost ceiling test write-down of $226.0 million ($140.1 million net of tax) and pre-tax expense of $30.6 million associated with a cancelled acquisition. | |
(e) | On December 5, 2007 and October 31, 2005, Denbury split its common stock on a2-for-1 basis. Information relating to all prior years’ shares and earnings per share has been retroactively restated to reflect the stock splits. |
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Nine Months Ended | ||||||||||||||||||||||||||||
September 30,(a)(b) | Year Ended December 31,(a)(b) | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||||||||||
Revenues(c): | ||||||||||||||||||||||||||||
Oil | $ | 374,915 | $ | 776,001 | $ | 897,443 | $ | 562,817 | $ | 346,974 | $ | 307,959 | $ | 220,649 | ||||||||||||||
Natural gas | 86,908 | 182,973 | 227,479 | 150,107 | 146,325 | 149,365 | 77,884 | |||||||||||||||||||||
Marketing(d) | 2,008 | 8,740 | 10,496 | 42,021 | 147,563 | — | — | |||||||||||||||||||||
Total revenues | 463,831 | 967,714 | 1,135,418 | 754,945 | 640,862 | 457,324 | 298,533 | |||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||
Production: | ||||||||||||||||||||||||||||
Lease operating(e) | 122,817 | 130,013 | 175,115 | 143,426 | 98,194 | 69,744 | 47,807 | |||||||||||||||||||||
Production, ad valorem and severance taxes | 48,074 | 95,845 | 110,644 | 74,585 | 49,780 | 45,601 | 30,313 | |||||||||||||||||||||
Depletion, depreciation and amortization | 217,361 | 159,114 | 228,252 | 183,980 | 113,463 | 85,627 | 48,522 | |||||||||||||||||||||
Impairment of long-lived assets(f) | — | 26,292 | 59,526 | — | — | — | — | |||||||||||||||||||||
Exploration | 43,801 | 30,462 | 39,207 | 27,726 | 30,519 | 14,443 | 3,935 | |||||||||||||||||||||
General and administrative(e) | 40,743 | 36,549 | 48,421 | 39,124 | 23,194 | 17,268 | 12,059 | |||||||||||||||||||||
Marketing(d) | 1,612 | 9,362 | 9,570 | 40,549 | 148,571 | — | — | |||||||||||||||||||||
Derivative fair value loss (gain)(g) | (741 | ) | 82,093 | (346,236 | ) | 112,483 | (24,388 | ) | 5,290 | 5,011 | ||||||||||||||||||
Loss on early redemption of debt(h) | — | — | — | — | — | 19,477 | — | |||||||||||||||||||||
Provision for doubtful accounts | 7,116 | 4 | 1,984 | 5,816 | 1,970 | 231 | — | |||||||||||||||||||||
Other operating | 22,303 | 9,801 | 12,975 | 17,066 | 8,053 | 9,254 | 5,028 | |||||||||||||||||||||
Total expenses | 503,086 | 579,535 | 339,458 | 644,755 | 449,356 | 266,935 | 152,675 | |||||||||||||||||||||
Operating income (loss) | (39,255 | ) | 388,179 | 795,960 | 110,190 | 191,506 | 190,389 | 145,858 | ||||||||||||||||||||
Other income (expenses): | ||||||||||||||||||||||||||||
Interest | (57,009 | ) | (54,669 | ) | (73,173 | ) | (88,704 | ) | (45,131 | ) | (34,055 | ) | (23,459 | ) | ||||||||||||||
Other | 1,811 | 3,090 | 3,898 | 2,667 | 1,429 | 1,039 | 240 | |||||||||||||||||||||
Total other expenses | (55,198 | ) | (51,579 | ) | (69,275 | ) | (86,037 | ) | (43,702 | ) | (33,016 | ) | (23,219 | ) | ||||||||||||||
Income (loss) before income taxes | (94,453 | ) | 336,600 | 726,685 | 24,153 | 147,804 | 157,373 | 122,639 | ||||||||||||||||||||
Income tax benefit (provision) | 25,254 | (118,595 | ) | (241,621 | ) | (14,476 | ) | (55,406 | ) | (53,948 | ) | (40,492 | ) | |||||||||||||||
Consolidated net income (loss) | (69,199 | ) | 218,005 | 485,064 | 9,677 | 92,398 | 103,425 | 82,147 | ||||||||||||||||||||
Less: net loss (income) attributable to noncontrolling interest | 9,669 | (16,198 | ) | (54,252 | ) | 7,478 | — | — | — | |||||||||||||||||||
Net income (loss) attributable to EAC stockholders | $ | (59,530 | ) | $ | 201,807 | $ | 430,812 | $ | 17,155 | $ | 92,398 | $ | 103,425 | $ | 82,147 | |||||||||||||
Net income (loss) per common share: | ||||||||||||||||||||||||||||
Basic | $ | (1.15 | ) | $ | 3.78 | $ | 8.10 | $ | 0.32 | $ | 1.75 | $ | 2.10 | $ | 1.73 | (i) | ||||||||||||
Diluted | $ | (1.15 | ) | $ | 3.67 | $ | 8.01 | $ | 0.31 | $ | 1.74 | $ | 2.07 | $ | 1.71 | (i) | ||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||
Basic | 51,964 | 52,466 | 52,270 | 53,170 | 51,865 | 48,682 | 47,090 | (i) | ||||||||||||||||||||
Diluted | 51,964 | 53,134 | 52,866 | 53,629 | 52,356 | 49,303 | 47,522 | (i) | ||||||||||||||||||||
Consolidated Statements of Cash flows Data: | ||||||||||||||||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||||||||||
Operating activities | $ | 633,153 | $ | 528,987 | $ | 663,237 | $ | 319,707 | $ | 297,333 | $ | 292,269 | $ | 171,821 | ||||||||||||||
Investing activities | (710,316 | ) | (536,094 | ) | (728,346 | ) | (929,556 | ) | (397,430 | ) | (573,560 | ) | (433,470 | ) | ||||||||||||||
Financing activities | 81,807 | �� | 9,230 | 65,444 | 610,790 | 99,206 | 281,842 | 262,321 |
As of September 30,(a)(b) | As of December 31,(a)(b) | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Consolidated Balance Sheets Data: | ||||||||||||||||||||||||||||
Total assets | $ | 3,713,814 | $ | 3,286,141 | $ | 3,633,195 | $ | 2,784,561 | $ | 2,006,900 | $ | 1,705,705 | $ | 1,123,400 | ||||||||||||||
Long-term debt | 1,243,496 | 1,217,604 | 1,319,811 | 1,120,236 | 661,696 | 673,189 | 379,000 | |||||||||||||||||||||
Equity | 1,668,765 | 1,239,392 | 1,483,248 | 1,070,689 | 816,865 | 546,781 | 473,575 |
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(a) | Encore acquired certain oil and natural gas properties and related assets in the Mid-Continent and east Texas regions in August 2009. Encore acquired certain oil and natural gas properties and related assets in the Big Horn and Williston Basins in March 2007 and April 2007, respectively. Encore also acquired Crusader Energy Corporation in October 2005 and Cortez Oil & Gas, Inc. in April 2004. The operating results of these acquisitions are included in Encore’s Consolidated Statements of Operations from the date of acquisition forward. Encore disposed of certain oil and natural gas properties and related assets in the Mid-Continent region in June 2007. The operating results of this disposition are included in Encore’s Consolidated Statements of Operations through the date of disposition. |
(b) | Encore’s historical financial information has been recast for the adoption of new guidance on the accounting for noncontrolling interests issued by the FASB in the “Consolidations” topic of the FASC and new guidance on the accounting for the treatment of equity-based payment transactions in the calculation of earnings per share issued by the FASB in the “Earnings per Share” topic of the FASC on January 1, 2009. The retrospective application of the new guidance on noncontrolling interests resulted in the reclassification of approximately $169.1 million, $122.5 million and $125.2 million from minority interest in consolidated partnership to noncontrolling interest at December 31, 2008 and 2007 and September 30, 2008, respectively. The retrospective application of the new guidance on earnings per share reduced Encore’s basic earnings per common share by $0.14, $0.03, $0.02, and $0.01 for the years ended December 31, 2008, 2006, 2005 and 2004, respectively, reduced Encore’s diluted earnings per share by $0.06, $0.01, $0.01, $0.02 and $0.01 for the years ended December 31, 2008, 2007, 2006, 2005, and 2004, respectively, and reduced Encore’s basic and diluted earnings per share by $0.07 and $0.03, respectively, for the nine months ended September 30, 2008. The adoption of the revised guidance on earnings per share did not have an impact on Encore’s basic earnings per share during the year ended December 31, 2007. See Encore’s Current Report onForm 8-K filed January 25, 2010. |
(c) | For the nine months ended September 30, 2009 and 2008, Encore reduced oil and natural gas revenues for net profits interests owned by others by $21.5 million and $50.7 million, respectively. For 2008, 2007, 2006, 2005 and 2004, Encore reduced oil and natural gas revenues for net profits interests owned by others by $56.5 million, $32.5 million, $23.4 million, $21.2 million and $12.6 million, respectively. |
(d) | In 2006, Encore began purchasing third-party oil barrels from a counterparty other than a party to whom the barrels were sold for aggregation and sale with Encore’s own equity production in various markets. These purchases assisted Encore in marketing Encore’s production by decreasing Encore’s dependence on individual markets. These activities allowed Encore to aggregate larger volumes, facilitated Encore’s efforts to maximize the prices Encore received for production, provided for a greater allocation of future pipeline capacity in the event of curtailments, and enabled Encore to reach other markets. In 2007, Encore discontinued purchasing oil from third party companies as market conditions changed and pipeline space was gained. Implementing this change allowed Encore to focus on the marketing of Encore’s own oil production, leveraging newly gained pipeline space and delivering oil to various newly developed markets in an effort to maximize the value of the oil at the wellhead. In March 2007, Encore Energy Partners LP (or ENP) acquired a natural gas pipeline as part of the Big Horn Basin asset acquisition. Natural gas volumes are purchased from numerous gas producers at the inlet to the pipeline and resold downstream to various local and off-system markets. |
(e) | On January 1, 2006, Encore adopted new guidance issued by the FASB in the “Compensation-Stock Compensation” topic of the FASC. Due to the adoption, non-cash equity-based compensation expense for 2005 and 2004 has been reclassified to allocate the amount to the same respective income statement lines as the respective employees’ cash compensation. This resulted in increases in lease operating expense of $1.3 million and $0.7 million during 2005 and 2004, respectively, and increases in general and administrative expense of $2.6 million and $1.1 million during 2005 and 2004, respectively. |
(f) | During 2008, circumstances indicated that the carrying amounts of certain oil and natural gas properties, primarily four wells in the Tuscaloosa Marine Shale, may not be recoverable. Encore compared the assets’ carrying amounts to the undiscounted expected future net cash flows, which indicated a need for an impairment charge. Encore then compared the net carrying amounts of the impaired assets to their estimated fair value, which resulted in a write-down of the value of proved oil and natural gas properties of |
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$59.5 million. Fair value was determined using estimates of future production volumes and estimates of future prices Encore might receive for these volumes, discounted to a present value. |
(g) | During July 2006, Encore elected to discontinue hedge accounting prospectively for all of Encore’s commodity derivative contracts, which were previously accounted for as hedges. From that point forward,mark-to-market gains or losses on commodity derivative contracts are recorded in “Derivative fair value loss (gain)” while in periods prior to that point, only the ineffective portions of commodity derivative contracts which were designated as hedges were recorded in “Derivative fair value loss (gain).” |
(h) | In 2005, Encore recorded a $19.5 million loss on early redemption of debt related to the redemption premium and the expensing of unamortized debt issuance costs of Encore’s 83/8% Senior Subordinated Notes due 2012. Encore redeemed all $150 million of such notes with proceeds received from the issuance of $300 million of Encore’s 6.0% Senior Subordinated Notes due 2015. |
(i) | Adjusted for the effects of Encore’s3-for-2 stock split in July 2005. |
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Table of Contents
Year Ended December 31, | ||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||
Summary Oil and Natural Gas Reserves Data: | ||||||||||||||||||||||||||||
Estimated net proved reserves (at end of period prices): | ||||||||||||||||||||||||||||
Oil (MBbls) | 179,126 | 134,978 | 126,185 | 106,173 | 101,287 | |||||||||||||||||||||||
Natural gas (MMcf) | 427,955 | 358,608 | 288,826 | 278,367 | 168,484 | |||||||||||||||||||||||
Oil equivalent (MBOE) | 250,452 | 194,746 | 174,322 | 152,568 | 129,369 | |||||||||||||||||||||||
Carbon dioxide (MMcf)(a) | 5,612,167 | 5,641,054 | 5,525,948 | 4,645,702 | 2,664,633 | |||||||||||||||||||||||
Percentage of total MBOE: | ||||||||||||||||||||||||||||
Proved producing | 47% | 56% | 48% | 40% | 39% | |||||||||||||||||||||||
Proved non-producing | 11% | 13% | 17% | 16% | 16% | |||||||||||||||||||||||
Proved undeveloped | 42% | 31% | 35% | 44% | 45% | |||||||||||||||||||||||
Representative oil and natural gas prices(b): | ||||||||||||||||||||||||||||
Oil — NYMEX | $ | 44.60 | $ | 95.98 | $ | 61.05 | $ | 61.04 | $ | 43.45 | ||||||||||||||||||
Natural gas — Henry Hub | 5.71 | 6.80 | 5.63 | 10.08 | 6.18 | |||||||||||||||||||||||
Present Values (in thousands): | ||||||||||||||||||||||||||||
Discounted estimated future net cash flow before income taxes(PV-10 Value)(c) | $ | 1,926,855 | $ | 5,385,123 | $ | 2,695,199 | $ | 3,215,478 | $ | 1,643,289 | ||||||||||||||||||
Standardized measure of discounted future net cash flow after income taxes(d) | 1,415,498 | 3,539,617 | 1,837,341 | 2,084,449 | 1,129,196 | |||||||||||||||||||||||
Nine Months Ended, | ||||||||||||||||||||||||||||
September 30, | Year Ended December 31, | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Summary Operating Data(e): | ||||||||||||||||||||||||||||
Production (average daily): | ||||||||||||||||||||||||||||
Oil (Bbls) | 36,819 | 30,859 | 31,436 | 27,925 | 22,936 | 20,013 | 19,247 | |||||||||||||||||||||
Natural gas (Mcf) | 75,523 | 89,087 | 89,442 | 97,141 | 83,075 | 58,696 | 82,224 | |||||||||||||||||||||
BOE (6:1) | 49,406 | 45,707 | 46,343 | 44,115 | 36,782 | 29,795 | 32,951 | |||||||||||||||||||||
Unit Sales Price (excluding impact of derivative settlements): | ||||||||||||||||||||||||||||
Oil (per Bbl) | $ | 52.68 | $ | 106.37 | $ | 92.73 | $ | 69.80 | $ | 59.87 | $ | 50.30 | $ | 36.46 | ||||||||||||||
Natural gas (per Mcf) | 3.46 | 9.39 | 8.56 | 6.81 | 7.10 | 8.48 | 6.24 | |||||||||||||||||||||
Unit Sales Price (including impact of derivative settlements): | ||||||||||||||||||||||||||||
Oil (per Bbl) | $ | 67.25 | $ | 102.74 | $ | 90.04 | $ | 68.84 | $ | 59.23 | $ | 50.30 | $ | 27.36 | ||||||||||||||
Natural gas (per Mcf) | 3.46 | 8.16 | 7.74 | 7.66 | 7.10 | 7.70 | 5.57 |
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Nine Months Ended, | ||||||||||||||||||||||||||||
September 30, | Year Ended December 31, | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Costs per BOE: | ||||||||||||||||||||||||||||
Lease operating | $ | 17.94 | $ | 18.22 | $ | 18.13 | $ | 14.34 | $ | 12.46 | $ | 9.98 | $ | 7.22 | ||||||||||||||
Production taxes and marketing expenses | 2.26 | 4.52 | 3.76 | 3.05 | 2.71 | 2.54 | 1.55 | |||||||||||||||||||||
Depletion, depreciation and amortization | 13.13 | 12.85 | 13.08 | 12.17 | 11.11 | 9.09 | 8.09 | |||||||||||||||||||||
General and administrative(f) | 5.92 | 3.66 | 3.56 | 3.04 | 3.20 | 2.62 | 1.78 | |||||||||||||||||||||
Abandon acquisition cost | — | — | 1.80 | — | — | — | — | |||||||||||||||||||||
Writedown of oil and natural gas properties | — | — | 13.32 | — | — | — | — | |||||||||||||||||||||
Costs Incurred (in thousands)(g): | ||||||||||||||||||||||||||||
Property acquisitions: | ||||||||||||||||||||||||||||
Proved | $ | 247,060 | $ | 5,094 | $ | 32,781 | $ | 15,531 | $ | 147,655 | $ | 64,791 | $ | 23,977 | ||||||||||||||
Unevaluated | 8,626 | 12,439 | 16,129 | 60,079 | 205,506 | 32,874 | 3,459 | |||||||||||||||||||||
Development | 249,843 | 421,764 | 575,947 | 553,315 | 443,866 | 240,478 | 129,819 | |||||||||||||||||||||
Exploration | 2,606 | 5,037 | 5,710 | 42,726 | 43,564 | 45,652 | 23,987 | |||||||||||||||||||||
Total costs incurred | $ | 508,135 | $ | 444,334 | $ | 630,567 | $ | 671,651 | $ | 840,591 | $ | 383,795 | $ | 181,242 | ||||||||||||||
(a) | Based on gross working interest basis and includes reserves dedicated to volumetric production payments of 153.8 Bcf, 182.3 Bcf, 210.5 Bcf, 237.1 Bcf and 178.7 Bcf at December 31, 2008, 2007, 2006, 2005 and 2004, respectively. | |
(b) | Oil reference prices as of each respective period end were based on NYMEX WTI oil prices per barrel and natural gas reference prices as of each respective period end were based on Henry Hub cash prices per MMBtu, with these representative prices adjusted for differentials by field to arrive at the appropriate net price Denbury receives. | |
(c) | PV-10 Value is a non-GAAP measure and is different from the Standardized Measure in thatPV-10 Value is a pre-tax number and the Standardized Measure is an after-tax number. The information used to calculatePV-10 Value is derived directly from data determined in accordance with the FASC “Extractive Industries — Oil and Gas” topic. Denbury believes thatPV-10 Value is a useful supplemental disclosure to the Standardized Measure because the Standardized Measure can be impacted by a company’s unique tax situation, and it is not practical to calculate the Standardized Measure on a property by property basis. Because of this,PV-10 Value is a widely used measure within the industry and is commonly used by securities analysts, banks and credit rating agencies to evaluate the estimated future net cash flows from proved reserves on a comparative basis across companies or specific properties.PV-10 Value is commonly used by Denbury and others in the industry to evaluate properties that are bought and sold and to assess the potential return on investment in these oil and gas properties.PV-10 Value is not a measure of financial or operating performance under GAAP, nor should it be considered in isolation or as a substitute for the Standardized Measure. ThePV-10 Value and the Standardized Measure do not purport to represent the fair value of the oil and natural gas reserves. | |
(d) | Determined based on period end unescalated prices and costs in accordance with the guidelines of the FASC “Extractive Industries — Oil and Gas” topic. | |
(e) | In June 2009, Denbury sold 60% of its interest in its Barnett Shale natural gas assets. | |
(f) | The increase in general and administrative expense during the nine months ended September 30, 2009 as compared to prior periods is primarily due to higher employee costs, expense related to a compensation arrangement with certain members of Genesis Energy L.P. management and a compensation charge related to retirement of Denbury’s CEO and President on June 30, 2009. | |
(g) | During the nine months ended September 30, 2009 and 2008, Denbury spent $523.4 million and $236.4 million, respectively, on capital expenditures relating to CO2 properties, equipment and pipelines |
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which is not included in total cost incurred. During 2008, 2007, 2006, 2005 and 2004, Denbury spent $462.9 million, $171.2 million, $63.6 million, $78.7 million and $50.3 million, respectively, on capital expenditures relating to CO2 properties, equipment and pipelines which is not included in total costs incurred. |
Year Ended December 31,(a) | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Summary Oil and Natural Gas Reserves Data(b): | ||||||||||||||||||||
Estimated net proved reserves (at end of period prices): | ||||||||||||||||||||
Oil (MBbls) | 134,452 | 188,587 | 153,434 | 148,387 | 134,048 | |||||||||||||||
Natural gas (MMcf) | 307,520 | 256,447 | 306,764 | 283,865 | 234,030 | |||||||||||||||
Oil equivalent (MBOE) | 185,705 | 231,328 | 204,561 | 195,698 | 173,053 | |||||||||||||||
Percentage of total MBOE: | ||||||||||||||||||||
Proved producing | 77% | 66% | 63% | 70% | 69% | |||||||||||||||
Proved non-producing | 3% | 2% | 2% | 2% | 2% | |||||||||||||||
Proved undeveloped | 20% | 32% | 35% | 28% | 29% | |||||||||||||||
Representative oil and natural gas prices: | ||||||||||||||||||||
Oil | $ | 44.60 | $ | 96.01 | $ | 61.06 | $ | 61.04 | $ | 43.46 | ||||||||||
Natural gas | 5.62 | 7.47 | 5.48 | 9.44 | 6.19 | |||||||||||||||
Present Values (in thousands): | ||||||||||||||||||||
Discounted estimated future net cash flow before income taxes(PV-10 Value)(c) | $ | 1,399,330 | $ | 4,462,452 | $ | 1,959,388 | $ | 2,664,549 | $ | 1,617,869 | ||||||||||
Standardized measure of discounted future net cash flows after income taxes(d) | 1,219,954 | 3,291,709 | 1,461,807 | 1,918,471 | 1,165,619 | |||||||||||||||
Nine Months Ended, | ||||||||||||||||||||||||||||
September 30,(a) | Year Ended December 31,(a) | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Summary Operating Data: | ||||||||||||||||||||||||||||
Production (average daily): | ||||||||||||||||||||||||||||
Oil (Bbls) | 27,281 | 27,174 | 27,459 | 26,152 | 20,096 | 18,826 | 18,249 | |||||||||||||||||||||
Natural gas (Mcf) | 89,405 | 69,031 | 72,060 | 65,651 | 64,262 | 57,696 | 38,493 | |||||||||||||||||||||
BOE (6:1) | 42,182 | 38,679 | 39,470 | 37,094 | 30,807 | 28,442 | 24,665 | |||||||||||||||||||||
Average Realized Prices (excluding the impact of derivative settlements) | ||||||||||||||||||||||||||||
Oil ($/Bbl) | $ | 50.34 | $ | 104.61 | $ | 89.58 | $ | 63.50 | $ | 54.42 | $ | 51.06 | $ | 38.24 | ||||||||||||||
Natural gas ($/Mcf) | 3.56 | 9.67 | 8.63 | 6.69 | 6.59 | 7.87 | 5.76 | |||||||||||||||||||||
Average Realized Prices (including the impact of derivative settlements) | ||||||||||||||||||||||||||||
Oil ($/Bbl) | $ | 50.34 | $ | 104.23 | $ | 89.30 | $ | 58.96 | $ | 47.30 | $ | 44.82 | $ | 33.04 | ||||||||||||||
Natural gas ($/Mcf) | 3.56 | 9.67 | 8.63 | 6.26 | 6.24 | 7.09 | 5.53 | |||||||||||||||||||||
Average Costs per BOE: | ||||||||||||||||||||||||||||
Lease operating(e) | $ | 10.67 | $ | 12.27 | $ | 12.12 | $ | 10.59 | $ | 8.73 | $ | 6.72 | $ | 5.30 | ||||||||||||||
Production, ad valorem and severance taxes | 4.17 | 9.04 | 7.66 | 5.51 | 4.43 | 4.39 | 3.36 | |||||||||||||||||||||
Depletion, depreciation and amortization | 18.88 | 15.01 | 15.80 | 13.59 | 10.09 | 8.25 | 5.38 | |||||||||||||||||||||
Impairment of long-lived assets(f) | — | 2.48 | 4.12 | — | — | — | — | |||||||||||||||||||||
Exploration | 3.80 | 2.87 | 2.71 | 2.05 | 2.71 | 1.39 | 0.44 | |||||||||||||||||||||
General and administrative(e) | 3.54 | 3.45 | 3.35 | 2.89 | 2.06 | 1.67 | 1.33 | |||||||||||||||||||||
Marketing, net of revenues(g) | (0.03 | ) | 0.06 | (0.06 | ) | (0.11 | ) | 0.09 | — | — |
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Nine Months Ended, | ||||||||||||||||||||||||||||
September 30,(a) | Year Ended December 31,(a) | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Cost Incurred (in thousands): | ||||||||||||||||||||||||||||
Acquisitions: | ||||||||||||||||||||||||||||
Proved properties | $ | 397,974 | $ | 29,304 | $ | 28,840 | $ | 796,239 | $ | 5,271 | $ | 226,690 | $ | 206,072 | ||||||||||||||
Unproved properties | 6,004 | 95,916 | 128,635 | 52,306 | 24,462 | 21,205 | 33,926 | |||||||||||||||||||||
Development: | 95,217 | 250,911 | 362,609 | 270,161 | 253,631 | 269,474 | 157,559 | |||||||||||||||||||||
Exploration: | 140,138 | 179,217 | 256,437 | 97,453 | 95,205 | 57,046 | 30,546 | |||||||||||||||||||||
Total costs incurred | $ | 639,333 | $ | 555,348 | $ | 776,521 | $ | 1,216,159 | $ | 378,569 | $ | 574,415 | $ | 428,103 | ||||||||||||||
(a) | Encore acquired certain oil and natural gas properties and related assets in the Mid-Continent and East Texas regions in August 2009. Encore acquired certain oil and natural gas properties and related assets in the Big Horn and Williston Basins in March 2007 and April 2007, respectively. Encore also acquired Crusader Energy Corporation in October 2005 and Cortez Oil & Gas, Inc. in April 2004. The operating results of these acquisitions are included in Encore’s Consolidated Statements of Operations from the date of acquisition forward. Encore disposed of certain oil and natural gas properties and related assets in the Mid-Continent region in June 2007. The operating results of this disposition are included in Encore’s Consolidated Statements of Operations through the date of disposition. | |
(b) | Information not available for the nine months ended September 30, 2009 and 2008. | |
(c) | PV-10 Value is a non-GAAP measure and is different from the Standardized Measure in thatPV-10 Value is a pre-tax number and the Standardized Measure is an after-tax number. The information used to calculatePV-10 Value is derived directly from data determined in accordance with the FASC “Extractive Industries — Oil and Gas” topic. Encore believes thatPV-10 Value is a useful supplemental disclosure to the Standardized Measure because the Standardized Measure can be impacted by a company’s unique tax situation, and it is not practical to calculate the Standardized Measure on a property by property basis. Because of this,PV-10 Value is a widely used measure within the industry and is commonly used by securities analysts, banks and credit rating agencies to evaluate the estimated future net cash flows from proved reserves on a comparative basis across companies or specific properties.PV-10 Value is commonly used by Encore and others in the industry to evaluate properties that are bought and sold and to assess the potential return on investment in these oil and gas properties.PV-10 Value is not a measure of financial or operating performance under GAAP, nor should it be considered in isolation or as a substitute for the Standardized Measure. ThePV-10 Value and the Standardized Measure do not purport to represent the fair value of the oil and natural gas reserves. | |
(d) | Determined based on period end unescalated prices and costs in accordance with the guidelines of the FASC “Extractive Industries — Oil and Gas” topic. | |
(e) | On January 1, 2006, Encore adopted new guidance issued by the FASB in the “Compensation-Stock Compensation” topic of the FASC. Due to the adoption of the new guidance, non-cash equity-based compensation expense for 2005 and 2004 has been reclassified to allocate the amount to the same respective income statement lines as the respective employees’ cash compensation. This resulted in increases in lease operating expense of $0.13 per BOE and $0.07 per BOE during 2005 and 2004, respectively, and increases in general and administrative expense of $0.25 per BOE and $0.12 per BOE during 2005 and 2004, respectively. | |
(f) | During 2008, circumstances indicated that the carrying amounts of certain oil and natural gas properties, primarily four wells in the Tuscaloosa Marine Shale, may not be recoverable. Encore compared the assets’ carrying amounts to the undiscounted expected future net cash flows, which indicated a need for an impairment charge. Encore then compared the net carrying amounts of the impaired assets to their estimated fair value, which resulted in a write-down of the value of proved oil and natural gas properties of $59.5 million. Fair value was determined using estimates of future production volumes and estimates of future prices Encore might receive for these volumes, discounted to a present value. |
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(g) | In 2006, Encore began purchasing third-party oil barrels from a counterparty other than a party to whom the barrels were sold for aggregation and sale with Encore’s own equity production in various markets. These purchases assisted Encore in marketing Encore’s production by decreasing Encore’s dependence on individual markets. These activities allowed Encore to aggregate larger volumes, facilitated Encore’s efforts to maximize the prices Encore received for production, provided for a greater allocation of future pipeline capacity in the event of curtailments, and enabled Encore to reach other markets. In 2007, Encore discontinued purchasing oil from third party companies as market conditions changed and pipeline space was gained. Implementing this change allowed Encore to focus on the marketing of Encore’s own oil production, leveraging newly gained pipeline space and delivering oil to various newly developed markets in an effort to maximize the value of the oil at the wellhead. In March 2007, ENP acquired a natural gas pipeline as part of the Big Horn Basin asset acquisition. Natural gas volumes are purchased from numerous gas producers at the inlet to the pipeline and resold downstream to various local and off-system markets. |
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• | Denbury’s selected consolidated historical financial information that has been derived from Denbury’s unaudited consolidated statement of operations and balance sheet as of and for the nine months ended September 30, 2009 and Denbury’s consolidated statement of operations for the year ended December 31, 2008; |
• | Denbury’s pro forma unaudited condensed consolidated financial information to give effect to the sale of its Barnett Shale natural gas assets. Denbury’s pro forma unaudited condensed consolidated balance sheet gives effect to the sale of Denbury’s remaining 40% interest in its Barnett Shale natural gas assets as if it occurred September 30, 2009. Denbury’s pro forma unaudited condensed consolidated statements of operations for the nine months ended September 30, 2009 and the year ended December 31, 2008 give effect to the sale of 60%, and subsequent sale of 40%, of its Barnett Shale natural gas assets as if each occurred on January 1, 2008; |
• | Encore’s selected consolidated historical financial information that has been derived from Encore’s unaudited consolidated statement of operations and balance sheet as of and for the nine months ended September 30, 2009 and Encore’s consolidated statement of operations for the year ended December 31, 2008; and | |
• | Denbury’s pro forma combined financial information to give effect to the merger and related financing transactions. The unaudited pro forma combined statements of operations data assume the merger and related financing transactions occurred on January 1, 2008 and the unaudited pro forma combined balance sheet data assumes the merger and related financing transactions occurred on September 30, 2009. |
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Statement of Operations for the Nine Months Ended September 30, 2009
Denbury | ||||||||||||||||
Denbury | Denbury | Encore | Pro Forma | |||||||||||||
Historical | Pro Forma | Historical | Combined | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Revenues and other income | ||||||||||||||||
Oil, natural gas and related product sales | $ | 600,942 | $ | 538,112 | $ | — | $ | 999,935 | ||||||||
CO2 sales and transportation fees | 9,708 | 9,708 | — | 9,708 | ||||||||||||
Interest income and other | 1,948 | 1,948 | 1,811 | 5,863 | ||||||||||||
Oil revenue | — | — | 374,915 | — | ||||||||||||
Natural gas revenue | — | — | 86,908 | — | ||||||||||||
Marketing revenue | — | — | 2,008 | — | ||||||||||||
Total revenues | 612,598 | 549,768 | 465,642 | 1,015,506 | ||||||||||||
Expenses | ||||||||||||||||
Lease operating expenses | 241,908 | 228,141 | 122,817 | 366,578 | ||||||||||||
Production taxes and marketing expenses | 24,294 | 19,946 | — | 72,651 | ||||||||||||
Transportation expense — Genesis | 6,143 | 6,143 | — | 6,143 | ||||||||||||
CO2 operating expenses | 3,442 | 3,442 | — | 3,442 | ||||||||||||
General and administrative | 79,828 | 79,828 | 40,743 | 116,806 | ||||||||||||
Interest, net of amounts capitalized | 36,960 | 34,095 | 57,009 | 139,690 | ||||||||||||
Depletion, depreciation and amortization | 177,145 | 163,275 | 217,361 | 370,145 | ||||||||||||
Commodity derivative expense (income) | 177,061 | 177,061 | (741 | ) | 176,320 | |||||||||||
Production, ad valorem, and severance taxes | — | — | 48,074 | — | ||||||||||||
Exploration | — | — | 43,801 | — | ||||||||||||
Marketing | — | — | 1,612 | — | ||||||||||||
Other operating | — | — | 29,419 | — | ||||||||||||
Total expenses | 746,781 | 711,931 | 560,095 | 1,251,775 | ||||||||||||
Equity in net income of Genesis | 5,802 | 5,802 | — | 5,802 | ||||||||||||
Loss before income taxes | (128,381 | ) | (156,361 | ) | (94,453 | ) | (230,467 | ) | ||||||||
Income tax benefit | (49,729 | ) | (60,362 | ) | (25,254 | ) | (77,986 | ) | ||||||||
Consolidated net loss | (78,652 | ) | (95,999 | ) | (69,199 | ) | (152,481 | ) | ||||||||
Loss attributable to noncontrolling interest | — | — | (9,669 | ) | (10,776 | ) | ||||||||||
Net loss attributable to stockholders | $ | (78,652 | ) | $ | (95,999 | ) | $ | (59,530 | ) | $ | (141,705 | ) | ||||
Net loss per common share — basic | $ | (0.32 | ) | $ | (0.39 | ) | $ | (0.38 | ) | |||||||
Net loss per common share — diluted | $ | (0.32 | ) | $ | (0.39 | ) | $ | (0.38 | ) | |||||||
Weighted average common shares outstanding | ||||||||||||||||
Basic | 246,156 | 246,156 | 370,136 | |||||||||||||
Diluted | 246,156 | 246,156 | 370,136 |
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Statement of Operations for the Year Ended December 31, 2008
Denbury | ||||||||||||||||||||||||
Denbury | Denbury | Encore | Pro Forma | |||||||||||||||||||||
Historical | Pro Forma | Historical | Combined | |||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||
Revenues and other income | ||||||||||||||||||||||||
Oil, natural gas and related product sales | $ | 1,347,010 | $ | 1,112,149 | $ | — | $ | 2,237,071 | ||||||||||||||||
CO2 sales and transportation fees | 13,858 | 13,858 | — | 13,858 | ||||||||||||||||||||
Interest income and other | 4,834 | 4,834 | 3,898 | 19,704 | ||||||||||||||||||||
Oil revenue | — | — | 897,443 | — | ||||||||||||||||||||
Natural gas revenue | — | — | 227,479 | — | ||||||||||||||||||||
Marketing revenue | — | — | 10,496 | — | ||||||||||||||||||||
Total revenues | 1,365,702 | 1,130,841 | 1,139,316 | 2,270,633 | ||||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Lease operating expense | 307,550 | 283,509 | 175,115 | 472,775 | ||||||||||||||||||||
Production taxes and marketing expenses | 55,770 | 43,144 | — | 160,582 | ||||||||||||||||||||
Transportation expense — Genesis | 7,982 | 7,982 | — | 7,982 | ||||||||||||||||||||
CO2 operating expenses | 4,216 | 4,216 | — | 4,216 | ||||||||||||||||||||
General and administrative | 60,374 | 60,374 | 48,421 | 105,933 | ||||||||||||||||||||
Interest, net of amounts capitalized | 32,596 | 29,003 | 73,173 | 157,525 | ||||||||||||||||||||
Depletion, depreciation and amortization | 221,792 | 177,540 | 228,252 | 403,909 | ||||||||||||||||||||
Commodity derivative income | (200,053 | ) | (200,053 | ) | (346,236 | ) | (546,289 | ) | ||||||||||||||||
Abandoned acquisition cost | 30,601 | 30,601 | — | 30,601 | ||||||||||||||||||||
Ceiling test write-down | 226,000 | 226,000 | — | 226,000 | ||||||||||||||||||||
Production, ad valorem, and severance taxes | — | — | 110,644 | — | ||||||||||||||||||||
Impairment of long-lived assets | — | — | 59,526 | 59,526 | ||||||||||||||||||||
Exploration | — | — | 39,207 | — | ||||||||||||||||||||
Marketing | — | — | 9,570 | — | ||||||||||||||||||||
Other operating | — | — | 14,959 | — | ||||||||||||||||||||
Total expenses | 746,828 | 662,316 | 412,631 | 1,082,760 | ||||||||||||||||||||
Equity in net income of Genesis | 5,354 | 5,354 | — | 5,354 | ||||||||||||||||||||
Income before income taxes | 624,228 | 473,879 | 726,685 | 1,193,227 | ||||||||||||||||||||
Income tax provision | 235,832 | 178,699 | 241,621 | 417,568 | ||||||||||||||||||||
Consolidated net income | 388,396 | 295,180 | 485,064 | 775,659 | ||||||||||||||||||||
Income attributable to noncontrolling interest | — | — | 54,252 | 50,879 | ||||||||||||||||||||
Net income attributable to stockholders | $ | 388,396 | $ | 295,180 | $ | 430,812 | $ | 724,780 | ||||||||||||||||
Net income per common share — basic | $ | 1.59 | $ | 1.21 | $ | 1.97 | ||||||||||||||||||
Net income per common share — diluted | $ | 1.54 | $ | 1.17 | $ | 1.92 | ||||||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||||||
Basic | 243,935 | 243,935 | 367,915 | |||||||||||||||||||||
Diluted | 252,530 | 252,530 | 376,510 |
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Denbury | ||||||||||||||||
Denbury | Denbury | Encore | Pro Forma | |||||||||||||
Historical | Pro Forma | Historical | Combined | |||||||||||||
(In thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 21,689 | $ | 211,689 | $ | 6,683 | $ | 218,372 | ||||||||
Other current assets | 192,468 | 192,468 | 206,983 | 399,883 | ||||||||||||
Property and equipment, net | 3,420,324 | 3,210,324 | 3,278,961 | 7,600,241 | ||||||||||||
Goodwill | 138,830 | 138,830 | 60,606 | 1,228,168 | ||||||||||||
Other assets | 129,949 | 129,949 | 160,581 | 340,628 | ||||||||||||
$ | 3,903,260 | $ | 3,883,260 | $ | 3,713,814 | $ | 9,787,292 | |||||||||
Liabilities and equity | ||||||||||||||||
Current liabilities | $ | 357,840 | $ | 357,840 | $ | 275,607 | $ | 569,479 | ||||||||
Long-term debt | 1,196,061 | 1,176,061 | 1,243,496 | 3,501,864 | ||||||||||||
Other long-term liabilities | 99,760 | 99,760 | 94,871 | 179,899 | ||||||||||||
Deferred income taxes | 458,940 | 458,940 | 431,075 | 1,329,053 | ||||||||||||
Equity | 1,790,659 | 1,790,659 | 1,668,765 | 4,206,997 | ||||||||||||
$ | 3,903,260 | $ | 3,883,260 | $ | 3,713,814 | $ | 9,787,292 | |||||||||
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December 31, 2008
Denbury | Denbury | |||||||||||||||||||
Denbury | Pro Forma | Denbury | Encore | Pro Forma | ||||||||||||||||
Historical | Adjustments | Pro Forma | Historical | Combined | ||||||||||||||||
Estimated Proved Reserves: | ||||||||||||||||||||
Oil (MBbl) | 179,126 | (20,865 | ) | 158,261 | 134,452 | 292,713 | ||||||||||||||
Natural Gas (MMcf) | 427,955 | (332,502 | ) | 95,453 | 307,520 | 402,973 | ||||||||||||||
MBOE | 250,452 | (76,282 | ) | 174,170 | 185,705 | 359,875 | ||||||||||||||
Estimated Proved Developed Reserves: | ||||||||||||||||||||
Oil (MBbl) | 96,746 | (13,010 | ) | 83,736 | 110,014 | 193,750 | ||||||||||||||
Natural Gas (MMcf) | 298,114 | (217,694 | ) | 80,420 | 232,715 | 313,135 | ||||||||||||||
MBOE | 146,432 | (49,292 | ) | 97,140 | 148,800 | 245,940 |
Denbury | Denbury | |||||||||||||||||||
Denbury | Pro Forma | Denbury | Encore | Pro Forma | ||||||||||||||||
Historical | Adjustments | Pro Forma | Historical | Combined | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Future cash inflows | $ | 9,024,224 | $ | (2,005,421 | ) | $ | 7,018,803 | $ | 6,754,431 | $ | 13,773,234 | |||||||||
Future production costs | (4,039,898 | ) | 622,264 | (3,417,634 | ) | (3,082,814 | ) | (6,500,448 | ) | |||||||||||
Future development costs | (944,716 | ) | 239,947 | (704,769 | ) | (593,677 | ) | (1,298,446 | ) | |||||||||||
Future income tax expense | (1,071,939 | ) | 406,915 | (665,024 | ) | (555,370 | ) | (1,220,394 | ) | |||||||||||
Future net cash flows | 2,967,671 | (736,295 | ) | 2,231,376 | 2,522,570 | 4,753,946 | ||||||||||||||
Discounted at 10% per year | (1,552,173 | ) | 478,380 | (1,073,793 | ) | (1,302,616 | ) | (2,376,409 | ) | |||||||||||
Standardized measure of discounted future net cash flows | $ | 1,415,498 | $ | (257,915 | ) | $ | 1,157,583 | $ | 1,219,954 | $ | 2,377,537 | |||||||||
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Nine Months Ended | Year Ended | |||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Historical-Denbury: | ||||||||
Net Income (Loss) Per Share: | ||||||||
Basic | $ | (0.32 | ) | $ | 1.59 | |||
Diluted | (0.32 | ) | 1.54 | |||||
Cash dividends(1) | — | — | ||||||
Net Book Value Per Share-Diluted | 6.86 | 7.15 | ||||||
Historical-Encore: | ||||||||
Net Income (Loss) Per Share: | ||||||||
Basic | $ | (1.15 | ) | $ | 8.10 | |||
Diluted | (1.15 | ) | 8.01 | |||||
Cash dividends(2) | — | — | ||||||
Net Book Value Per Share-Diluted | 32.11 | 28.06 | ||||||
Pro Forma Combined: | ||||||||
Net Income (Loss) Per Share: | ||||||||
Basic | $ | (0.38 | ) | $ | 1.97 | |||
Diluted | (0.38 | ) | 1.92 | |||||
Net Book Value Per Share-Diluted | 9.07 | N/A | ||||||
Equivalent Pro Forma(3): | ||||||||
Net Income (Loss) Per Share | ||||||||
Basic | $ | (0.85 | ) | $ | 4.40 | |||
Diluted | (0.85 | ) | 4.29 | |||||
Net Book Value Per Share-Diluted | 20.24 | N/A |
(1) | Denbury is not currently paying dividends on its common stock and does not anticipate paying cash dividends on its common stock in the foreseeable future. | |
(2) | Encore is not currently paying dividends on its common stock and does not anticipate paying cash dividends on its common stock in the foreseeable future. |
(3) | The Equivalent Pro Forma Net Income (Loss) Per Share represents pro forma earnings per share that is equated to the respective earnings per share for one share of Encore common stock. |
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Denbury Common Stock | Encore Common Stock | |||||||||||||||
High | Low | High | Low | |||||||||||||
2007 | ||||||||||||||||
First Quarter | $ | 15.31 | $ | 12.98 | $ | 26.50 | $ | 21.74 | ||||||||
Second Quarter | 19.38 | 14.84 | 29.96 | 24.21 | ||||||||||||
Third Quarter | 23.38 | 18.28 | 33.00 | 25.79 | ||||||||||||
Fourth Quarter | 30.56 | 22.41 | 38.55 | 30.59 | ||||||||||||
2008 | ||||||||||||||||
First Quarter | 33.64 | 21.76 | 40.74 | 26.10 | ||||||||||||
Second Quarter | 40.32 | 27.28 | 77.35 | 38.45 | ||||||||||||
Third Quarter | 37.24 | 16.11 | 79.62 | 36.84 | ||||||||||||
Fourth Quarter | 18.86 | 5.59 | 41.05 | 17.89 | ||||||||||||
2009 | ||||||||||||||||
First Quarter | 17.52 | 9.61 | 32.11 | 17.04 | ||||||||||||
Second Quarter | 18.84 | 13.39 | 39.01 | 22.30 | ||||||||||||
Third Quarter | 17.78 | 12.45 | 39.93 | 25.53 | ||||||||||||
Fourth Quarter | 17.39 | 12.51 | 49.00 | 35.64 | ||||||||||||
2010 | ||||||||||||||||
First Quarter (through January [ l ], 2010) | [ l ] | [ l ] | [ l ] | [ l ] |
Denbury | Encore | Equivalent | ||||||||||
Closing Price | Closing Price | per Share Value | ||||||||||
October 30, 2009 | $ | 14.60 | $ | 37.07 | $ | 50.00 | ||||||
January [ l ], 2010 | $ | [ l ] | $ | [ l ] | $ | [ l ] |
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• | the separate companies will not realize the benefits expected from the merger, including a potentially enhanced financial and competitive position; | |
• | the current market price of Denbury common stock or Encore common stock may reflect a market assumption that the merger will occur and a failure to complete the merger could result in a negative perception by the stock market of either company or both generally and a resulting decline in the market price of its or their common stock; | |
• | certain costs relating to the merger, including certain investment banking, financing, legal and accounting fees and expenses, must be paid even if the merger is not completed, and either party may be required to pay substantial fees to the other if the merger agreement is terminated under specified circumstances; and | |
• | there may be substantial disruption to each of Denbury’s and Encore’s business and distraction of each company’s management and employees fromday-to-day operations because matters related to the merger (including integration planning) may require substantial commitments of time and resources, which could otherwise have been devoted to other opportunities that could have been beneficial to Denbury or Encore, as applicable. |
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• | incur additional debt or liens; | |
• | pay dividends; | |
• | make payments in respect of or redeem or acquire any debt or equity issued by Denbury; | |
• | sell assets; | |
• | make loans or investments; and | |
• | acquire or be acquired by other companies. |
• | increase Denbury’s vulnerability to general adverse economic and industry conditions; | |
• | limit Denbury’s ability to fund future working capital and capital expenditures, to engage in future acquisitions or development activities, or to otherwise realize the value of its assets and opportunities fully because of the need to dedicate a substantial portion of its cash flow from operations to payments on its debt or to comply with any restrictive terms of its debt; | |
• | limit Denbury’s flexibility in planning for, or reacting to, changes in the industry in which it operates; or | |
• | place Denbury at a competitive disadvantage as compared to its competitors that have less debt. |
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• | uncertainties inherent in the development and production of and exploration for oil and natural gas and in estimating reserves; | |
• | unexpected difficulties in integrating the operations of Denbury and Encore; | |
• | the need to make unexpected future capital expenditures (including the amount and nature thereof); | |
• | the impact of oil and natural gas price fluctuations; |
• | the effects of our indebtedness, and increases in interest rates thereon, which could restrict our ability to operate, make us vulnerable to general adverse economic and industry conditions, place us at a competitive disadvantage compared to our competitors that have less debt, and have other adverse consequences; |
• | the effects of competition; | |
• | the success of our risk management activities; | |
• | the availability of acquisition or combination opportunities (or lack thereof); | |
• | the impact of current and future laws and governmental regulations; | |
• | environmental liabilities that are not covered by an effective indemnification agreement or insurance; and | |
• | general economic, market or business conditions. |
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For Denbury stockholders: | For Encore stockholders: | |
10:00 a.m., local time | 10:00 a.m., local time | |
[ l ], 2010 | [ l ], 2010 | |
5100 Tennyson Parkway Plano, Texas 75024 | [ l ] Fort Worth, Texas 76102 | |
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• | submitting a new proxy with a later date; | |
• | notifying the corporate secretary of Denbury or Encore, as applicable, in writing before the special meeting that you have revoked your proxy; or | |
• | voting in person or notifying the corporate secretary of Denbury or Encore, as applicable, in writing at the special meeting of your wish to revoke your proxy. |
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• | a total per share consideration for all of the shares of Encore common stock of $52.00 per share, consisting of up to 30% cash and 70% in shares of Denbury common stock within the collar; | |
• | a proposal that the Denbury common stock be valued at $15.71 per share in determining the number of Denbury common shares that would constitute the equity portion of the consideration; | |
• | a collar mechanism whereby the number of shares of Denbury common stock to be issued for each share of Encore common stock would be adjusted based upon the average price of Denbury common stock for a period prior to closing, limited to a 12% upward or 12% downward adjustment from $15.71; | |
• | an election mechanism whereby Encore stockholders could elect to receive up to 100% of the consideration for their shares paid in cash or 100% paid in Denbury common stock, provided that the aggregate transaction consideration paid in cash and stock would not exceed 30% and 70%, respectively, of the aggregate transaction consideration (within the collar); and | |
• | that Denbury anticipated obtaining an underwritten financing commitment from J.P. Morgan and JPMorgan Chase for a $1.6 billion revolving credit facility, a $1.25 billion bridge to a subordinated notes facility, and a $375 million credit facility for ENP. |
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• | The aggregate value and composition of the merger consideration to be received by Encore stockholders in the merger. | |
• | That the merger consideration of $50.00 per share of Encore common stock (applying the collar mechanism in the merger agreement and based upon the closing sale price of Denbury common stock on October 30, 2009 of $14.60 per share, the last trading date before the date of the Encore board meeting), represented a premium of: |
• | 35% above the closing sale price of Encore common stock on October 30, 2009 of $37.07 per share; | |
• | 28% above the closing sale price of Encore common stock on October 5, 2009 (the 20th trading day prior to the date of the Encore board meeting) of $39.08 per share; and |
• | 11% above the highest closing sale price of Encore common stock during the 52-week period ended October 30, 2009 of $44.85 per share. |
• | That Encore had explored a variety of strategic alternatives over an extended period of time, including both a publicly announced process conducted during 2008 and, more recently, discussions with a number of parties identified by Encore as offering the greatest potential for a possible strategic transaction with Encore. In that regard, the Encore board considered the thoroughness of the efforts made in exploring and reviewing potential alternatives (see “— Background of the Merger”). | |
• | The fact that if the Denbury20-day average price is between $13.29 and $16.91, Encore stockholders receiving Denbury shares will receive per share merger consideration with an aggregate value of $50.00 per share (based on the Denbury20-day average stock price). | |
• | The fact that because the exchange ratio for the stock portion of the merger consideration does not increase if the Denbury20-day average price is below $13.29 per Denbury share, and does not decrease if the Denbury20-day average price is above $16.91 per Denbury share, the aggregate value of the per share merger consideration to be received by Encore stockholders (based on the Denbury20-day average price) would be less than $50.00 if the Denbury20-day average price falls below $13.29 and would be more than $50.00 if the Denbury20-day average price rises above $16.91. | |
• | The potential stockholder value that might result from other alternatives available to Encore, including the alternative of remaining as an independent public company, considering, in particular, the potential for Encore stockholders to share in any future earnings growth of Encore and continued costs, risks and uncertainties associated with continuing to operate as a public company. | |
• | The Encore board’s familiarity with, and understanding of, Encore’s business, assets, financial condition, results of operations, current business strategy and prospects. | |
• | Information and discussions with Encore management and Encore’s financial advisor regarding Denbury’s business, assets, financial condition, results of operations, business plan and prospects. In this regard, the Encore board considered the size and scale of the combined company, including the expected pro forma effect of the merger on the combined company’s proved reserves, production, cash flow per share, and debt structure, noting that the larger combined company would be better able to finance and absorb the capital costs of long lead time projects such as tertiary recovery operations. |
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• | The complementary nature and geographic diversity of the assets of the companies. In this regard, the Encore board also considered the prospects of the combined company, including the potential for the combined company to have a stronger competitive position and greater opportunities for growth than Encore would have operating independently, including the ability to leverage their combined opportunities to develop CO2 projects, particularly given Denbury’s experience in tertiary recovery operations in legacy oil fields using CO2. |
• | The merger will establish a leading CO2 EOR company. Denbury has substantial CO2 reserves, has a successful tertiary recovery business on the U.S. Gulf Coast and will have increased acquisition opportunities in Louisiana and the Texas Gulf Coast, particularly upon completion of its 320-mile Green Pipeline. |
• | After completion of the construction phase of Denbury’s 320-mile Green Pipeline, Encore expects a larger portion of Denbury’s capital budget to be invested in tertiary development projects that have an expectation of increasing oil production, as opposed to capital that is invested in CO2 pipeline projects that transport CO2 to Denbury’s oil fields. Encore believes these investments in tertiary development projects that generate production growth will increase stockholder value. |
• | The merger will create one of the largest crude oil focused independent exploration and production companies in North America. The proved oil and natural gas reserves of the combined company are expected to be approximately 75% oil reserves, an advantage in light of the better profit margin for oil as reflected in both the short-term and long-term marketplace for oil versus natural gas. |
• | That because the majority of the merger consideration (on an aggregate basis) is payable in the form of Denbury common stock, Encore stockholders would have the opportunity to participate in the equity value of the combined company following the merger. In that regard, the Encore board understood that the volatility of prices for oil and natural gas and general stock market conditions would cause the value of the consideration received in the merger to fluctuate, perhaps significantly, following the closing of the merger, but was of the view that on a long-term basis it would be desirable for stockholders to have an opportunity to retain a continuing investment in the combined company following the merger. | |
• | The Encore board’s understanding of and management’s review of overall market conditions, including then-current and prospective commodity prices and the current and historical trading prices for Denbury and Encore common stock, and the board’s determination that, in light of these factors, the timing of the potential transaction was favorable to Encore. | |
• | The Encore board’s expectation, supported by the financing commitment letter, and established after consultation with Encore’s financial and legal advisors regarding the terms and degree of conditionality of the financing commitment letter, that Denbury would be able to obtain the financing necessary to pay the cash portion of the merger consideration payable under the merger agreement and to finance the other transactions contemplated in connection with the merger. | |
• | The financial analysis of Barclays Capital, Encore’s financial advisor, presented to the Encore board at various meetings, including the meeting held on October 31, 2009, and the opinion of that firm rendered to Encore’s board on that date as to the fairness, from a financial point of view, of the merger consideration to be received by the stockholders of Encore, based upon and subject to the qualifications, limitations and assumptions stated in such opinion, as more fully described below under “— Opinion of Encore’s Financial Advisor.” The full text of the opinion of Barclays Capital, setting forth the assumptions made, procedures followed, matters considered and limitations on the reviews undertaken in connection with such opinion, is attached as Annex B to this joint proxy statement/prospectus. | |
• | The review by the Encore board with its legal and financial advisors of the structure of the merger and the financial and other terms of the merger agreement, including the parties’ representations, warranties and covenants, the conditions to their respective obligations and the termination provisions, as well as the likelihood of consummation of the merger and the Encore board’s evaluation of the likely time |
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period necessary to close the transaction. The Encore board also considered the following specific aspects of the merger agreement: |
• | The combination of stock and cash consideration contemplated by the merger agreement and the ability of Encore stockholders to elect to receive either all cash, all stock, or cash and stock consideration, subject to a proration feature. |
• | The board’s expectation that the stock portion of the merger consideration will be received tax free by Encore’s stockholders (see “ — Material U.S. Federal Income Tax Consequences of the Merger”). |
• | The nature of the closing conditions included in the merger agreement, including the market, industry-related and other exceptions to the events that would constitute a material adverse effect on either Encore or Denbury for purposes of the agreement, as well as the likelihood of satisfaction of all conditions to the consummation of the merger. | |
• | Encore’s right to engage in negotiations with, and provide information to, a third party that makes an unsolicited written acquisition proposal, if the Encore board determines in good faith, after consultation with its legal and financial advisors, that such proposal constitutes or could reasonably be expected to lead to a transaction that is more favorable to Encore’s stockholders than the merger. | |
• | Encore’s right to change its recommendation to vote in favor of the merger and terminate the merger agreement in order to accept a superior proposal, subject to certain conditions and payment of a $120 million termination fee and up to $10 million of expenses to Denbury. | |
• | The right of the Encore board to change its recommendation to vote in favor of the merger upon the occurrence of certain intervening events if it determines in good faith (after consultation with outside counsel) that the failure to take such action would breach its fiduciary duties under applicable law. | |
• | The obligation of Denbury to pay to Encore, upon termination of the merger agreement, either a $300 million termination fee, a $120 million termination fee or a $60 million termination fee under the circumstances specified in the merger agreement (see “Terms of the Merger Agreement — Termination, Amendment and Waiver — Fees and Expenses”). | |
• | The obligation of Denbury to use its reasonable best efforts to take all actions necessary to consummate the financing provided for in the financing commitment letter and, if such financing is unavailable, to use its reasonable best efforts to arrange to obtain alternate financing for an equivalent amount of funds on terms no less favorable to Denbury. | |
• | That termination fees of $120 million and $60 million, and the agreement to reimburse Denbury for up to $10 million of expenses incurred by Denbury in connection with the merger, in each case payable by Encore to Denbury under the circumstances specified in the merger agreement, were reasonable in the judgment of the Encore board after consultation with its legal and financial advisors. | |
• | The requirement that Encore stockholder approval be obtained as a condition to consummation of the merger. | |
• | The obligations of Encore and Denbury to hold their respective stockholders meetings even if their respective boards change their recommendation of the merger. |
• | The possibility that the value of the per share merger consideration to be received by Encore stockholders could be less than $50.00 per share if the Denbury20-day average price is below $13.29. | |
• | The inability of Encore’s stockholders to benefit from an increase, prior to the closing of the merger, in the trading price of Denbury common stock unless and until the Denbury20-day average price is above $16.91 per share. |
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• | The fact that Denbury’s obligation to close the merger is conditioned on its having received the financing contemplated by the merger agreement. | |
• | Denbury’s expected level of indebtedness upon completion of the merger. | |
• | The fact that Denbury’s obligation to close the merger is conditioned on a vote of its stockholders. | |
• | That, while the merger is expected to be completed, there is no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied or waived, and as a result, it is possible that the merger might not be completed even if approved by Encore’s and Denbury’s stockholders. | |
• | That, under the terms of the merger agreement, Encore will be required to pay to Denbury a termination fee of either $120 million or $60 million and to reimburse Denbury for up to $10 million of expenses if the merger agreement is terminated under certain circumstances (see “Terms of the Merger Agreement — Termination, Amendment and Waiver — Fees and Expenses”). | |
• | The restrictions on the conduct of Encore’s business prior to completion of the merger, requiring Encore to conduct its business only in the ordinary course, subject to specific limitations, which may delay or prevent Encore from undertaking business opportunities that may arise pending completion of the merger. | |
• | Risks of the type and nature described under “Risk Factors.” |
• | Encore owns legacy oil assets in Montana, North Dakota and Wyoming with over 6 billion barrels of original oil in place, assets that are distinguished by their long reserve life and low decline rates and that have significant potential for recovery of crude oil through CO2 EOR. |
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• | The merger expands Denbury’s EOR platform, which is already one of the country’s largest, by adding another core area of focus, the Rocky Mountain region. Both Denbury’s Gulf Coast core EOR area and the Rocky Mountain region have a significant number of oil fields that are future acquisition candidates for CO2 flooding, providing multiple future growth opportunities for a company of Denbury’s post-merger scale and geographic presence. |
• | The merger will nearly double Denbury’s potential oil reserves (prior to the Conroe acquisition) recoverable through EOR. Denbury expects its significant expertise in EOR in the Gulf Coast to be directly applicable to Encore’s Rocky Mountain oilfield assets. |
• | Encore’s Bakken oil properties and Haynesville gas properties both provide reserves and production potential from shale formations, as Encore owns over 300,000 acres in the Bakken area (one of the largest positions in the field) and over 19,000 acres in the Haynesville area of north Louisiana. Denbury anticipates that these shale assets will provide short-term production growth and cash flow while longer-term EOR assets are developed, and will provide potentially significant incremental reserve growth. | |
• | Denbury anticipates that EOR production from Encore properties will provide production growth beginning in 2015, the time at which Denbury’s current Gulf Coast EOR production is presently predicted to peak. |
• | The merger will establish a leading North American CO2 EOR company at a critical juncture in the environmental policy shift regarding carbon capture and storage. Denbury anticipates that the merger will enhance Denbury’s position as a buyer of choice of mature oil properties that can benefit from EOR, and a leading partner for CO2 emitters in offsetting their carbon footprints. |
• | The merger will create one of the largest crude oil focused independent exploration and production companies in North America. The proved oil and gas reserves of the combined company are expected to be approximately 75% oil reserves, an advantage in light of the better profit margin for oil as reflected by both the short-term and long-term marketplace for oil versus natural gas. | |
• | Denbury anticipates that the increased size, scale and diversification of the combined company will benefit its stockholders by ultimately reducing Denbury’s cost of capital and its operating costs per equivalent barrel. Additionally, Denbury anticipates that it will be in a position to undertake larger CO2 projects because of the combined company’s larger size. |
• | Denbury believes the merger is advantageous to its stockholders, as Denbury anticipates that post-merger the combined company’s cash flow and proved reserves per share will be accretive to Denbury stockholders. Denbury expects the combined company reserves and production to nearly double, with the net increase in outstanding Denbury shares resulting from the merger ranging from approximately 45% to 60%, depending on the number of shares ultimately issued in the acquisition. |
• | Denbury expects the anticipated capital structure of the company after the merger will provide significant liquidity and an opportunity to focus capital deployment on those projects with the optimal return opportunities. |
• | As part of the merger, Denbury will acquire the general partner of ENP and an approximate 46% limited partner interest in that entity. ENP affords a potential financing vehicle for the combined company as a master limited partnership designed to provide a reduced cost of capital for purchase of assets from the large inventory of properties that will be owned by the combined company. Dropdowns of acquired assets to ENP may provide Denbury an attractive way to reduce its debt incurred as part of the merger, to the extent ENP sells additional units to the public instead of purchasing assets by incurring incremental debt. |
• | Denbury anticipates that combining the companies will produce significant synergies, leading to reduced costs in the corporate general and administrative area (including accounting fees, legal fees and executive management team costs) and in the operational area (including engineering costs and discounts for purchasing goods and services on a larger scale). |
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• | Integration of the companies should be facilitated by the two companies being headquartered within the same greater metropolitan area. | |
• | The diversified nature of Encore’s oil and natural gas assets, many of which are located in areas generally highly regarded in the industry, should enhance Denbury’s ability to sell a portion of the acquired assets to third parties in order to reduce the debt incurred to finance the merger, while allowing Denbury to retain acquired assets that it judges to be core to its strategy. |
• | The results of Denbury’s business, legal and financial due diligence investigations of Encore, including information concerning the financial condition, results of operations, prospects and businesses of Denbury and Encore, including the respective companies’ oil and gas reserves, production and cash flows from operations, along with the relative performance of Denbury’s common stock and Encore’s common stock over various periods. |
• | The expected impact of current industry, economic and market conditions on the oil and gas industry generally and EOR in particular. | |
• | The per-share net asset value (including both proved and potential reserves) of both Denbury common stock and Encore common stock. | |
• | The opinion of J.P. Morgan dated October 31, 2009, to Denbury’s board of directors that, as of that date and based upon and subject to the factors and assumptions set forth in its opinion, the consideration to be paid by Denbury in the proposed merger was fair, from a financial point of view, to Denbury, which opinion does not address the decision by Denbury to enter into the transaction nor constitute a recommendation to the stockholders of Denbury or Encore with respect to the transaction, or their voting thereon. | |
• | The terms of the merger agreement, including termination fees ranging from $60 million to $120 million that Encore would have to pay Denbury if Encore terminates the merger agreement for certain reasons specified in the merger agreement. |
• | The combined company will have a higher debt to equity ratio and a higher level of indebtedness than Denbury’s historical levels, including the assumptionand/or refinancing of approximately $1.2 billion of Encore debt. This increased debt level could limit Denbury’s flexibility and access to additional capital because of increased debt service requirements and restrictive covenants and other borrowing terms. Also, in view of the current volatility of the credit markets, the cost of the debt refinancing and the debt incurred to finance the merger could be higher than currently projected. | |
• | There is a risk that oil and natural gas prices will decrease significantly from the pricing assumptions used to evaluate the desirability of the merger from a financial point of view. | |
• | The proved and potential oil and natural gas reserves of Encore may not be as valuable or profitable as anticipated. | |
• | A decrease in oil and natural gas prices would reduce any proceeds from expected property divestitures or may make such divestitures less attractive, leaving Denbury with a higher debt balance than anticipated. | |
• | If the conditions in the financing commitment letter to Denbury are not satisfied, Denbury could possibly fail to secure necessary financing, and could owe a $300 million termination fee if lack of financing prevented consummation of the merger. | |
• | Denbury would have to pay Encore termination fees ranging from $60 million to $120 million if Denbury terminates the merger agreement for certain other reasons specified in the merger agreement. | |
• | The expected cost savings of the merger may not be realized or not realized to the extent anticipated. |
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• | There are significant risks inherent in combining and integrating two companies, including challenges associated with integrating personnel, operations, information technologies and financial reporting. In addition, successful integration of companies requires the dedication of significant management resources, which could temporarily distract management’s attention from the day-to-day businesses of the combined company. |
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• | organic growth and the amounts and timing of related costs (including capital costs) and potential economic returns; | |
• | outstanding debt during applicable periods, and the availability and cost of capital; | |
• | the cash flow from existing assets and business activities and the cash effect of income taxes; | |
• | the level of production of crude oil and natural gas; | |
• | in the case of Encore, distributions by ENP to its public unitholders; and | |
• | other general business, market and financial assumptions. |
2010E | 2011E | 2012E | 2013E | 2014E | ||||||||||||||||
Assumed average prices: | ||||||||||||||||||||
Oil — NYMEX WTI($/Bbl) | $ | 71.07 | $ | 74.44 | $ | 76.63 | $ | 78.73 | $ | 80.00 | ||||||||||
Natural Gas — NYMEX Henry Hub ($/Mcf) | $ | 6.13 | $ | 6.84 | $ | 7.01 | $ | 7.08 | $ | 7.20 |
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2009E | 2010E | 2011E | 2012E | 2013E | 2014E | |||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||||||
EBITDAX(1) | $ | 648 | $ | 520 | $ | 631 | $ | 738 | $ | 822 | $ | 907 | ||||||||||||
Discretionary cash flow(2) | $ | 508 | $ | 385 | $ | 490 | $ | 600 | $ | 692 | $ | 787 |
(1) | EBITDAX represents net income from continuing operations before interest expense (net), income taxes, depreciation, depletion and amortization, exploration expense and non-cash stock-based compensation expense. EBITDAX is not a financial measure prepared in accordance with GAAP and should not be considered a substitute for net income (loss) or cash flow from operating activities prepared in accordance with GAAP. |
(2) | Discretionary cash flow represents cash provided by operating activities before changes in working capital less deferred derivative contract premium payments and distributions to public ENP unitholders. It is not a financial measure prepared in accordance with GAAP and should not be considered as a substitute for net income (loss) or cash flow from operating activities prepared in accordance with GAAP. |
2010E | 2011E | 2012E | 2013E | 2014E | ||||||||||||||||
(dollars in millions) | ||||||||||||||||||||
EBITDA(1) | $ | 466 | $ | 669 | $ | 870 | $ | 1,048 | $ | 1,137 | ||||||||||
Adjusted cash flow from operations(2) | $ | 392 | $ | 556 | $ | 740 | $ | 933 | $ | 1,003 |
(1) | EBITDA represents net income before interest expense (net), income taxes, depreciation, depletion and amortization, non-cash derivative fair value gain (or loss) and non-cash equity-based compensation expense. EBITDA is not a financial measure prepared in accordance with GAAP and should not be considered as a substitute for net income (loss) or cash flow from operating activities prepared in accordance with GAAP. | |
(2) | Adjusted cash flow from operations represents cash flow from operations excluding working capital changes. It is not a financial measure prepared in accordance with GAAP and should not be considered as a substitute for cash flow from operating activities prepared in accordance with GAAP. |
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• | the specific terms of the merger, as detailed in the merger agreement; | |
• | publicly available information concerning Encore and Denbury that Barclays Capital believed to be relevant to its analysis, including, without limitation, each of Encore’s and Denbury’s Annual Report onForm 10-K for the year ended December 31, 2008 and Quarterly Reports onForm 10-Q for the quarters ended March 31, 2009 and June 30, 2009; | |
• | financial and operating information with respect to the business, operations and prospects of Encore furnished to Barclays Capital by Encore, including financial projections of Encore prepared by the management of Encore, referred to herein as the “Encore Projections”; | |
• | financial and operating information with respect to the business, operations and prospects of Denbury furnished to Barclays Capital by Denbury, including financial projections of Denbury prepared by the management of Denbury, referred to herein as the “Denbury Projections”; | |
• | estimates of certain (i) proved reserves, as of December 31, 2008, for Encore as prepared by a third-party reserve engineer, referred to herein as the “Encore Year-End 2008 Engineered Report,” (ii) proved reserves, as of September 30, 2009, for Encore prepared by the management of Encore as a roll-forward from the Encore Year-End 2008 Engineered Report and (iii) non-proved reserves, as of September 30, 2009, for Encore as prepared by the management of Encore ((i) through (iii) collectively referred to herein as the “Encore Reserve Reports”); | |
• | estimates of certain (i) proved and probable reserves, as of June 30, 2009, for Denbury as prepared by a third-party reserve engineer, referred to herein as the “Denbury Mid-Year 2009 Engineered 2P Report,” |
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(ii) proved and probable reserves, as of September 30, 2009, for Denbury prepared by the management of Denbury as a roll-forward from the Denbury Mid-Year 2009 Engineered 2P Report and (iii) possible reserves, as of September 30, 2009, as prepared by the management of Denbury ((i) through (iii) collectively referred to herein as the “Denbury Reserve Reports” and, together with the Encore Reserve Reports, the “Reserve Reports”); |
• | the trading histories of Encore common stock and Denbury common stock from October 31, 2007 to October 30, 2009 and a comparison of those trading histories with each other and with those of other companies that Barclays Capital deemed relevant; | |
• | a comparison of the historical financial results and present financial condition of Encore and Denbury with each other and with those of other companies that Barclays Capital deemed relevant; | |
• | a comparison of the financial terms of the merger with the financial terms of certain other transactions that Barclays Capital deemed relevant; | |
• | the potential pro forma impact of the merger on the current and future financial performance of the combined company, including the amounts and timing of the cost savings and operating synergies expected by the management of Denbury to result from the merger, referred to herein as the “Expected Synergies”; | |
• | published estimates by independent equity research analysts with respect to the future financial performance of Encore and Denbury; | |
• | the relative contributions of Encore and Denbury to the current and future financial performance of the combined company on a pro forma basis; and | |
• | the results of Encore’s efforts to solicit indications of interest and definitive proposals from third parties with respect to an acquisition of Encore. |
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• | net asset valuation analysis; | |
• | comparable company analysis; | |
• | comparable transaction analysis; | |
• | discounted cash flow analysis; and | |
• | analysis of equity research analyst price targets. |
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Q4 ’09E | 2010E | 2011E | 2012E | 2013E | 2014E | Thereafter | ||||||||||||||||||||||
Oil — WTI ($/Bbl) | ||||||||||||||||||||||||||||
Case I | $ | 60.00 | $ | 60.00 | $ | 60.00 | $ | 60.00 | $ | 60.00 | $ | 60.00 | $ | 60.00 | ||||||||||||||
Case II | $ | 75.00 | $ | 75.00 | $ | 75.00 | $ | 75.00 | $ | 75.00 | $ | 75.00 | $ | 75.00 | ||||||||||||||
Case III | $ | 90.00 | $ | 90.00 | $ | 90.00 | $ | 90.00 | $ | 90.00 | $ | 90.00 | $ | 90.00 | ||||||||||||||
Case IV | $ | 71.32 | $ | 76.67 | $ | 80.30 | $ | 82.56 | $ | 84.71 | $ | 86.76 | $ | 86.76 | ||||||||||||||
Gas — HHUB ($/Mcf) | ||||||||||||||||||||||||||||
Case I | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | ||||||||||||||
Case II | $ | 6.00 | $ | 6.00 | $ | 6.00 | $ | 6.00 | $ | 6.00 | $ | 6.00 | $ | 6.00 | ||||||||||||||
Case III | $ | 7.00 | $ | 7.00 | $ | 7.00 | $ | 7.00 | $ | 7.00 | $ | 7.00 | $ | 7.00 | ||||||||||||||
Case IV | $ | 4.78 | $ | 6.29 | $ | 6.91 | $ | 7.07 | $ | 7.16 | $ | 7.28 | $ | 7.28 |
• | Berry Petroleum Company; |
• | Continental Resources, Inc.; |
• | Denbury Resources Inc.; |
• | Plains Exploration & Production Company; | |
• | St. Mary Land & Exploration; and |
• | Whiting Petroleum Corporation. |
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Multiple Range of Comparable Companies of Encore: | ||||||||||||
Low | Median | High | ||||||||||
Enterprise Value as a Multiple of: | ||||||||||||
12/31/08 Pro Forma Proved Reserves ($/BOE) | $ | 9.57 | $ | 19.56 | $ | 43.43 | ||||||
Latest Daily Production ($/BOE/d) | $ | 52,072 | $ | 74,328 | $ | 185,223 |
• | Berry Petroleum Company; |
• | Continental Resources, Inc.; |
• | Encore Acquisition Company; |
• | Plains Exploration & Production Company; | |
• | St. Mary Land & Exploration; and |
• | Whiting Petroleum Corporation. |
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Multiple Range of Comparable Companies of Denbury: | ||||||||||||
Low | Median | High | ||||||||||
Enterprise Value as a Multiple of: | ||||||||||||
12/31/08 Pro Forma Proved Reserves ($/BOE) | $ | 9.57 | $ | 18.22 | $ | 43.43 | ||||||
Latest Daily Production ($/BOE/d) | $ | 52,072 | $ | 74,328 | $ | 185,223 |
• | United Refining Company’s acquisition of Chaparral Energy; | |
• | Apollo Global Management’s acquisition of Parallel Petroleum Corporation; | |
• | Hicks Acquisition Company’s acquisition of Resolute Energy Corporation; | |
• | Concho Resources’ acquisition of Henry Petroleum Corporation; | |
• | XTO Energy’s acquisition of assets from Headington Oil Company; | |
• | Linn Energy’s acquisition of assets from Lamamco Drilling Company; | |
• | Penn West Energy Trust’s acquisition of Canetic Resources Trust; | |
• | TAQA’s acquisition of assets from Pogo Producing Company; | |
• | Apache Corporation’s acquisition of assets from Anadarko Petroleum Corporation; | |
• | Crescent Point Energy Corporation’s acquisition of Mission Oil & Gas; |
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• | Chaparral Energy’s acquisition of Calumet Oil Company; | |
• | Sequoia Oil & Gas Trust’s acquisition of Daylight Resources Trust; | |
• | Pogo Producing Company’s acquisition of Latigo Petroleum; and | |
• | Penn West Energy Trust’s acquisition of Petrofund Energy Trust. |
Multiple Range of Comparable Transactions | ||||||||||||
Low | Median | High | ||||||||||
Enterprise Value as a Multiple of: | ||||||||||||
Proved Reserves ($/BOE) | $ | 7.31 | $ | 16.68 | $ | 37.39 | ||||||
Latest Daily Production ($/BOE/d) | $ | 68,966 | $ | 87,976 | $ | 179,680 |
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• | reviewed a draft of the merger agreement dated October 31, 2009; | |
• | reviewed certain publicly available business and financial information concerning Encore and Denbury and the industry in which they operate; | |
• | compared the financial and operating performance of Encore and Denbury with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of Encore common stock and Denbury common stock and certain publicly traded securities of such other companies; | |
• | reviewed certain internal financial analyses and forecasts prepared by or at the direction of the management teams of Encore and Denbury relating to their respective businesses, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected as a result of the merger, referred to in this “Opinion of Denbury’s Financial Advisor” as the “Denbury Expected Synergies”; | |
• | reviewed certain reserve reports prepared by independent engineering firms and each respective company regarding the proved, probable and possible reserves of Encore and Denbury both on a risked and unrisked basis, referred to in this “Opinion of Denbury’s Financial Advisor” as the “Reviewed Reserve Reports”; and | |
• | performed such other financial studies and analyses and considered such other information (including whether there were any other transactions involving companies J.P. Morgan deemed relevant) as J.P. Morgan deemed appropriate for the purposes of its opinion. |
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• | the firm value as a multiple of Institutional Broker Estimate System, which is referred to herein as “IBES,” consensus estimates for earnings before interest, income taxes, depletion, depreciation and amortization and exploration expenses, or EBITDAX, for calendar year 2010, which is referred to below as “FV/IBES 2010E EBITDAX”; | |
• | the firm value as a multiple of Encore management estimated earnings before interest, income taxes, depletion, depreciation and amortization and exploration expenses, or EBITDAX, for 2010, which is referred to below as “FV/Mgmt 2010E EBITDAX”; | |
• | the equity value as a multiple of IBES consensus estimates for cash flow for 2010, which is referred to below as “EV/IBES 2010E Cash Flow”; | |
• | the equity value as a multiple of Encore management estimated cash flow for 2010, which is referred to below as “EV/Mgmt 2010E Cash Flow”; and | |
• | the firm value based on proved reserves in millions of barrels of oil equivalents as of December 31, 2008, reflecting certain adjustments made by Denbury management, which is referred to below as“FV/Reserves.” |
Benchmark | High | Low | Mean | Median | ||||||||||||
FV/IBES 2010E EBITDAX | 13.6 | x | 5.3 | x | 8.0 | x | 6.4 | x | ||||||||
EV/IBES 2010E Cash Flow | 11.9 | x | 4.4 | x | 7.0 | x | 6.2 | x | ||||||||
FV/Reserves | $ | 46.20 | $ | 8.42 | $ | 22.28 | $ | 21.25 |
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• | the firm value as a multiple of IBES consensus estimates for earnings before interest, taxes, depreciation, amortization and exploration expenses, or EBITDAX, for calendar year 2010, which is referred to below as “FV/IBES 2010E EBITDAX”; | |
• | the firm value as a multiple of Denbury management estimated earnings before interest, income taxes, depletion, depreciation and amortization and exploration expenses, or EBITDAX, for calendar year 2010, which is referred to below as “FV/Mgmt 2010E EBITDAX”; | |
• | the equity value as a multiple of IBES consensus estimates for cash flow for calendar year 2010, which is referred to below as “EV/IBES 2010E Cash Flow”; | |
• | the equity value as a multiple of Denbury management estimated cash flow for calendar year 2010, which is referred to below as “EV/Mgmt 2010E Cash Flow”; and | |
• | the firm value based on proved reserves in millions of barrels of oil equivalents as of December 31, 2008, which is referred to below as “FV/Reserves.” |
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Benchmark | High | Low | Mean | Median | ||||||||||||
FV/IBES 2010E EBITDAX | 13.6 | x | 5.3 | x | 8.0 | x | 6.4 | x | ||||||||
EV/IBES 2010E Cash Flow | 11.9 | x | 4.4 | x | 7.0 | x | 6.2 | x | ||||||||
FV/Reserves | $ | 46.20 | $ | 8.42 | $ | 22.28 | $ | 21.25 |
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Range of | ||||
Implied | ||||
Comparison | Exchange Ratios | |||
Selected Companies Analysis | ||||
FV/IBES 2010E EBITDAX | 1.537x — 2.422 | x | ||
FV/Mgmt 2010E EBITDAX | 1.764x — 2.733 | x | ||
EV/IBES 2010E Cash Flow | 1.602x — 2.777 | x | ||
EV/Mgmt 2010E Cash Flow | 1.559x — 2.704 | x | ||
FV/Reserves | 1.742x — 3.380 | x | ||
Net Asset Valuation Analysis | ||||
Net Asset Valuation without Denbury Expected Synergies | 1.644x — 2.696 | x | ||
Net Asset Valuation with Denbury Expected Synergies | 1.754x — 2.958 | x |
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Stock Options | ||||||||||||
Number of Shares | ||||||||||||
Underlying | Number of Unvested | |||||||||||
Unexercised | Option Exercise | Shares of | ||||||||||
Name and Title | Options(1) | Price ($) | Restricted Stock | |||||||||
I. Jon Brumley | 44,357 | 9.3333 | 96,833 | |||||||||
Chairman of the Board | 60,000 | 8.4000 | ||||||||||
130,644 | 12.4000 | |||||||||||
93,361 | 17.1733 | |||||||||||
27,827 | 30.5500 | |||||||||||
Jon S. Brumley | 68,500 | 9.3333 | 90,042 | |||||||||
Chief Executive Officer and | 60,000 | 8.4000 | ||||||||||
President | 58,065 | 12.4000 | ||||||||||
68,464 | 17.1733 | |||||||||||
30,269 | 26.5467 | |||||||||||
29,949 | 31.1000 | |||||||||||
42,563 | 25.7300 | |||||||||||
50,088 | 30.5500 | |||||||||||
Robert C. Reeves | 10,179 | 9.3333 | 35,986 | |||||||||
Senior Vice President, | 30,000 | 8.4000 | ||||||||||
Chief Financial Officer, | 15,483 | 12.4000 | ||||||||||
Treasurer, and | 12,448 | 17.1733 | ||||||||||
Corporate Secretary | 5,040 | 26.5467 | ||||||||||
5,134 | 31.1000 | |||||||||||
19,041 | 25.7300 | |||||||||||
23,571 | 30.5500 | |||||||||||
L. Ben Nivens | 296 | 12.4000 | 32,109 | |||||||||
Senior Vice President and | 809 | 13.6067 | ||||||||||
Chief Operating Officer | 642 | 26.5467 | ||||||||||
5,705 | 31.1000 | |||||||||||
13,441 | 25.7300 | |||||||||||
23,374 | 30.5500 | |||||||||||
John W. Arms | 13,125 | 9.3333 | 28,903 | |||||||||
Senior Vice President, | 8,475 | 8.4000 | ||||||||||
Acquisition | 7,741 | 12.4000 | ||||||||||
4,979 | 17.1733 | |||||||||||
5,040 | 26.5467 | |||||||||||
4,849 | 31.1000 | |||||||||||
13,441 | 25.7300 | |||||||||||
19,151 | 30.5500 | |||||||||||
Kevin Treadway | 6,000 | 9.3333 | 30,704 | |||||||||
Senior Vice President, | 22,500 | 8.4000 | ||||||||||
Land | 10,398 | 12.4000 | ||||||||||
11,203 | 17.1733 | |||||||||||
3,360 | 26.5467 | |||||||||||
4,849 | 31.1000 | |||||||||||
7,841 | 25.7300 | |||||||||||
15,209 | 33.7600 | |||||||||||
15,262 | 30.5500 | |||||||||||
Thomas H. Olle | 15,000 | 9.3600 | 20,304 | |||||||||
Vice President, | 15,483 | 12.4000 | ||||||||||
Strategic Solutions | 31,120 | 17.1733 | ||||||||||
10,050 | 26.5467 | |||||||||||
9,127 | 31.1000 | |||||||||||
8,961 | 25.7300 | |||||||||||
8,365 | 33.7600 | |||||||||||
5,009 | 30.5500 | |||||||||||
Andy R. Lowe | 3,638 | 25.7300 | 10,505 | |||||||||
Vice President, | 6,464 | 33.7600 | ||||||||||
Marketing | 4,976 | 30.5500 |
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Stock Options | ||||||||||||
Number of Shares | ||||||||||||
Underlying | Number of Unvested | |||||||||||
Unexercised | Option Exercise | Shares of | ||||||||||
Name and Title | Options(1) | Price ($) | Restricted Stock | |||||||||
John A. Bailey | — | — | 12,500 | |||||||||
Director | ||||||||||||
Martin C. Bowen | 7,500 | 19.7667 | 14,000 | |||||||||
Director | ||||||||||||
Ted Collins, Jr. | 3,000 | 8.9800 | 14,000 | |||||||||
Director | 7,500 | 11.4933 | ||||||||||
7,500 | 19.7667 | |||||||||||
Ted A. Gardner | 7,500 | 11.4933 | 14,000 | |||||||||
Director | 7,500 | 19.7667 | ||||||||||
John V. Genova | 7,500 | 19.7667 | 14,000 | |||||||||
Director | ||||||||||||
James A. Winne III | 3,000 | 8.9800 | 14,000 | |||||||||
Director | 7,500 | 11.4933 | ||||||||||
7,500 | 19.7667 |
(1) | Grants prior to July 2005 have been adjusted to reflect Encore’sthree-for-two stock split in July 2005. |
I. Jon | Jon S. | Robert C. | L. Ben | John W. | Kevin | Thomas H. | Andy R. | |||||||||||||||||||||||||
Brumley | Brumley | Reeves | Nivens | Arms | Treadway | Olle | Lowe | |||||||||||||||||||||||||
2009 Annual Cash Bonus | $ | 772,600 | $ | 1,545,000 | $ | 648,900 | $ | 741,600 | $ | 418,500 | $ | 360,500 | $ | 150,670 | $ | 127,205 | ||||||||||||||||
2009 Annual Equity Bonus(1) | 2,317,800 | 4,635,000 | 1,946,700 | 2,224,800 | 1,255,500 | 1,081,500 | 452,010 | 381,615 | ||||||||||||||||||||||||
Total | $ | 3,090,400 | $ | 6,180,000 | $ | 2,595,600 | $ | 2,966,400 | $ | 1,674,000 | $ | 1,442,000 | $ | 602,680 | $ | 508,820 | ||||||||||||||||
(1) | The value of the 2009 Annual Equity Bonus will be divided by the market value of Encore’s common stock as of the date the 2009 annual equity bonus is granted to determine the number of restricted shares of Encore common stock that will be granted to each executive officer. The grants are expected to be made on terms and conditions, including performance conditions, consistent with prior annual grants of restricted stock, and will vest over a4-year period, subject to earlier vesting on termination without cause or for good reason, as described above. |
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• | cash equal to 2-3 times annual salary and bonus; | |
• | continued medical, dental and life insurance coverage for up to three years; and | |
• | an additional amount to “gross up” for the amount, if any, of excise tax payable by the officer under the golden parachute provisions of the Code such that after payment of excise and income taxes on the gross up payment, the officer will retain an amount sufficient to cover the excise tax. |
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I. Jon | Jon S. | Robert C. | L. Ben | John W. | Kevin | Thomas H. | Andy R. | |||||||||||||||||||||||||
Brumley | Brumley | Reeves | Nivens | Arms | Treadway | Olle | Lowe | |||||||||||||||||||||||||
Cash Severance(1) | $ | 2,317,800 | $ | 5,407,500 | $ | 2,039,400 | $ | 2,224,800 | $ | 1,506,600 | $ | 1,946,700 | $ | 764,940 | $ | 645,810 | ||||||||||||||||
Pro-rata 2010 Bonus(2) | 626,476 | 1,252,789 | 526,171 | 601,339 | 339,348 | 292,317 | 122,173 | 103,146 | ||||||||||||||||||||||||
Insurance Coverage(3) | 66,104 | 67,603 | 67,603 | 31,265 | 67,231 | 67,231 | 67,603 | 67,603 | ||||||||||||||||||||||||
Stock Options(4) | 360,837 | 649,475 | 305,638 | 303,090 | 248,338 | 280,229 | 110,233 | 99,514 | ||||||||||||||||||||||||
Restricted Stock(5) | 1,699,450 | 2,405,650 | 1,121,350 | 1,053,000 | 889,100 | 973,650 | 454,550 | 358,500 | ||||||||||||||||||||||||
2009 Annual Equity Bonus(6) | 2,317,800 | 4,635,000 | 1,946,700 | 2,224,800 | 1,255,500 | 1,081,500 | 452,010 | 381,615 | ||||||||||||||||||||||||
Tax Gross Up | — | 4,723,385 | 1,897,993 | 2,153,644 | 1,293,061 | 1,444,416 | — | 462,272 | ||||||||||||||||||||||||
Total | $ | 7,388,467 | $ | 19,141,402 | $ | 7,904,855 | $ | 8,591,938 | $ | 5,599,178 | $ | 6,086,043 | $ | 1,971,509 | $ | 2,118,460 | ||||||||||||||||
(1) | The executive officers are entitled to a cash severance amount equal to a multiple of the sum of their annual base salary and annual cash bonus paid in respect of 2009. The multiple for Kevin Treadway is 3.0, the multiple for Jon S. Brumley is 2.5 and the multiple for the other executive officers is 2.0. | |
(2) | Upon termination without cause or resignation for good reason following the effective time of the merger, the merger agreement provides that the executive officers are entitled to a pro-rated 2010 bonus based on the portion of 2010 during which the officer is employed and the sum of the officer’s target annual cash bonus and target annual equity bonus. | |
(3) | The executive officers are entitled to continued coverage for three years under the Encore medical, dental and life insurance arrangements. | |
(4) | Option awards will automatically vest upon the effective time of the merger and will be converted into an obligation of Denbury to make a cash payment to the option holder equal to the product of (i) the number of shares of Encore common stock subject to such option and (ii) the excess, if any, of the aggregate consideration per share (or with respect to certain pre-2005 options, the highest price per share paid within 60 days prior to the merger) over the exercise price per share previously subject to such option. Amounts for options have been calculated by multiplying the number of previously unvested stock options by the difference between $50.00 per share, the aggregate consideration per share under the merger agreement, and the exercise price of the previously unvested stock options. Amounts that would be payable with respect to vested options are not included in the table. Thus, this amount does not include the value of options that vest by their terms in February 2010. |
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(5) | Restricted stock awards other than the shares awarded as the 2009 annual equity bonus will automatically vest upon the effective time of the merger and each holder will have the right to make the same elections as described below in “Terms of the Merger Agreement — Conversion of Encore Stock.” Accordingly, the payment for restricted share awards has been calculated by multiplying the number of previously unvested shares of restricted stock by $50.00 per share, which is the aggregate consideration per share under the merger agreement. This amount does not include the value of shares of restricted stock that vest by their terms in February 2010. | |
(6) | The 2009 annual equity bonus represents a grant of restricted stock to be made in February 2010 (or, if earlier, as of the effective time of the merger). This grant of restricted stock will not vest on account of the transaction contemplated by the merger agreement. However, this grant will vest if the executive officer is terminated without cause or resigns for good reason. |
• | include provisions relating to expense advancement and indemnification in its and its subsidiaries organizational documents that are no less favorable than those contained in Encore’s certificate of incorporation and bylaws; | |
• | indemnify and hold harmless and advance expenses to, to the fullest extent permitted by law, the present and former directors, officers, employees, fiduciaries and agents of Encore and its subsidiaries with respect to all acts or omissions by them in their capacities as such, or taken at the request of Encore, at any time; and | |
• | either maintain in effect the current directors’ and officers’ liability insurance policies maintained by Encore or its subsidiaries with respect to matters occurring on or before completion of the merger or obtain and pay for substitute policies of at least the same coverage and amounts and containing terms no less advantageous to such directors and officers than Encore’s current policies, except that Denbury will not be required to pay annual premiums for such policies in excess of 250% of Encore’s annual premiums in effect for such policies as of October 31, 2009, the execution date of the merger agreement. |
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• | Written Demand for Appraisal Prior to the Vote at the Special Meeting. A stockholder must deliver to Encore a written demand for appraisal meeting the requirements of Section 262 of the DGCL before Encore stockholders vote on the adoption of the merger agreement at the special meeting. Voting against or abstaining with respect to the adoption of the merger agreement, failing to return a proxy or returning a proxy voting against or abstaining with respect to the proposal to adopt the merger |
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agreement will not constitute the making of a written demand for appraisal. The written demand for appraisal must be separate from any proxy, abstention from the vote on the merger agreement or vote against the merger agreement. The written demand must reasonably inform Encore of the identity of the stockholder of record and of that stockholder’s intent to demand appraisal of his, her or its shares. Failure to timely deliver a written demand for appraisal will cause a stockholder to lose his, her or its appraisal rights. |
• | Refrain from Voting in Favor of Adoption of the Merger Agreement. In addition to making a written demand for appraisal, a stockholder must not vote his, her or its shares of Encore common stock in favor of the adoption of the merger agreement. A submitted proxy not marked “AGAINST” or “ABSTAIN” will be voted in favor of the proposal to adopt the merger agreement and will result in the waiver of appraisal rights. A stockholder that has not submitted a proxy will not waive his, her or its appraisal rights solely by failing to vote if the stockholder satisfies all other provisions of Section 262 of the DGCL. | |
• | Continuous Ownership of Encore Common Stock. A stockholder must also continuously hold his, her or its shares of Encore common stock from the date the stockholder makes the written demand for appraisal through the effective time of the merger. Accordingly, a stockholder who is the record holder of shares of Encore common stock on the date the written demand for appraisal is made but who thereafter transfers the shares prior to the effective time of the merger will lose any right to appraisal with respect to such shares. | |
• | Petition with the Chancery Court. Within 120 days after the effective date of the merger (but not thereafter), either the surviving corporation or any stockholder who has complied with the requirements of Section 262 of the DGCL, which are briefly summarized above, must file a petition in the Delaware Court of Chancery demanding a judicial determination of the fair value of the shares of Encore common stock held by all stockholders who are entitled to appraisal rights. This petition in effect initiates a court proceeding in Delaware. Because Denbury, as the surviving corporation, has no obligation and no intention to file such a petition, if no stockholder files such a petition with the Delaware Court of Chancery within 120 days after the effective date of the merger, any available appraisal rights will be lost, even if a stockholder has fulfilled all other requirements to exercise appraisal rights. If such a petition is filed, the Delaware Court of Chancery could determine that the fair value of shares of Encore common stock is more than, the same as or less than the merger consideration. Notwithstanding that a demand for appraisal must be executed by or on behalf of a stockholder of record, a beneficial owner of shares entitled to appraisal rights held either in a voting trust or by a nominee on behalf of that beneficial owner may, in that beneficial owner’s own name, file a petition for appraisal with respect to the shares beneficially owned by that person and as to which appraisal rights have been properly perfected. |
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• | consummation of the merger in accordance with the merger agreement; | |
• | the absence of a “material adverse effect” (as defined in the merger agreement) regarding Encore or Denbury; | |
• | the lenders not becoming aware of any information or other matter that in their reasonable judgment is inconsistent in a material and adverse manner with disclosures prior to the date of the merger agreement or that in the reasonable opinion of J.P. Morgan makes it impossible to complete a successful syndication of the credit facilities or the sale of senior subordinated notes; | |
• | the absence of certain competing issues of debt securities of Denbury or Encore; | |
• | closing no later than May 31, 2010; | |
• | delivery of certain reserve reports and historical and pro forma financial information; | |
• | execution of certain guarantees and creation of first priority security interests; | |
• | the initial availability for borrowing of not less than (i) $50 million under the ENP facility and (ii) $400 million under the newly committed Denbury senior secured facility; | |
• | pro forma compliance with certain financial covenants and requirements; | |
• | a30-day period for syndication of the credit facilities and for marketing of senior subordinated notes, and delivery by Denbury of an offering memorandum for such notes on or prior to February 15, 2010; | |
• | as a condition to the funding of the bridge facility, the bridge facility and the senior subordinated notes having received ratings from Moody’s Investors Service, Inc. of at least B3 and from Standard & Poor’s Ratings Services of at least B minus, in each case with stable outlook or better; and | |
• | other customary financing conditions. |
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• | a maximum of 2.6336 shares of Denbury common stock per share of Encore common stock, which would occur if the Denbury20-day average price is equal to or less than $13.29 per share; and | |
• | a minimum of 2.0698 shares of Denbury common stock per share of Encore common stock, which would occur if the Denbury20-day average price is greater than or equal to $16.91 per share. |
• | a maximum of 3.7622 shares of Denbury common stock per share of Encore common stock, which would occur if the Denbury20-day average price is equal to or less than $13.29 per share; and |
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• | a minimum of 2.9568 shares of Denbury common stock per share of Encore common stock, which would occur if the Denbury20-day average price is greater than or equal to $16.91 per share. |
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• | existence, good standing and qualification to conduct business; | |
• | organizational documents; | |
• | capitalization, including ownership of subsidiary capital stock and the absence of restrictions or encumbrances with respect to the capital stock of any material subsidiary; | |
• | requisite power and authorization to enter into and carry out the obligations of the merger agreement and the enforceability of the merger agreement; | |
• | absence of any violation of organizational documents or third party agreements; | |
• | compliance with applicable laws; | |
• | filings and reports with the SEC, financial information, internal accounting controls and disclosure controls and procedures; | |
• | absence of undisclosed liabilities or obligations; | |
• | absence of certain changes or events; | |
• | litigation; | |
• | employee benefit plans; | |
• | accuracy of information provided for inclusion in this joint proxy statement/prospectus; | |
• | title to properties; | |
• | information supplied in connection with oil and gas reserve reports; | |
• | tax matters; | |
• | environmental matters; | |
• | intellectual property; | |
• | derivative transactions and hedging; |
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• | jurisdiction of the Federal Energy Regulatory Commission; | |
• | insurance; | |
• | labor matters; | |
• | related party transactions; | |
• | material contracts; | |
• | opinions of financial advisors; | |
• | fees payable to brokers, finders or investment banks in connection with the merger; and | |
• | required stockholder approval. |
• | the inapplicability to the merger agreement of any anti-takeover law or provision in Encore’s certificate of incorporation; and | |
• | that the merger will not result in the grant of any rights to any person under Encore’s rights agreement. |
• | receipt of a commitment letter for financing; and | |
• | the absence of ownership by Denbury of Encore common stock. |
• | general economic, financial market, regulatory or political conditions, any outbreak of hostilities or war, acts of terrorism, natural disasters or other force majeure events unless it affects that company disproportionately relative to other industry participants; | |
• | changes in or events or conditions generally affecting the oil and natural gas industry or exploration and production companies, unless it affects that company disproportionately relative to other industry participants; | |
• | changes in oil and natural gas prices, including changes in price differentials; | |
• | changes in other commodity prices; |
• | changes of laws or changes to GAAP or interpretations thereof; |
• | the negotiation, execution, announcement or pendency of the merger agreement, any actions taken in compliance with the merger agreement or the consummation of the merger; | |
• | changes in reserve estimates; | |
• | the accounting for its hedging activities and anymark-to-market gains or losses with respect to hedges; | |
• | fluctuations in currency exchange rates; | |
• | filing, defense or settlement of any legal proceedings brought by that party’s stockholders related to the merger; | |
• | failure to take any action as a result of any restrictions on conduct of its business set forth in the merger agreement if the other party refused to provide a waiver; |
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• | failure to meet published estimates or expectations of financial or operating results or to meet internal budgets or plans; | |
• | the downgrade in rating of any debt or debt security of that party; or | |
• | changes in the price or trading volume of that party’s common stock; except that, with respect to the last three items above, the occurrence of any such failure, downgrade or change does not prevent a determination that any underlying cause of that failure, downgrade or change resulted in or contributed to a material adverse effect on Denbury or Encore, as applicable. |
• | amend or otherwise change their organizational documents or amend or otherwise change, or waive any provision of, Encore’s Rights Agreement; | |
• | issue, sell or encumber any shares of capital stock, options, warrants, convertible securities or any other ownership interest, except pursuant to current employee benefit plans; | |
• | declare or pay any dividend or other distribution (except for intercompany transactions and except for ENP’s regular quarterly distributions); | |
• | reclassify, combine, split or subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of Encore’s capital stock; | |
• | make an acquisition in excess of $15 million in the aggregate or incur any indebtedness; | |
• | (i) increase materially the compensation for, or grant any severance or termination pay to, any officer or employee, except in accordance with past practice or pursuant to existing contractual arrangements, (ii) enter into or amend any employment or severance agreement with any director, officer or other employee of Encore or any of its subsidiaries or (iii) enter into or amend any collective bargaining, bonus, profit sharing or other plan, agreement or arrangement for the benefit of any director, officer or employee, except (A) in the ordinary course and in a manner consistent with past practice, (B) pursuant to existing contractual arrangements or (C) as required by applicable law; | |
• | pay or settle any material claim, liability or obligation other than in the ordinary course consistent with past practice that involves monetary damages in excess of $10 million in the aggregate or that exceeds the amount reserved against in the financial statements; | |
• | make any capital expenditures in any fiscal quarter exceeding the capital expenditure budget for such quarter by more than $25 million; | |
• | sell or encumber assets or properties having a value in excess of $25 million in the aggregate; | |
• | enter into any derivative transaction that would result in more than 70% of Encore’s oil or natural gas production being hedged beyond December 31, 2011; | |
• | enter into, materially amend or terminate any material contract if the amount involved exceeds $15 million in the aggregate; |
• | change Encore’s methods of accounting, except in accordance with GAAP as concurred in by its independent auditor; and |
• | enter into any closing agreement with respect to material taxes or settle or compromise any material liability for taxes. |
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• | amend or otherwise change their organizational documents; | |
• | declare or pay any dividend or other distribution (except for intercompany transactions); | |
• | reclassify Denbury’s capital stock; | |
• | make an acquisition in excess of $30 million in the aggregate; or | |
• | incur any indebtedness other than in the ordinary course of business, to refinance existing indebtedness or to finance any acquisition permitted by the merger agreement. |
• | directly or indirectly initiate, solicit, knowingly encourage or knowingly facilitate any inquiry or the making or submission of any proposal that constitutes, or could reasonably be expected to lead to, an acquisition proposal (as defined below) for Encore; | |
• | participate or engage in discussions or negotiations with or disclose any non-public information or data relating to Encore or any of its subsidiaries or afford access to the properties, books or records of Encore or any of its subsidiaries to any person that has made an acquisition proposal for Encore or to any person in contemplation of an acquisition proposal; or | |
• | accept an acquisition proposal for Encore or enter into any agreement, including any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement, arrangement or understanding, (i) constituting or related to, or that is intended to or could reasonably be expected to lead to, any acquisition proposal for Encore or (ii) requiring, intended to cause or that could reasonably be expected to cause Encore to abandon, terminate or fail to consummate the merger. |
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• | Encore receives an unsolicited written acquisition proposal; | |
• | Encore’s board of directors determines in good faith (after consultation with its financial advisors and legal counsel) that such proposal constitutes or could reasonably be expected to lead to a superior proposal (as defined below); | |
• | Encore receives from such person an executed confidentiality agreement having provisions that are no less restrictive than Encore’s confidentiality agreement with Denbury; and | |
• | Encore previously disclosed or concurrently discloses or makes available the same information, if any, to Denbury and provides Denbury with a copy of the confidentiality agreement Encore entered into with such person. |
• | a superior proposal; or | |
• | an intervening event (as defined below) if Encore’s board of directors concludes in good faith (after consultation with its outside legal counsel) that a failure to make a change in Encore’s recommendation would breach its fiduciary duties under applicable law. |
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• | withdrawing, or proposing to withdraw, the approval, recommendation or declaration of advisability of the merger agreement or the merger; or | |
• | recommending, adopting or approving, or proposing publicly to recommend, adopt or approve, any acquisition proposal. |
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• | Encore’s Employee Severance Protection Plan; | |
• | Encore’s 2000 Incentive Stock Plan; | |
• | Encore’s 2008 Incentive Stock Plan; | |
• | Encore Energy Partners LP Second Amended and Restated Agreement of Limited Partnership; and | |
• | Encore Energy Partners GP LLC’s Long-Term Incentive Plan. |
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• | the adoption of the merger agreement by the requisite approval of Encore’s stockholders; | |
• | the adoption of the merger agreement by the requisite approval of Denbury’s stockholders; | |
• | the termination or expiration of the waiting period under the HSR Act; | |
• | the absence of any statute, rule or regulation promulgated by any governmental authority and the absence of any order, decree, injunction or ruling of a court of competent jurisdiction prohibiting, preventing or enjoining the consummation of the merger; | |
• | the approval for listing on the New York Stock Exchange of the Denbury common stock to be issued pursuant to the merger; and | |
• | the registration statement that includes this prospectus shall have become effective under the Securities Act and shall not be the subject of any stop order or proceeding seeking a stop order. |
• | performance in all material respects by Denbury of its respective covenants required to be performed by it under the merger agreement at or prior to the closing date; | |
• | certain representations and warranties of Denbury contained in the merger agreement being materially true and correct as of the date of the merger agreement and as of the closing date; | |
• | other representations and warranties of Denbury contained in the merger agreement being true and correct as of the date of the merger agreement and as of the closing date, except where the failure of any such representations and warranties to be so true and correct would not, individually or in the aggregate, have a material adverse effect; | |
• | receipt by Encore of a certificate signed on behalf of Denbury by an executive officer to the effect that the conditions specified in the preceding three items have been satisfied; | |
• | receipt by Encore of an opinion from its legal counsel, dated as of the closing date, to the effect that for federal income tax purposes (i) the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code and (ii) each of Denbury and Encore will be a party to the reorganization within the meaning of Section 368(b) of the Code; and | |
• | the absence of any change in the condition (financial or otherwise), operations, business or properties of Denbury and its subsidiaries that constitutes or is reasonably likely to constitute a material adverse effect. |
• | certain representations and warranties of Encore contained in the merger agreement being materially true and correct as of the date of the merger agreement and as of the closing date; | |
• | other representations and warranties of Encore contained in the merger agreement being true and correct as of the date of the merger agreement and as of the closing date, except where the failure of any such representations and warranties to be so true and correct would not, individually or in the aggregate, have a material adverse effect; |
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• | performance in all material respects by Encore of all of its covenants required to be performed by it under the merger agreement at or prior to the closing date; | |
• | receipt by Denbury of a certificate signed on behalf of Encore by an executive officer to the effect that the conditions specified in the preceding three items have been satisfied; | |
• | the receipt by Denbury of an opinion from its legal counsel, dated as of the closing date, to the effect that for federal income tax purposes (i) the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code and (ii) each of Denbury and Encore will be a party to the reorganization within the meaning of Section 368(b) of the Code; | |
• | the absence of any change in the condition (financial or otherwise), operations, business or properties of Encore and its subsidiaries that constitutes or is reasonably likely to constitute a material adverse effect; and | |
• | Denbury’s receipt of the financing contemplated by the merger agreement (this condition will be considered satisfied if a failure by the lenders to make the financing available is a result of a breach by Denbury of any of its obligations under the merger agreement). |
• | by mutual written agreement of Denbury and Encore; | |
• | by either Denbury or Encore if: |
• | the merger has not occurred on or before the “outside date,” which is May 31, 2010, but neither party may terminate the merger agreement under this provision if that party’s breach of any provision of the merger agreement has contributed to, or otherwise resulted in, the failure of the merger to occur on or before the outside date; | |
• | a court of competent jurisdiction or other governmental authority has issued a final, non-appealable order, decree or ruling permanently restraining, enjoining or otherwise prohibiting the merger; | |
• | the Encore stockholders have failed to adopt the merger agreement; | |
• | the Denbury stockholders have failed to adopt the merger agreement; or | |
• | the Denbury financing condition is not satisfied; |
• | by Denbury if Encore is in material breach of the merger agreement such that certain conditions set forth in the merger agreement are not capable of being satisfied and that breach is not cured prior to the earlier of 30 days after notice of the breach to Encore and the outside date, but Denbury will have no right to terminate the merger agreement under this provision if Denbury is then in material breach with respect to its obligations under the merger agreement; or | |
• | by Encore if: |
• | Denbury is in material breach of the merger agreement such that certain conditions set forth in the merger agreement are not capable of being satisfied and that breach is not cured prior to the earlier of 30 days after notice of the breach to Denbury and the outside date, but Encore will have no right to terminate the merger agreement under this provision if it is then in material breach with respect to its obligations under the merger agreement; or | |
• | prior to adoption of the merger agreement by Encore’s stockholders, Encore’s board of directors has effected a change in its recommendation and authorized Encore to enter into a definitive agreement with respect to a superior proposal. |
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• | Encore terminates the merger agreement prior to obtaining the approval of Encore’s stockholders because Encore’s board of directors authorizes Encore to enter into a binding definitive agreement in respect of a superior proposal; | |
• | either party terminates the merger agreement because Encore’s stockholder approval is not obtained and: |
• | at the time of Encore’s stockholders meeting there is a publicly announced or disclosed acquisition proposal by another bidder; and | |
• | within 12 months after the date of the Encore stockholders meeting, a transaction constituting an acquisition proposal is consummated or Encore enters into an agreement with respect to a transaction constituting an acquisition proposal that is consummated; or |
• | Denbury terminates the merger agreement because Encore materially breached any of its representations and warranties in the merger agreement and that breach has not been waived or cured or because the merger was not consummated on or before the outside date and: |
• | at the time of that termination there is a publicly announced or disclosed acquisition proposal by another bidder; and | |
• | within 12 months after the date of the Encore stockholders meeting, a transaction constituting an acquisition proposal is consummated or Encore enters into an agreement with respect to a transaction constituting an acquisition proposal that is consummated. |
• | either party terminates the merger agreement because Denbury’s stockholders do not adopt the merger agreement and: |
• | at the time of the Denbury stockholders meeting there is a publicly announced or disclosed acquisition proposal for Denbury by another bidder; and | |
• | within 12 months after the date of the Denbury stockholders meeting, a transaction constituting an acquisition proposal for Denbury is consummated or Denbury enters into an agreement with respect to a transaction constituting an acquisition proposal for Denbury that is consummated; or |
• | Encore terminates the merger agreement because Denbury materially breached any of its representations and warranties in the merger agreement and that breach has not been waived or cured or because the merger was not consummated on or before the outside date and: |
• | at the time of that termination there is a publicly announced or disclosed acquisition proposal for Denbury; | |
• | within 12 months after the date of the Denbury stockholders meeting, a transaction constituting an acquisition proposal for Denbury is consummated or Denbury enters into an agreement with respect to a transaction constituting an acquisition proposal for Denbury that is consummated; and |
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• | Encore does not receive a $300 million termination fee related to the failure of Denbury to obtain financing. |
• | either party terminates the merger agreement because Denbury’s stockholders do not adopt the merger agreement at the Denbury stockholders meeting; | |
• | Denbury does not at the time of the Denbury stockholders meeting have a right to terminate the merger agreement because of an Encore material breach, the rejection of the merger by Encore’s stockholders or an injunction against the merger; and | |
• | as of the second business day prior to the date on which Denbury’s stockholders meeting is held, either: |
• | Denbury has neither entered into binding definitive agreements for the financing, provided a letter from the financing sources that they expect the financing to be available nor reaffirmed its own expectation that the financing will be available; or | |
• | Denbury has entered into definitive agreements for the financing but one or more conditions to the obligations of the lenders to consummate the financing on the closing date cannot be satisfied or waived. |
• | either party terminates the merger agreement because the merger is not consummated by the outside date and all of the closing conditions other than the Denbury’s financing condition have been satisfied or waived on or prior to the date of such termination; or | |
• | either party terminates the merger agreement because Denbury’s financing condition is not satisfied by the outside date. |
• | by Denbury for Encore’s uncured material breach; | |
• | by Encore prior to obtaining the approval of Encore’s stockholders because Encore’s board of directors authorized Encore to enter into a binding definitive agreement in respect of a superior proposal; | |
• | by Denbury or Encore as a result of the failure to consummate the merger by the outside date and a bona fide acquisition proposal for Encore has also been publicly announced but not timely withdrawn prior to Encore’s stockholders meeting; or | |
• | by Denbury or Encore because the Encore stockholders approval is not obtained at the Encore stockholders meeting and a bona fide acquisition proposal for Encore has been publicly announced but not timely withdrawn prior to Encore’s stockholders meeting. |
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• | extend the time for the performance of any obligations of the other party; | |
• | waive any inaccuracies in the representations and warranties of the other party; or | |
• | waive compliance with any agreement or condition for the benefit of that party. |
• | financial institutions; | |
• | mutual funds; | |
• | tax-exempt organizations; | |
• | insurance companies; | |
• | S corporations, partnerships or other pass-through entities for U.S. federal income tax purposes; | |
• | dealers in securities or foreign currencies; | |
• | traders in securities who elect to apply amark-to-market method of accounting; | |
• | holders who are not U.S. holders, as defined below; | |
• | persons who hold shares of Encore common stock as a hedge against currency risk or as part of a straddle, constructive sale or conversion transaction; or | |
• | holders who acquired their shares of Encore common stock upon the exercise of warrants or employee stock options or otherwise as compensation. |
• | an individual who is a citizen or resident of the United States; | |
• | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof; | |
• | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
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• | a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person. |
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Denbury | Encore | |||||
Capital Stock | ||||||
Denbury is authorized to issue: | Encore is authorized to issue: | |||||
• | 600,000,000 shares of common stock, of which [ l ] were issued and outstanding as of January [ l ], 2010. | • | 144,000,000 shares of common stock, of which [ l ] were issued and outstanding as of January [ l ], 2010. | |||
• | 25,000,000 shares of preferred stock, of which none are issued and outstanding. | • | 5,000,000 shares of preferred stock, of which none are issued and outstanding. | |||
Rights Plans | ||||||
• | Denbury is not a party to a rights plan. | • | Encore amended its rights plan in connection with entering into the merger agreement. Neither the completion of the merger nor any of the transactions contemplated thereby will cause the rights under the rights plan to become exercisable. | |||
Number and Term of Directors | ||||||
• | The board must consist of between three and fifteen directors, who are elected annually. | • | The board must consist of between one and fifteen directors, who are elected annually. | |||
• | Currently, there are eight directors on the board. There will not be any change in Denbury’s board of directors as a result of the merger. | • | Currently, there are eight directors on the board. | |||
Supermajority Vote of Directors | ||||||
• | Denbury’s certificate of incorporation provides that the following matters must be approved by not less than two-thirds of the members of the board of directors: | • | Neither Encore’s certificate of incorporation nor its bylaws require a supermajority vote of directors on any matter. | |||
• an acquisition having a purchase price, or a disposition having a sale price, in excess of 20% of Denbury’s total assets; | ||||||
• any increase or decrease in the total number of members of the board of directors; | ||||||
• any amendment to the certificate of incorporation or bylaws of Denbury; | ||||||
• any issuance of equity securities or securities convertible into equity securities (other than pursuant to any stock option plan or employment benefit and certain other exceptions); | ||||||
• the creation of any series of preferred stock; | ||||||
• the issuance of any debt securities in excess of 10% of Denbury’s total assets; and | ||||||
• any borrowings, other than advances against existing credit lines, and any increase in existing credit lines, in each case in excess of 10% of Denbury’s total assets in respect of which Denbury is required to grant security for the debt obligations or any borrowed money. |
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Denbury | Encore | |||||
Removal of Directors | ||||||
• | Any director or the entire board of directors may be removed, with or without cause, by a vote of the holders of a majority of the shares entitled to vote on the election of directors. | • | Any director or the entire board of directors may be removed, with or without cause, by a vote of the holders of a majority of the shares entitled to vote on the election of directors. | |||
Stockholder Consents | ||||||
• | Denbury stockholders may act by written consent. | • | Encore stockholders may act by written consent. | |||
Quorum for Stockholder Meetings | ||||||
• | The holders of one-third of the issued and outstanding shares entitled to vote on a matter, present in person or by proxy, will constitute a quorum at any meeting of stockholders, except as otherwise provided by law. | • | The holders of a majority of the outstanding shares entitled to vote on a matter, present in person or by proxy, will constitute a quorum at any meeting of stockholders, except as otherwise provided by law. | |||
Special Meeting of Stockholders | ||||||
• | A special meeting of Denbury stockholders may be called by the board of directors or by holders of stock representing at least 25% of the aggregate voting power of Denbury’s issued and outstanding capital stock. | • | A special meeting of Encore stockholders may be called at any time by the chairman of the board, the president, the board of directors or holders of at least 10% of all shares entitled to vote at the meeting. | |||
Votes Per Share | ||||||
• | Each stockholder is entitled to one vote per share. | • | Each stockholder is entitled to one vote per share. | |||
Stockholder Proxies | ||||||
• | No proxy may be voted after three years from its date unless otherwise provided in the proxy. | • | No proxy may be voted after three years from its date unless otherwise provided in the proxy. | |||
Business Combinations | ||||||
• | Denbury’s certificate of incorporation does not contain any provision requiring a supermajority vote of stockholders for business combinations. In addition, Denbury’s certificate of incorporation contains a provision opting out of the business combination provisions of Section 203 of the DGCL. | • | Encore’s certificate of incorporation does not contain any provision requiring a supermajority vote of stockholders for business combinations. In addition, Encore’s certificate of incorporation contains a provision opting out of the business combination provisions of Section 203 of the DGCL. | |||
Director Nominations | ||||||
• | Director nominations may be made at an annual meeting of stockholders (a) pursuant to the notice of meeting, (b) by or at the direction of Denbury’s board of directors or (c) by any stockholder of the corporation who was a stockholder of record at the record date for the meeting and who is entitled to vote at the meeting. | • | Director nominations may be made (a) pursuant to Encore’s notice of meeting, (b) by or at the direction of Encore’s board of directors or (c) by any stockholder who follows the procedures set forth in Encore’s bylaws. For a nomination to be properly made by a stockholder, the stockholder must, among other things, give timely notice to Encore not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the immediately preceding year’s annual meeting. |
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Denbury | Encore | |||||
Stockholder Proposals | ||||||
• | Proposals of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the notice of meeting, (b) by or at the direction of Denbury’s board of directors or (c) by any stockholder of the corporation who was a stockholder of record at the record date for the meeting and who is entitled to vote at the meeting. | • | Encore’s certificate of incorporation and bylaws do not contain any provisions that govern the submission of proposals by stockholders. | |||
Bondholder Inspection Rights | ||||||
• | The holders of any bonds, debentures or other obligations issued or to be issued by Denbury have the same right of inspection of Denbury’s books, accounts and other records as Denbury’s stockholders. | • | Neither Encore’s certificate of incorporation nor its bylaws provide bondholders with any inspection rights. | |||
Charter Amendments | ||||||
• | The Denbury certificate of incorporation may be amended upon the affirmative vote of a majority of the shares of common stock outstanding as of the record date. | • | The Encore certificate of incorporation may be amended upon the affirmative vote of a majority of the shares of common stock outstanding as of the record date. |
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• | Annual Report onForm 10-K for the year ended December 31, 2008; | |
• | Quarterly Reports onForm 10-Q for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009; |
• | Current Reports onForm 8-K filed with the SEC on January 7, 2009, February 5, 2009, February 6, 2009, February 17, 2009, May 6, 2009, July 7, 2009, November 2, 2009 (dated November 1, 2009), November 5, 2009 (dated October 31, 2009), November 13, 2009 (dated November 12, 2009), December 3, 2009, December 7, 2009 (dated December 1, 2009), December 23, 2009 (dated December 18, 2009), December 23, 2009 (dated December 17, 2009) and January 6, 2010 (dated December 30, 2009); and |
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• | The description of Denbury common stock set forth in the Registration Statement onForm 8-A(File No. 001-12935) filed with the SEC pursuant to Section 12 of the Exchange Act on April 25, 1997, as amended on April 21, 1999, and any amendment or report filed for the purpose of updating such description. |
• | Annual Report onForm 10-K for the year ended December 31, 2008; | |
• | Quarterly Reports onForm 10-Q for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009; |
• | Current Reports onForm 8-K filed with the SEC on February 11, 2009, March 2, 2009, March 11, 2009, April 27, 2009, May 1, 2009, May 19, 2009, June 29, 2009, September 11, 2009, November 2, 2009, November 3, 2009, December 1, 2009, December 15, 2009 and January 25, 2010; and |
• | The description of Encore common stock set forth in the Registration Statement onForm 8-A(File No. 001-16295) filed with the SEC pursuant to Section 12 of the Exchange Act on December 21, 2000, and any amendment or report filed for the purpose of updating such description. |
• | The description of rights to purchase Encore preferred stock set forth in the Registration Statement onForm 8-A (FileNo. 001-16295) filed with the SEC pursuant to Section 12 of the Exchange Act on October 31, 2008, and the amendment to such Registration Statement filed on November 6, 2009, as well as any additional amendment or report filed for the purpose of updating such description. |
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* | This definition is an abbreviated version of the complete definition as defined by the SEC inRule 4-10(a) ofRegulation S-X. For the complete definition see:http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=2 0c66c74f60c4bb8392bcf9ad6fccea3&rgn=div5&view=text&nod-e=17:2.0.1.1.8&idno=17#17:2.0.1.1.8.0.21.43. |
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
• | Denbury’s acquisition of Encore. The acquisition of Encore will be accounted for using the acquisition method of accounting. Encore owns the general partner interest and approximately 46% of the outstanding common units of Encore Energy Partners LP (“ENP”). Encore has historically consolidated the financial position, results of operations and cash flows of ENP with those of Encore. The unaudited pro forma combined financial information reflects the allocation of (1) the fair value of the consideration transferred and (2) the fair value of the noncontrolling interest of ENP to the underlying assets acquired and liabilities assumed of both Encore and ENP based upon their estimated fair values; |
• | Borrowings under Denbury’s newly committed $1.6 billion credit facility (approximately $826.6 million) and $1.25 billion bridge facility (approximately $400.0 million). The newly committed credit facility and bridge facility borrowings and proceeds will be used as follows: |
• | fund the aggregate cash portion of the purchase price (approximately $889.3 million), including payments to Encore option holders of approximately $56.2 million; |
• | repay a portion of Encore’s credit facilities ($180.0 million); and |
• | pay debt and equity issuance costs (approximately $89.5 million), severance costs (approximately $39.6 million) and transaction expenses (approximately $28.1 million) related to the acquisition. |
• | Adjustments to conform the classification of expenses in Encore’s historical statements of operations to Denbury’s classification of similar expenses; | |
• | Adjustments to conform Encore’s historical accounting policies related to oil and natural gas properties from successful efforts to full cost accounting; | |
• | Estimated tax impact of pro forma adjustments; and | |
• | Denbury’s disposition of its Barnett Shale natural gas assets (see Note 4 to the unaudited pro forma combined financial information). |
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Balance Sheet as of September 30, 2009
Denbury | Pro Forma | Denbury | ||||||||||||||
Pro Forma | Encore | Adjustments | Pro Forma | |||||||||||||
(Note 4) | Historical | (Note 2) | Combined | |||||||||||||
(In thousands) | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 211,689 | $ | 6,683 | $ | — | $ | 218,372 | ||||||||
Trade, accrued production and other receivables, net | 168,931 | 113,305 | — | 282,236 | ||||||||||||
Derivative assets | 17,900 | 51,974 | — | 69,874 | ||||||||||||
Deferred tax assets | 5,637 | — | — | 5,637 | ||||||||||||
Other current assets | — | 41,704 | 432 | (a) | 42,136 | |||||||||||
Total current assets | 404,157 | 213,666 | 432 | 618,255 | ||||||||||||
Property and equipment | ||||||||||||||||
Oil and natural gas properties | ||||||||||||||||
Proved | 3,258,060 | 4,146,881 | (946,202 | )(a) | 6,458,739 | |||||||||||
Unevaluated | 213,170 | 104,931 | 1,071,069 | (a) | 1,389,170 | |||||||||||
CO2 properties, equipment and pipelines | 1,422,981 | — | — | 1,422,981 | ||||||||||||
Other | 80,015 | 28,598 | (15,360 | )(a) | 93,253 | |||||||||||
Less accumulated depreciation, depletion and amortization | (1,763,902 | ) | (1,001,449 | ) | 1,001,449 | (a) | (1,763,902 | ) | ||||||||
Net property and equipment | 3,210,324 | 3,278,961 | 1,110,956 | 7,600,241 | ||||||||||||
Derivative assets | — | 47,694 | — | 47,694 | ||||||||||||
Goodwill | 138,830 | 60,606 | (60,606 | )(a) | ||||||||||||
1,089,338 | (a) | 1,228,168 | ||||||||||||||
Other assets | 52,343 | 112,887 | (37,708 | )(a) | ||||||||||||
87,806 | (b) | 215,328 | ||||||||||||||
Investment in Genesis | 77,606 | — | — | 77,606 | ||||||||||||
Total assets | $ | 3,883,260 | $ | 3,713,814 | $ | 2,190,218 | $ | 9,787,292 | ||||||||
Current liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 188,420 | $ | 142,541 | $ | — | $ | 330,961 | ||||||||
Oil and gas production payable | 86,038 | 16,658 | — | 102,696 | ||||||||||||
Derivative liabilities | 74,614 | 37,238 | — | 111,852 | ||||||||||||
Deferred revenue — Genesis | 4,070 | — | — | 4,070 | ||||||||||||
Deferred tax liability | — | 63,968 | (63,968 | )(a) | — | |||||||||||
Current maturities of long-term debt | 4,698 | — | — | 4,698 | ||||||||||||
Other current liabilities | — | 15,202 | — | 15,202 | ||||||||||||
Total current liabilities | 357,840 | 275,607 | (63,968 | ) | 569,479 | |||||||||||
Long-term liabilities | ||||||||||||||||
Long-term debt — Genesis | 250,681 | — | — | 250,681 | ||||||||||||
Long-term debt | 925,380 | 1,243,496 | 35,755 | (a) | ||||||||||||
(180,000 | )(c) | |||||||||||||||
1,226,552 | (d) | 3,251,183 | ||||||||||||||
Asset retirement obligations | 47,149 | 51,664 | (14,732 | )(a) | 84,081 | |||||||||||
Deferred revenue — Genesis | 16,796 | — | — | 16,796 | ||||||||||||
Deferred tax liability | 458,940 | 431,075 | 439,038 | (a) | 1,329,053 | |||||||||||
Derivative liabilities | 12,496 | 39,370 | — | 51,866 | ||||||||||||
Other long-term liabilities | 23,319 | 3,837 | — | 27,156 | ||||||||||||
Total long-term liabilities | 1,734,761 | 1,769,442 | 1,506,613 | 5,010,816 | ||||||||||||
Equity | ||||||||||||||||
Equity before noncontrolling interest | 1,790,659 | 1,394,047 | (1,394,047 | )(e) | ||||||||||||
1,947,216 | (f) | |||||||||||||||
(28,084 | )(g) | 3,709,791 | ||||||||||||||
Noncontrolling interest | — | 274,718 | (274,718 | )(e) | ||||||||||||
497,206 | (a) | 497,206 | ||||||||||||||
Total equity | 1,790,659 | 1,668,765 | 747,573 | 4,206,997 | ||||||||||||
Total liabilities and equity | $ | 3,883,260 | $ | 3,713,814 | $ | 2,190,218 | $ | 9,787,292 | ||||||||
F-4
Table of Contents
Statement of Operations for the Nine Months Ended September 30, 2009
Pro Forma | ||||||||||||||||||||
Denbury | Reclassification | Pro Forma | Denbury | |||||||||||||||||
Pro Forma | Encore | Adjustments | Adjustments | Pro Forma | ||||||||||||||||
(Note 4) | Historical | (Note 3) | (Note 3) | Combined | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||
Revenues and other income | ||||||||||||||||||||
Oil, natural gas and related product sales | $ | 538,112 | $ | — | $ | 461,823 | (a) | $ | — | $ | 999,935 | |||||||||
CO2 sales and transportation fees | 9,708 | — | — | — | 9,708 | |||||||||||||||
Interest income and other | 1,948 | 1,811 | 2,104 | (b) | — | 5,863 | ||||||||||||||
Oil revenue | — | 374,915 | (374,915 | )(a) | — | — | ||||||||||||||
Natural gas revenue | — | 86,908 | (86,908 | )(a) | — | — | ||||||||||||||
Marketing revenue | — | 2,008 | (2,008 | )(b) | — | — | ||||||||||||||
Total revenues | 549,768 | 465,642 | 96 | — | 1,015,506 | |||||||||||||||
Expenses | ||||||||||||||||||||
Lease operating expenses | 228,141 | 122,817 | 6,538 | (c) | — | |||||||||||||||
9,082 | (d) | — | 366,578 | |||||||||||||||||
Production taxes and marketing expenses | 19,946 | — | 38,992 | (d) | — | |||||||||||||||
12,101 | (e) | — | ||||||||||||||||||
1,612 | (f) | — | 72,651 | |||||||||||||||||
Transportation expense — Genesis | 6,143 | — | — | — | 6,143 | |||||||||||||||
CO2 operating expenses | 3,442 | — | — | — | 3,442 | |||||||||||||||
General and administrative | 79,828 | 40,743 | 1,377 | (g) | (5,142 | )(k) | 116,806 | |||||||||||||
Interest, net of amounts capitalized | 34,095 | 57,009 | — | 48,586 | (l) | 139,690 | ||||||||||||||
Depletion, depreciation and amortization | 163,275 | 217,361 | 1,798 | (h) | (12,289 | )(j) | 370,145 | |||||||||||||
Commodity derivative expense (income) | 177,061 | (741 | ) | — | — | 176,320 | ||||||||||||||
Production, ad valorem, and severance taxes | — | 48,074 | (48,074 | )(d) | — | — | ||||||||||||||
Exploration | — | 43,801 | — | (43,801 | )(i) | — | ||||||||||||||
Marketing | — | 1,612 | (1,612 | )(f) | — | — | ||||||||||||||
Other operating | — | 29,419 | 96 | (b) | (7,701 | )(i) | ||||||||||||||
(6,538 | )(c) | — | ||||||||||||||||||
(12,101 | )(e) | — | ||||||||||||||||||
(1,377 | )(g) | — | ||||||||||||||||||
(1,798 | )(h) | — | — | |||||||||||||||||
Total expenses | 711,931 | 560,095 | 96 | (20,347 | ) | 1,251,775 | ||||||||||||||
Equity in net income of Genesis | 5,802 | — | — | — | 5,802 | |||||||||||||||
Income (loss) before income taxes | (156,361 | ) | (94,453 | ) | — | 20,347 | (230,467 | ) | ||||||||||||
Income tax provision (benefit) | (60,362 | ) | (25,254 | ) | — | 7,630 | (m) | (77,986 | ) | |||||||||||
Consolidated net income (loss) | (95,999 | ) | (69,199 | ) | — | 12,717 | (152,481 | ) | ||||||||||||
Income attributable to noncontrolling interest | — | (9,669 | ) | — | (1,107 | )(n) | (10,776 | ) | ||||||||||||
Net income (loss) attributable to stockholders | $ | (95,999 | ) | $ | (59,530 | ) | $ | — | $ | 13,824 | $ | (141,705 | ) | |||||||
Net loss per common share — basic | $ | (0.39 | ) | $ | (0.38 | ) | ||||||||||||||
Net loss per common share — diluted | $ | (0.39 | ) | $ | (0.38 | ) | ||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Basic | 246,156 | 123,980 | (o) | 370,136 | ||||||||||||||||
Diluted | 246,156 | 123,980 | (o) | 370,136 |
F-5
Table of Contents
Statement of Operations for the Year Ended December 31, 2008
Pro Forma | ||||||||||||||||||||
Denbury | Reclassification | Pro Forma | Denbury | |||||||||||||||||
Pro Forma | Encore | Adjustments | Adjustments | Pro Forma | ||||||||||||||||
(Note 4) | Historical | (Note 3) | (Note 3) | Combined | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||
Revenues and other income | ||||||||||||||||||||
Oil, natural gas and related product sales | $ | 1,112,149 | $ | — | $ | 1,124,922 | (a) | $ | — | $ | 2,237,071 | |||||||||
CO2 sales and transportation fees | 13,858 | — | — | — | 13,858 | |||||||||||||||
Interest income and other | 4,834 | 3,898 | 10,972 | (b) | — | 19,704 | ||||||||||||||
Oil revenue | — | 897,443 | (897,443 | )(a) | — | — | ||||||||||||||
Natural gas revenue | — | 227,479 | (227,479 | )(a) | — | — | ||||||||||||||
Marketing revenue | — | 10,496 | (10,496 | )(b) | — | — | ||||||||||||||
Total revenues | 1,130,841 | 1,139,316 | 476 | — | 2,270,633 | |||||||||||||||
Expenses | ||||||||||||||||||||
Lease operating expense | 283,509 | 175,115 | 14,151 | (d) | — | 472,775 | ||||||||||||||
Production taxes and marketing expenses | 43,144 | — | 96,493 | (d) | — | |||||||||||||||
11,375 | (e) | — | ||||||||||||||||||
9,570 | (f) | — | 160,582 | |||||||||||||||||
Transportation expense — Genesis | 7,982 | — | — | — | 7,982 | |||||||||||||||
CO2 operating expenses | 4,216 | — | — | — | 4,216 | |||||||||||||||
General and administrative | 60,374 | 48,421 | 1,391 | (g) | (4,253 | )(k) | 105,933 | |||||||||||||
Interest, net of amounts capitalized | 29,003 | 73,173 | 55,349 | (l) | 157,525 | |||||||||||||||
Depletion, depreciation and amortization | 177,540 | 228,252 | 1,361 | (h) | (3,244 | )(j) | 403,909 | |||||||||||||
Commodity derivative income | (200,053 | ) | (346,236 | ) | — | — | (546,289 | ) | ||||||||||||
Abandoned acquisition cost | 30,601 | — | — | — | 30,601 | |||||||||||||||
Ceiling test write-down | 226,000 | — | — | — | 226,000 | |||||||||||||||
Production, ad valorem, and severance taxes | — | 110,644 | (110,644 | )(d) | — | — | ||||||||||||||
Impairment of long-lived assets | — | 59,526 | — | — | 59,526 | |||||||||||||||
Exploration | — | 39,207 | — | (39,207 | )(i) | — | ||||||||||||||
Marketing | — | 9,570 | (9,570 | )(f) | — | — | ||||||||||||||
Other operating | — | 14,959 | (11,375 | )(e) | (1,308 | )(i) | ||||||||||||||
(1,391 | )(g) | — | ||||||||||||||||||
(1,361 | )(h) | — | ||||||||||||||||||
476 | (b) | — | — | |||||||||||||||||
Total expenses | 662,316 | 412,631 | 476 | 7,337 | 1,082,760 | |||||||||||||||
Equity in net income of Genesis | 5,354 | — | — | — | 5,354 | |||||||||||||||
Income (loss) before income taxes | 473,879 | 726,685 | — | (7,337 | ) | 1,193,227 | ||||||||||||||
Income tax provision (benefit) | 178,699 | 241,621 | — | (2,752 | )(m) | 417,568 | ||||||||||||||
Consolidated net income (loss) | 295,180 | 485,064 | — | (4,585 | ) | 775,659 | ||||||||||||||
Income (loss) attributable to noncontrolling interest | — | 54,252 | — | (3,373 | )(n) | 50,879 | ||||||||||||||
Net income (loss) attributable to stockholders | $ | 295,180 | $ | 430,812 | $ | — | $ | (1,212 | ) | $ | 724,780 | |||||||||
Net income per common share — basic | $ | 1.21 | $ | 1.97 | ||||||||||||||||
Net income per common share — diluted | $ | 1.17 | $ | 1.92 | ||||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Basic | 243,935 | 123,980 | (o) | 367,915 | ||||||||||||||||
Diluted | 252,530 | 123,980 | (o) | 376,510 |
F-6
Table of Contents
Note 1 — | Basis of Presentation |
Sources: | ||||
Bridge Facility Borrowings(1) | $ | 400,000 | ||
Newly Committed Credit Facility Borrowings(2) | 826,552 | |||
Total Sources of Cash | $ | 1,226,552 | ||
Uses: | ||||
Fund cash portion of purchase price(3) | $ | 889,322 | ||
Repay a portion of Encore’s credit facilities | 180,000 | |||
Pay debt, equity and transaction costs | 117,640 | |||
Pay Encore’s severance costs | 39,590 | |||
Total Uses of Cash | $ | 1,226,552 | ||
(1) | The Bridge Facility will be a $1.25 billion facility. |
(2) | The Newly Committed Credit Facility will be a $1.6 billion facility. |
(3) | Includes payments to Encore option holders of $56.2 million. |
F-7
Table of Contents
F-8
Table of Contents
Note 2 — | Unaudited Pro forma Combined Balance Sheet |
• | changes in the estimated number of shares of Denbury common stock issued if Denbury’s common stock trades within the collar mechanism; | |
• | changes in the estimated fair value of the stock consideration transferred depending on its estimated fair value at the date of closing (i.e. last trading price); | |
• | changes in the estimated fair value of the noncontrolling interest of ENP resulting from changes in ENP’s common unit price at the merger closing date; | |
• | changes in the estimated fair values of Encore’s assets and liabilities as of the acquisition date, which could result from changes in expected future product prices, changes in reserve estimates as well as other changes; and | |
• | the tax basis of Encore’s assets and liabilities at the acquisition date. |
F-9
Table of Contents
Pro forma consideration and noncontrolling interest | ||||
Fair value of Denbury common stock to be issued(1) | $ | 1,948,966 | ||
Cash payment to Encore stockholders(2) | 889,322 | |||
Severance payments | 39,590 | |||
Pro forma consideration | 2,877,878 | |||
Fair value of noncontrolling interest of ENP(3) | 497,206 | |||
Pro forma consideration and noncontrolling interest of ENP(4) | $ | 3,375,084 | ||
Add: fair value of liabilities assumed | ||||
Accounts payable and accrued liabilities | $ | 142,541 | ||
Oil and gas production payable | 16,658 | |||
Current derivative liabilities | 37,238 | |||
Other current liabilities | 15,202 | |||
Long-term debt | 1,279,251 | |||
Asset retirement obligations | 36,932 | |||
Long-term derivative liabilities | 39,370 | |||
Long-term deferred tax liability | 870,113 | |||
Other long-term liabilities | 3,837 | |||
Amount attributable to liabilities assumed | $ | 2,441,142 | ||
Less: fair value of assets acquired | ||||
Cash | $ | 6,683 | ||
Trade and other receivables | 113,305 | |||
Current derivative assets | 51,974 | |||
Other current assets | 42,136 | |||
Oil and natural gas properties — proved | 3,200,679 | |||
Oil and natural gas properties — unevaluated | 1,176,000 | |||
Other plant, property and equipment | 13,238 | |||
Long-term derivative assets | 47,694 | |||
Other long-term assets | 75,179 | |||
Amount attributable to assets acquired | $ | 4,726,888 | ||
Goodwill | $ | 1,089,338 | ||
(1) | 124.0 million Denbury common shares at $15.72 per share (closing price as of January 13, 2010). |
(2) | 55.5 million Encore shares at $15.00 per share plus cash payment to stock option holders of $56.2 million. |
(3) | Represents approximate fair value of the noncontrolling interest of ENP assuming 45.3 million ENP common units are outstanding (based on ENP common units outstanding as of January 13, 2010) at $20.34 per ENP common unit (closing price as of January 13, 2010). As of September 30, 2009, Encore owned approximately 46% of outstanding ENP common units. |
(4) | The sum of the pro forma consideration and noncontrolling interest and the fair value of Encore’s long-term debt assumed totals approximately $4.7 billion, representing the approximate aggregate purchase price, based on currently available information. |
F-10
Table of Contents
Twenty-Day | ||||||
Volume-Weighted | ||||||
Average | Increase (Decrease) in | Increase (Decrease) in | ||||
Price of | Exchange | Aggregate Shares | Goodwill/Equity | |||
Denbury Stock | Ratio | (in thousands) | (in thousands) | |||
$13.29 | 2.6336 | 22,296 | $ 350,489 | |||
$16.91 | 2.0698 | (9,018) | $(141,766) |
Denbury Common Stock — $13.29 | Denbury Common Stock — $16.91 | |||||||||||||||
Nine Months Ended | Year Ended | Nine Months Ended | Year Ended | |||||||||||||
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net income (loss) per common share — basic | $ | (0.36 | ) | $ | 1.86 | $ | (0.39 | ) | $ | 2.02 | ||||||
Net income (loss) per common share — diluted | $ | (0.36 | ) | $ | 1.82 | $ | (0.39 | ) | $ | 1.97 | ||||||
Weighted average common shares outstanding (in thousands) | ||||||||||||||||
Basic | 392,432 | 390,211 | 361,118 | 358,897 | ||||||||||||
Diluted | 392,432 | 398,806 | 361,118 | 367,492 |
F-11
Table of Contents
• | allocate the sum of the estimated fair value of consideration transferred and the estimated fair value of the noncontrolling interest of ENP to the estimated fair value of assets acquired and liabilities assumed; | |
• | eliminate Encore’s historical goodwill and accumulated depreciation, depletion and amortization balances; |
• | eliminate deferred financing costs on a portion of Encore’s credit facilities; and |
• | record an increase in deferred tax liabilities primarily resulting from fair value adjustments to Encore’s oil and natural gas properties. Denbury will receive carryover tax basis in Encore’s assets and liabilities because the merger will not be a taxable transaction under the United States Internal Revenue Code. |
New Financing(1) | ||||
Bridge Facility ($1.25 billion facility) | $ | 400,000 | ||
Newly Committed Credit Facility ($1.6 billion facility) | 826,552 | |||
Total new financing | $ | 1,226,552 | ||
Denbury’s Existing Debt | ||||
9.75% Senior Subordinated Notes due 2016(2) | $ | 398,855 | ||
7.5% Senior Subordinated Notes due 2015(3) | 300,535 | |||
7.5% Senior Subordinated Notes due 2013(4) | 224,320 | |||
Pipeline financings | 250,744 | |||
Capital lease obligations | 6,305 | |||
Denbury’s existing debt | $ | 1,180,759 | ||
Encore’s Existing Debt | ||||
7.25% Senior Subordinated Notes due 2017(5) | $ | 150,750 | ||
9.5% Senior Subordinated Notes due 2016(6) | 237,938 | |||
6% Senior Subordinated Notes due 2015 | 300,000 | |||
6.25% Senior Subordinated Notes due 2014(7) | 150,563 | |||
ENP revolving credit facility | 260,000 | |||
Encore’s existing debt | $ | 1,099,251 | ||
Total combined debt | $ | 3,506,562 | ||
Less current obligations | (4,698 | ) | ||
Pro forma combined long-term debt(8) | $ | 3,501,864 | ||
(1) | If Denbury were to assume exercise of their contractual put option by holders of all of Encore’s Old Notes at 101% of par value and Denbury’s repurchase of all $600 million of those notes, funded through additional borrowings on Denbury’s Bridge Facility, long-term debt at September 30, 2009 would increase by approximately $17 million (see Note 1,Basis of Presentation — Effect of Modified Assumption on Repurchase of Encore Senior Subordinated Notes). |
(2) | Includes unamortized discount of $27.5 million. |
(3) | Includes unamortized premium of $0.5 million. |
F-12
Table of Contents
(4) | Includes unamortized discount of $0.7 million. |
(5) | Includes unamortized premium of $0.8 million. |
(6) | Includes unamortized premium of $12.9 million. |
(7) | Includes unamortized premium of $0.6 million. |
(8) | Includes Long-term debt – Genesis of $250.7 million. |
Denbury common shares issued | 123,980 | |||
Price of Denbury stock | $ | 15.72 | ||
Fair value of common stock issued | 1,948,966 | |||
Less stock-issuance costs | (1,750 | ) | ||
Net fair value of common stock issued | $ | 1,947,216 | ||
Note 3 — | Unaudited Pro forma Combined Statements of Operations |
F-13
Table of Contents
Nine Months Ended | Year Ended | |||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Decrease in interest due to paydown of Encore’s credit facility | $ | (6,628 | ) | $ | (21,646 | ) | ||
Increase in interest due to: | ||||||||
Denbury’s Newly Committed Credit Facility | 19,731 | 26,308 | ||||||
Denbury’s Bridge Facility | 26,970 | 35,960 | ||||||
Pro forma increase to cash interest expense | $ | 40,073 | $ | 40,622 | ||||
Decrease in amortization of deferred financing costs | $ | (2,652 | ) | $ | (3,118 | ) | ||
Increase in amortization of deferred financing costs due to: | ||||||||
Denbury’s Newly Committed Credit Facility | 9,680 | 13,786 | ||||||
Denbury’s Bridge Facility | 3,638 | 4,850 | ||||||
Change in discount/premium on Encore’s senior subordinated notes | (2,153 | ) | (791 | ) | ||||
Pro forma increase to noncash interest expense | $ | 8,513 | $ | 14,727 | ||||
Pro forma increase to interest expense | $ | 48,586 | $ | 55,349 | ||||
F-14
Table of Contents
Note 4 — | Denbury’s Unaudited Pro forma Condensed Consolidated Balance Sheet and Statements of Operations |
F-15
Table of Contents
Balance Sheet as of September 30, 2009
Denbury | Pro Forma | Denbury | ||||||||||
Historical | Adjustments | Pro Forma | ||||||||||
(In thousands) | ||||||||||||
Assets: | ||||||||||||
Cash and cash equivalents | $ | 21,689 | $ | 190,000 | (a) | $ | 211,689 | |||||
Trade, accrued production and other receivables, net | 168,931 | — | 168,931 | |||||||||
Derivative assets | 17,900 | — | 17,900 | |||||||||
Current deferred tax assets | 5,637 | — | 5,637 | |||||||||
214,157 | 190,000 | 404,157 | ||||||||||
Oil and natural gas properties | ||||||||||||
Proved | 3,468,060 | (210,000 | )(a) | 3,258,060 | ||||||||
Unevaluated | 213,170 | — | 213,170 | |||||||||
CO2 properties, equipment and pipelines | 1,422,981 | — | 1,422,981 | |||||||||
Other | 80,015 | — | 80,015 | |||||||||
Less accumulated depreciation, depletion and amortization | (1,763,902 | ) | — | (1,763,902 | ) | |||||||
Net property and equipment | 3,420,324 | (210,000 | ) | 3,210,324 | ||||||||
Goodwill | 138,830 | — | 138,830 | |||||||||
Other assets | 52,343 | — | 52,343 | |||||||||
Investment in Genesis | 77,606 | — | 77,606 | |||||||||
Total assets | $ | 3,903,260 | $ | (20,000 | ) | $ | 3,883,260 | |||||
Liabilities and Equity: | ||||||||||||
Accounts payable and accrued liabilities | $ | 188,420 | $ | — | $ | 188,420 | ||||||
Oil and gas production payable | 86,038 | — | 86,038 | |||||||||
Derivative liabilities | 74,614 | — | 74,614 | |||||||||
Deferred revenue — Genesis | 4,070 | — | 4,070 | |||||||||
Current maturities of long-term debt | 4,698 | — | 4,698 | |||||||||
Total current liabilities | 357,840 | — | 357,840 | |||||||||
Long-term debt — Genesis | 250,681 | — | 250,681 | |||||||||
Long-term debt | 945,380 | (20,000 | )(a) | 925,380 | ||||||||
Asset retirement obligations | 47,149 | — | 47,149 | |||||||||
Deferred revenue — Genesis | 16,796 | — | 16,796 | |||||||||
Deferred tax liability | 458,940 | 458,940 | ||||||||||
Derivative liabilities | 12,496 | — | 12,496 | |||||||||
Other | 23,319 | — | 23,319 | |||||||||
Total long-term liabilities | 1,754,761 | (20,000 | ) | 1,734,761 | ||||||||
Equity | 1,790,659 | — | 1,790,659 | |||||||||
Total liabilities and equity | $ | 3,903,260 | $ | (20,000 | ) | $ | 3,883,260 | |||||
F-16
Table of Contents
Statement of Operations for the Nine Months Ended September 30, 2009
Denbury | Pro Forma | Denbury | ||||||||||
Historical | Adjustments | Pro Forma | ||||||||||
(In thousands) | ||||||||||||
Revenues and other income | ||||||||||||
Oil, natural gas and related product sales | $ | 600,942 | $ | (62,830 | )(b) | $ | 538,112 | |||||
CO2 sales and transportation fees | 9,708 | — | 9,708 | |||||||||
Interest income and other | 1,948 | — | 1,948 | |||||||||
Total revenues | 612,598 | (62,830 | ) | 549,768 | ||||||||
Expenses | ||||||||||||
Lease operating expenses | 241,908 | (13,767 | )(c) | 228,141 | ||||||||
Production taxes and marketing expenses | 24,294 | (4,348 | )(c) | 19,946 | ||||||||
Transportation expense — Genesis | 6,143 | — | 6,143 | |||||||||
CO2 operating expenses | 3,442 | — | 3,442 | |||||||||
General and administrative | 79,828 | — | 79,828 | |||||||||
Interest, net of amounts capitalized | 36,960 | (2,865 | )(d) | 34,095 | ||||||||
Depletion, depreciation and amortization | 177,145 | (13,870 | )(c) | 163,275 | ||||||||
Commodity derivative expense | 177,061 | — | 177,061 | |||||||||
Total expenses | 746,781 | (34,850 | ) | 711,931 | ||||||||
Equity in net income of Genesis | 5,802 | — | 5,802 | |||||||||
Loss before income taxes | (128,381 | ) | (27,980 | ) | (156,361 | ) | ||||||
Income tax benefit | (49,729 | ) | (10,633 | )(e) | (60,362 | ) | ||||||
Net loss | $ | (78,652 | ) | $ | (17,347 | ) | $ | (95,999 | ) | |||
Net loss per common share — basic | $ | (0.32 | ) | $ | (0.39 | ) | ||||||
Net loss per common share — diluted | $ | (0.32 | ) | $ | (0.39 | ) | ||||||
Weighted average common shares outstanding | ||||||||||||
Basic | 246,156 | 246,156 | ||||||||||
Diluted | 246,156 | 246,156 |
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Statement of Operations for the Year Ended December 31, 2008
Denbury | ||||||||||||
Denbury | Pro Forma | Historical | ||||||||||
Historical | Adjustments | Pro Forma | ||||||||||
(In thousands) | ||||||||||||
Revenues and other income | ||||||||||||
Oil, natural gas and related product sales | $ | 1,347,010 | $ | (234,861 | )(b) | $ | 1,112,149 | |||||
CO2 sales and transportation fees | 13,858 | — | 13,858 | |||||||||
Interest income and other | 4,834 | — | 4,834 | |||||||||
Total revenues | 1,365,702 | (234,861 | ) | 1,130,841 | ||||||||
Expenses | ||||||||||||
Lease operating expense | 307,550 | (24,041 | )(c) | 283,509 | ||||||||
Production taxes and marketing expenses | 55,770 | (12,626 | )(c) | 43,144 | ||||||||
Transportation expense — Genesis | 7,982 | — | 7,982 | |||||||||
CO2 operating expenses | 4,216 | — | 4,216 | |||||||||
General and administrative | 60,374 | — | 60,374 | |||||||||
Interest, net of amounts capitalized | 32,596 | (3,593 | )(d) | 29,003 | ||||||||
Depletion, depreciation and amortization | 221,792 | (44,252 | )(c) | 177,540 | ||||||||
Commodity derivative income | (200,053 | ) | — | (200,053 | ) | |||||||
Abandoned acquisition cost | 30,601 | — | 30,601 | |||||||||
Write-down of oil and natural gas properties | 226,000 | — | 226,000 | |||||||||
Total expenses | 746,828 | (84,512 | ) | 662,316 | ||||||||
Equity in net income of Genesis | 5,354 | — | 5,354 | |||||||||
Income (loss) before income taxes | 624,228 | (150,349 | ) | 473,879 | ||||||||
Income tax provision (benefit) | 235,832 | (57,133 | )(e) | 178,699 | ||||||||
Net income (loss) | $ | 388,396 | $ | (93,216 | ) | $ | 295,180 | |||||
Net income per common share — basic | $ | 1.59 | $ | 1.21 | ||||||||
Net income per common share — diluted | $ | 1.54 | $ | 1.17 | ||||||||
Weighted average common shares outstanding | ||||||||||||
Basic | 243,935 | 243,935 | ||||||||||
Diluted | 252,530 | 252,530 |
(a) | Represents the increase in cash of $190 million, reduction in debt of $20 million and reduction in oil and natural gas properties of $210 million resulting from the sale of the remaining 40% of Denbury’s Barnett Shale natural gas assets in December 2009. Denbury’s bank debt outstanding as of September 30, 2009 was $20 million. As such, the pro forma adjustment reflects the paydown of this $20 million of bank debt. However, in the fourth quarter of 2009 Denbury incurred additional bank debt and utilized the entire $210 million of Barnett Shale proceeds to pay down bank debt. |
(b) | Represents the decrease in revenues from the sale of oil and natural gas resulting from the disposal of Denbury’s Barnett Shale natural gas assets. |
(c) | Represents the reduction in lease operating expense, production expenses and depletion attributable to the disposal of Denbury’s Barnett Shale natural gas assets. Denbury’s estimated pro forma oil and natural gas depletion rate was $13.16 per BOE for the nine months ended September 30, 2009 and $12.03 per BOE for the year ended December 31, 2008. Denbury’s historical oil and natural gas depletion rate was $11.44 per BOE for the nine months ended September 30, 2009 and $11.55 per BOE for the year ended December 31, 2008. |
(d) | Denbury utilized the proceeds from the sale of its 60% interest in its Barnett Shale natural gas assets inmid-2009 to repay a portion of its credit facility. Denbury used the proceeds from the sale of the remaining 40% of its interest in its Barnett Shale natural gas assets in December 2009 to reduce outstanding bank debt. The adjustment to interest expense reflects the reduction in interest expense as if the repayments occurred on January 1, 2008. |
(e) | Represents the income tax effect of the pro forma adjustments at Denbury’s approximate statutory tax rate of 38%. |
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by and between
ENCORE ACQUISITION COMPANY
and
DENBURY RESOURCES INC.
Executed on October 31, 2009
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Page | ||||||
ARTICLE I THE MERGER | A-1 | |||||
Section 1.1 | The Merger | A-1 | ||||
Section 1.2 | Effective Time; Closing | A-1 | ||||
Section 1.3 | Governing Documents | A-2 | ||||
Section 1.4 | Directors and Officers | A-2 | ||||
ARTICLE II CONVERSION OF REDFISH COMMON STOCK | A-2 | |||||
Section 2.1 | Equity Interests of Redfish and Dorado | A-2 | ||||
Section 2.2 | Exchange of Shares | A-5 | ||||
Section 2.3 | Certain Adjustments | A-8 | ||||
Section 2.4 | Appraisal Rights | A-8 | ||||
Section 2.5 | Associated Rights | A-9 | ||||
ARTICLE III REPRESENTATIONS AND WARRANTIES OF REDFISH | A-9 | |||||
Section 3.1 | Organization and Qualification; Subsidiaries | A-9 | ||||
Section 3.2 | Organizational Documents | A-10 | ||||
Section 3.3 | Capitalization | A-10 | ||||
Section 3.4 | Authority; Due Authorization; Binding Agreement; Approval | A-11 | ||||
Section 3.5 | No Violation; Consents | A-11 | ||||
Section 3.6 | Compliance | A-12 | ||||
Section 3.7 | SEC Filings; Financial Statements; Sarbanes-Oxley; Internal Accounting Controls; Disclosure Controls and Procedures | A-12 | ||||
Section 3.8 | Absence of Undisclosed Liabilities | A-13 | ||||
Section 3.9 | Absence of Certain Changes or Events | A-13 | ||||
Section 3.10 | Litigation | A-14 | ||||
Section 3.11 | Employee Benefit Plans | A-14 | ||||
Section 3.12 | Information Supplied | A-17 | ||||
Section 3.13 | Properties, Oil and Gas Matters | A-17 | ||||
Section 3.14 | Taxes | A-19 | ||||
Section 3.15 | Environmental Matters | A-21 | ||||
Section 3.16 | Redfish Intellectual Property | A-22 | ||||
Section 3.17 | Derivative Transactions and Hedging | A-22 | ||||
Section 3.18 | FERC Jurisdiction | A-22 | ||||
Section 3.19 | Insurance | A-23 | ||||
Section 3.20 | Labor Matters | A-23 | ||||
Section 3.21 | Transactions with Certain Persons | A-23 | ||||
Section 3.22 | Material Contracts | A-24 | ||||
Section 3.23 | Opinion of Financial Advisor | A-24 | ||||
Section 3.24 | Brokers | A-24 | ||||
Section 3.25 | State Takeover Laws | A-25 | ||||
Section 3.26 | Rights Agreement | A-25 | ||||
Section 3.27 | Required Redfish Stockholder Vote | A-25 | ||||
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DORADO | A-25 | |||||
Section 4.1 | Corporate Organization | A-25 |
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Section 4.2 | Organizational Documents | A-25 | ||||
Section 4.3 | Capitalization | A-25 | ||||
Section 4.4 | Authority; Due Authorization; Binding Agreement; Approval | A-26 | ||||
Section 4.5 | No Violation; Consents | A-27 | ||||
Section 4.6 | Compliance | A-27 | ||||
Section 4.7 | SEC Filings; Financial Statements; Sarbanes-Oxley; Internal Accounting Controls; Disclosure Controls and Procedures | A-28 | ||||
Section 4.8 | Absence of Undisclosed Liabilities | A-28 | ||||
Section 4.9 | Absence of Certain Changes or Events | A-29 | ||||
Section 4.10 | Litigation | A-29 | ||||
Section 4.11 | Employee Benefit Plans | A-29 | ||||
Section 4.12 | Information Supplied | A-30 | ||||
Section 4.13 | Properties, Oil and Gas Matters | A-30 | ||||
Section 4.14 | Taxes | A-32 | ||||
Section 4.15 | Environmental Matters | A-33 | ||||
Section 4.16 | Dorado Intellectual Property | A-34 | ||||
Section 4.17 | Derivative Transactions and Hedging | A-34 | ||||
Section 4.18 | FERC Jurisdiction | A-34 | ||||
Section 4.19 | Insurance | A-34 | ||||
Section 4.20 | Labor Matters | A-35 | ||||
Section 4.21 | Transactions with Certain Persons | A-35 | ||||
Section 4.22 | Material Contracts | A-35 | ||||
Section 4.23 | Opinion of Financial Advisor | A-36 | ||||
Section 4.24 | Brokers | A-36 | ||||
Section 4.25 | Required Dorado Stockholder Vote | A-36 | ||||
Section 4.26 | Ownership of Shares of Redfish Common Stock | A-36 | ||||
Section 4.27 | Financing | A-36 | ||||
ARTICLE V CONDUCT OF BUSINESS | A-37 | |||||
Section 5.1 | Redfish Conduct of Business | A-37 | ||||
Section 5.2 | Dorado Conduct of Business | A-39 | ||||
ARTICLE VI ADDITIONAL AGREEMENTS | A-40 | |||||
Section 6.1 | Proxy Statement; Stockholders Meeting | A-40 | ||||
Section 6.2 | Access to Information; Confidentiality | A-42 | ||||
Section 6.3 | No Solicitation | A-43 | ||||
Section 6.4 | Directors’ and Officers’ Indemnification and Insurance | A-45 | ||||
Section 6.5 | Notification of Certain Matters | A-47 | ||||
Section 6.6 | Further Action; Best Efforts | A-47 | ||||
Section 6.7 | Public Announcements | A-48 | ||||
Section 6.8 | Employee Matters | A-48 | ||||
Section 6.9 | Section 16 Matters | A-50 | ||||
Section 6.10 | Redfish Indebtedness | A-50 | ||||
Section 6.11 | Financing | A-50 | ||||
Section 6.12 | Authorization for Shares and Stock Exchange Listing | A-51 |
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Section 6.13 | Rights Agreement | A-51 | ||||
Section 6.14 | State Takeover Laws | A-52 | ||||
Section 6.15 | Stockholder Litigation | A-52 | ||||
Section 6.16 | Reorganization | A-52 | ||||
Section 6.17 | Comfort Letters | A-52 | ||||
Section 6.18 | Financing Cooperation | A-53 | ||||
ARTICLE VII CONDITIONS TO THE MERGER | A-54 | |||||
Section 7.1 | Conditions to the Obligations of Each Party to Effect the Merger | A-54 | ||||
Section 7.2 | Additional Conditions to the Obligation of Redfish | A-55 | ||||
Section 7.3 | Additional Conditions to the Obligations of Dorado | A-56 | ||||
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER | A-56 | |||||
Section 8.1 | Termination | A-56 | ||||
Section 8.2 | Effect of Termination | A-57 | ||||
Section 8.3 | Fees and Expenses | A-58 | ||||
Section 8.4 | Amendment | A-60 | ||||
Section 8.5 | Waiver | A-60 | ||||
ARTICLE IX GENERAL PROVISIONS | A-60 | |||||
Section 9.1 | Survival | A-60 | ||||
Section 9.2 | Scope of Representations and Warranties | A-60 | ||||
Section 9.3 | Notices | A-61 | ||||
Section 9.4 | Certain Definitions | A-62 | ||||
Section 9.5 | Severability | A-65 | ||||
Section 9.6 | Entire Agreement; Assignment | A-65 | ||||
Section 9.7 | Parties in Interest | A-65 | ||||
Section 9.8 | Specific Performance | A-65 | ||||
Section 9.9 | Governing Law; Jurisdiction and Venue | A-65 | ||||
Section 9.10 | Waiver of Jury Trial | A-66 | ||||
Section 9.11 | Headings | A-66 | ||||
Section 9.12 | Interpretation | A-66 | ||||
Section 9.13 | Counterparts | A-66 |
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Defined Term | Location | |||
2000 Stock Plan | Section 2.1(f)(i) | |||
2008 Stock Plan | Section 2.1(f)(i) | |||
Acceptable Confidentiality Agreement | Section 6.3(d) | |||
Acquisition Agreement | Section 6.3(a) | |||
Acquisition Proposal | Section 6.3(d) | |||
Action | Section 3.11(i) | |||
affiliate | Section 9.4(a) | |||
Affiliate Transaction | Section 3.21 | |||
Agreement | Preamble | |||
Alternate Financing | Section 6.11(c) | |||
Available Cash Election Amount | Section 2.1(a)(ii) | |||
beneficial owner | Section 9.4(b) | |||
Bonus Plan Participant | Section 6.8(c) | |||
Book Entry Shares | Section 2.1(b)(i) | |||
business day | Section 9.4(c) | |||
Cash Election Amount | Section 2.1(a)(ii) | |||
Cash Election Share | Section 2.1(a)(ii) | |||
Cash Fraction | Section 2.1(a)(ii) | |||
Certificates | Section 2.1(c) | |||
Certificate of Merger | Section 1.2 | |||
Change of Law | Section 9.4(d) | |||
Closing | Section 1.2 | |||
Closing Date | Section 1.2 | |||
Code | Section 2.2(j) | |||
Commitment Letter | Section 4.27 | |||
Confidentiality Agreement | Section 6.2(c) | |||
control | Section 9.4(e) | |||
controlled by | Section 9.4(e) | |||
Controlled Group Liability | Section 3.11(a)(i) | |||
Converted Restricted Shares | Section 6.8(c)(ii)(B) | |||
Determination Date | Section 8.3(c)(i) | |||
Derivative Transactions | Section 3.17 | |||
DGCL | Section 1.1 | |||
Dissenting Shares | Section 2.4 | |||
Dissenting Stockholder | Section 2.4 | |||
Dorado | Preamble | |||
Dorado Adverse Recommendation Change | Section 6.1(f) | |||
Dorado Board of Directors | Section 4.4(d) | |||
Dorado Common Stock | Section 2.1(a)(i) | |||
Dorado Employees | Section 4.20 | |||
Dorado Financial Advisor | Section 4.23 | |||
Dorado Intellectual Property | Section 4.16(a) | |||
Dorado Material Contracts | Section 4.22 |
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Defined Term | Location | |||
Dorado Material Adverse Effect | Section 9.4(h) | |||
Dorado Material Subsidiaries | Section 4.1 | |||
Dorado Notice | Section 6.1(f) | |||
Dorado Oil and Gas Agreements | Section 4.13(a) | |||
Dorado Plans | Section 3.11(a)(iv) | |||
Dorado Preferred Stock | Section 4.3(a) | |||
Dorado Recommendation | Section 6.1(f) | |||
Dorado Reserve Reports | Section 4.13(b) | |||
Dorado SEC Reports Section | Section 4.7(a) | |||
Dorado Share Value | Section 2.1(a)(i) | |||
Dorado Stockholder Approval | Section 4.25 | |||
Dorado Stockholders | Section 4.4(d) | |||
Dorado Stockholders Meeting | Section 6.1(f) | |||
Dorado Subsidiaries | Section 4.1 | |||
Dorado Subsidiary | Section 4.1 | |||
Effective Time | Section 1.2 | |||
Electing Stockholder | Section 2.2(b) | |||
Election Deadline | Section 2.1(b)(ii) | |||
Election Form | Section 2.1(b)(i) | |||
Election Form Record Date | Section 2.1(b)(i) | |||
Employee Severance Protection Plan | Section 5.1(f) | |||
Environmental Laws | Section 3.15(a) | |||
ERISA | Section 3.11(a)(ii) | |||
ERISA Affiliate | Section 3.11(a)(iii) | |||
Exchange Act | Section 3.5(b) | |||
Exchange Agent | Section 2.2(a) | |||
Exchange Fund | Section 2.2(a) | |||
Exchange Ratio | Section 2.1(a)(iii) | |||
Expenses | Section 8.3(f) | |||
FERC | Section 3.18 | |||
Financing | Section 6.11(a) | |||
Financing Sources | Section 4.27 | |||
Financing Termination Fee | Section 8.3(c)(i) | |||
Funds | Section 4.27 | |||
GAAP | Section 3.7(b) | |||
good and defensible title | Section 3.13(a) | |||
Governmental Authority | Section 9.4(f) | |||
GP Interest | Section 3.3(b) | |||
HSR Act | Section 3.5(b) | |||
Hydrocarbons | Section 3.13(a) | |||
Indemnified Parties Section | Section 6.4(b) | |||
Indemnified Party | Section 6.4(b) | |||
Intervening Event | Section 6.1(f) | |||
IRS | Section 3.11(b) |
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Defined Term | Location | |||
Joint Proxy Statement | Section 3.12 | |||
Letter of Transmittal | Section 2.2(b) | |||
Mailing Date | Section 2.1(b)(i) | |||
Merger | Recitals | |||
Merger Consideration | Section 2.1(a) | |||
Mixed Consideration Election Share | Section 2.1(a)(i) | |||
Mixed Election Stock Exchange Ratio | Section 2.1(a)(i) | |||
MLP | Section 3.3(b) | |||
MLP General Partner | Section 3.3(b) | |||
MLP SEC Reports | Section 3.7(a) | |||
Multiple Employer Plan | Section 3.11(c) | |||
National Securities Exchange | Section 9.4(g) | |||
New Commitment Letter | Section 6.11(c) | |||
NGA | Section 3.18 | |||
Non-Election Shares | Section 2.1(b)(ii) | |||
NYSE | Section 2.1(a)(i) | |||
Oil and Gas Properties | Section 3.13(a) | |||
Option | Section 2.1(f)(i) | |||
Outside Date | Section 8.1(b)(i) | |||
Partnership Agreement | Section 3.3(b) | |||
Per Share Cash Election Consideration | Section 2.1(a)(ii) | |||
Per Share Mixed Consideration | Section 2.1(a)(i) | |||
Per Share Mixed Election Cash Amount | Section 2.1(a)(i) | |||
Per Share Stock Election Consideration | Section 2.1(a)(iii) | |||
Permitted Encumbrances | Section 9.4(i) | |||
person | Section 9.4(j) | |||
Plans | Section 3.11(a)(iv) | |||
Redfish | Preamble | |||
Redfish 2009 Bonus Restricted Shares | Section 6.8(c)(ii) | |||
Redfish 401(k) Plan | Section 3.11(b) | |||
Redfish Adverse Recommendation Change | Section 6.3(b) | |||
Redfish Board of Directors | Section 3.4(d) | |||
Redfish Common Stock | Recitals | |||
Redfish Employees | Section 3.20 | |||
Redfish Excluded Shares | Section 2.1(c) | |||
Redfish Financial Advisor | Section 3.23 | |||
Redfish Intellectual Property | Section 3.16(a) | |||
Redfish Material Adverse Effect | Section 9.4(k) | |||
Redfish Material Contracts | Section 3.22(a) | |||
Redfish Material Subsidiaries | Section 3.1 | |||
Redfish Notice | Section 6.3(b) | |||
Redfish Oil and Gas Agreements | Section 3.13(a) | |||
Redfish Plans | Section 3.11(a)(iv) | |||
Redfish Preferred Stock | Section 3.3(a) |
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Defined Term | Location | |||
Redfish Recommendation | Section 6.1(e) | |||
Redfish Reserve Reports | Section 3.13(b) | |||
Redfish Restricted Shares | Section 2.1(f)(ii) | |||
Redfish Rights | Section 2.5 | |||
Redfish SEC Reports | Section 3.7(a) | |||
Redfish Stockholder Approval | Section 3.27 | |||
Redfish Stockholders | Section 3.4(d) | |||
Redfish Stockholders Meeting | Section 6.1(e) | |||
Redfish Subsidiaries | Section 3.1 | |||
Redfish Subsidiary | Section 3.1 | |||
Redfish Subsidiary Shares | Section 2.1(c) | |||
Registration Statement | Section 3.12 | |||
Requirement of Law | Section 9.4(l) | |||
Returns | Section 3.14(a) | |||
Rights Agreement | Section 2.5 | |||
Sarbanes-Oxley Act | Section 3.7(c) | |||
SEC | Section 3.7(a) | |||
Securities Act | Section 3.5(b) | |||
Stock Election Share | Section 2.1(a)(iii) | |||
subsidiaries | Section 9.4(m) | |||
subsidiary | Section 9.4(m) | |||
Superior Proposal | Section 6.3(d) | |||
Surviving Entity | Section 1.1 | |||
Taxes | Section 3.14(p) | |||
under common control with | Section 9.4(e) | |||
WARN Act | Section 3.20 |
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5100 Tennyson, Suite 1200
Plano, TX 75024
Attention: Phil Rykhoek, Chief Executive Officer
Telephone:(972) 673-2050
Fax:(972) 673-2051
E-mail: phil.rykhoek@denbury.com
1000 Louisiana, Suite 2000
Houston, TX 77002
Attention: Donald W. Brodsky
Telephone:(713) 646-1335
Fax:(713) 751-1717
E-mail: dbrodsky@bakerlaw.com
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777 Main Street, Suite 1400
Forth Worth, TX 76102
Attention: Jon S. Brumley, President and Chief Executive Officer
Telephone:(817) 339-0902
Fax:(817) 339-0859
E-mail: jsbrumley@encoreacq.com
One Shell Plaza
910 Louisiana
Houston, Texas77002-4995
Attention: Sean T. Wheeler
Stephen A. Massad
Telephone:(713) 229-1234
Fax: (713)229-1522
E-mail: sean.wheeler@bakerbotts.com
stephen.massad@bakerbotts.com
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By: | /s/ Phil Rykhoek Phil Rykhoek Chief Executive Officer |
By: | /s/ Jon S. Brumley Jon S. Brumley President and Chief Executive Officer |
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745 Seventh Avenue New York, NY 10019 United States |
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By: | /s/ Chris Watson Name: Chris Watson Title: Managing Director |
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ITEM 20. | INDEMNIFICATION OF DIRECTORS AND OFFICERS |
• | we may advance expenses, including reasonable attorneys’ fees, to individuals entitled to indemnification; | |
• | we may not take any action to diminish or reduce the rights of individual entitled to indemnification after the occurrence of the events to which the indemnification relates; and | |
• | any person entitled to indemnification by us may bring suit against us if we do not pay them within 30 days after receiving a written demand for indemnification and, if successful, such person may recover their expenses for such suit, including attorneys’ fees, from us. In the suit, we will have the burden of proving any defense that the person is not eligible for indemnification under the DGCL. |
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ITEM 21. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
2 | .1* | Agreement and Plan of Merger, dated October 31, 2009, by and between Denbury Resources Inc. and Encore Acquisition Company (attached as Annex A to the joint proxy statement/prospectus that is part of this Registration Statement). | ||
3 | .1 | Restated Certificate of Incorporation of Denbury Resources Inc., filed with the Delaware Secretary of State on December 29, 2003 (incorporated by reference to Exhibit 3.1 of Denbury’s Form 8-K filed with the SEC on December 29, 2003. | ||
3 | .2 | Certificate of Amendment of Restated Certificate of Incorporation of Denbury Resources Inc., filed with the Delaware Secretary of State on October 20, 2006 (incorporated by reference to Exhibit 3(a) of Denbury’s Form 10-Q filed with the SEC on November 8, 2005). | ||
3 | .3 | Certificate of Amendment of Restated Certificate of Incorporation of Denbury Resources Inc., filed with the Delaware Secretary of State on November 21, 2007 (incorporated by reference to Exhibit 3(c) of Denbury’s Form 10-K filed with the SEC on February 29, 2008). | ||
3 | .4 | Bylaws of Denbury Resources Inc., a Delaware corporation, adopted December 29, 2003 (incorporated by reference to Exhibit 3.2 of Denbury’s Form 8-K filed with the SEC on December 29, 2003). | ||
4 | .1 | Indenture for $420 million of 9.75% Senior Subordinated Notes due 2016 among Denbury Resources Inc., certain of its subsidiaries, and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 of Denbury’s Form 8-K filed with the SEC on February 17, 2009). | ||
4 | .2 | Indenture for $150 million of 7.5% Senior Subordinated Notes due 2015 among Denbury Resources Inc., certain of its subsidiaries, and JP Morgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.1 of Denbury’s Form 8-K filed with the SEC on December 9, 2005). | ||
4 | .3 | Indenture for $225 million of 7.5% Senior Subordinated Notes due 2013 among Denbury Resources Inc., certain of its subsidiaries and JP Morgan Chase Bank as trustee, dated March 25, 2003 (incorporated by reference to Exhibit 4(a) of Denbury’s Registration Statement No. 333-105233-04 on Form S-4 filed with the SEC on May 14, 2003). | ||
4 | .4 | First Supplemental Indenture for $225 million of 7.5% Senior Subordinated Notes due 2013 dated as of December 29, 2003, among Denbury Resources Inc., certain of its subsidiaries, and the JP Morgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.1 of Denbury’s Form 8-K filed with the SEC on December 29, 2003). | ||
4 | .5 | First Supplemental Indenture for $150 million of 7.5% Senior Subordinated Notes due 2015, dated April 3, 2008, between Denbury Resources Inc., as issuer, and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 of Denbury’s Form 8-K filed with the SEC on April 3, 2007). | ||
5 | .1* | Opinion of Baker & Hostetler LLP. | ||
8 | .1* | Opinion of Baker & Hostetler LLP regarding tax matters. | ||
8 | .2* | Opinion of Baker Botts L.L.P. regarding tax matters. | ||
23 | .1* | Consent of Baker & Hostetler LLP (included in the opinion filed as Exhibit 5.1). | ||
23 | .2* | Consent of Baker & Hostetler LLP (included in the opinion filed as Exhibit 8.1). | ||
23 | .3* | Consent of Baker Botts L.L.P. (included in the opinion filed as Exhibit 8.2). | ||
23 | .4* | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm for Denbury Resources Inc. | ||
23 | .5* | Consent of Ernst & Young LLP, independent registered public accounting firm for Encore Acquisition Company. | ||
23 | .6* | Consent of DeGolyer and MacNaughton, independent petroleum engineering firm for Denbury Resources Inc. | ||
23 | .7* | Consent of Miller and Lents, Ltd., independent petroleum engineering firm for Encore Acquisition Company. | ||
24 | .1** | Powers of Attorney (included on the signature page of this Registration Statement onForm S-4). |
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99 | .1* | Form of Proxy Card for Denbury Resources Inc.’s Special Meeting. | ||
99 | .2* | Form of Proxy Card for Encore Acquisition Company’s Special Meeting. | ||
99 | .3* | Consent of Barclays Capital Inc. | ||
99 | .4* | Consent of J.P. Morgan Securities Inc. | ||
99 | .5* | Form of Election Form and related instruments. |
* | Filed herewith. |
** | Previously filed. |
ITEM 22. | UNDERTAKINGS |
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By: | /s/ Mark C. Allen |
Signature | Title | Date | ||||
/s/ Phil Rykhoek Phil Rykhoek | Chief Executive Officer (Principal Executive Officer) | January 25, 2010 | ||||
/s/ Mark C. Allen Mark C. Allen | Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | January 25, 2010 | ||||
/s/ Alan Rhoades Alan Rhoades | Vice President — Accounting (Principal Accounting Officer) | January 25, 2010 | ||||
/s/ Ronald G. Greene* Ronald G. Greene | Director | January 25, 2010 | ||||
/s/ Gareth Roberts* Gareth Roberts | Director | January 25, 2010 | ||||
/s/ David I. Heather* David I. Heather | Director | January 25, 2010 | ||||
/s/ Randy Stein* Randy Stein | Director | January 25, 2010 | ||||
/s/ Wieland F. Wettstein* Wieland F. Wettstein | Director | January 25, 2010 | ||||
/s/ Gregory L. McMichael* Gregory L. McMichael | Director | January 25, 2010 |
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Signature | Title | Date | ||||
/s/ Michael L. Beatty* Michael L. Beatty | Director | January 25, 2010 | ||||
/s/ Michael B. Decker* Michael B. Decker | Director | January 25, 2010 | ||||
/s/ Mark C. Allen *Mark C. Allen Attorney-in-Fact pursuant to power of attorney contained in original filing of the Registration Statement. |
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Exhibit | ||||
Number | Description | |||
2 | .1* | Agreement and Plan of Merger, dated October 31, 2009, by and between Denbury Resources Inc. and Encore Acquisition Company (attached as Annex A to the joint proxy statement/prospectus that is part of this Registration Statement). | ||
3 | .1 | Restated Certificate of Incorporation of Denbury Resources Inc., filed with the Delaware Secretary of State on December 29, 2003 (incorporated by reference to Exhibit 3.1 of Denbury’s Form 8-K filed with the SEC on December 29, 2003). | ||
3 | .2 | Certificate of Amendment of Restated Certificate of Incorporation of Denbury Resources Inc., filed with the Delaware Secretary of State on October 20, 2006 (incorporated by reference to Exhibit 3(a) of Denbury’s Form 10-Q filed with the SEC on November 8, 2005). | ||
3 | .3 | Certificate of Amendment of Restated Certificate of Incorporation of Denbury Resources Inc., filed with the Delaware Secretary of State on November 21, 2007 (incorporated by reference to Exhibit 3(c) of Denbury’s Form 10-K filed with the SEC on February 29, 2008). | ||
3 | .4 | Bylaws of Denbury Resources Inc., a Delaware corporation, adopted December 29, 2003 (incorporated by reference to Exhibit 3.2 of Denbury’s Form 8-K filed with the SEC on December 29, 2003). | ||
4 | .1 | Indenture for $420 million of 9.75% Senior Subordinated Notes due 2016 among Denbury Resources Inc., certain of its subsidiaries, and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 of Denbury’s Form 8-K filed with the SEC on February 17, 2009). | ||
4 | .2 | Indenture for $150 million of 7.5% Senior Subordinated Notes due 2015 among Denbury Resources Inc., certain of its subsidiaries, and JP Morgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.1 of Denbury’s Form 8-K filed with the SEC on December 9, 2005). | ||
4 | .3 | Indenture for $225 million of 7.5% Senior Subordinated Notes due 2013 among Denbury Resources Inc., certain of its subsidiaries and JP Morgan Chase Bank as trustee, dated March 25, 2003 (incorporated by reference to Exhibit 4(a) of Denbury’s Registration Statement No. 333-105233- 04 on Form S-4 filed with the SEC on May 14, 2003). | ||
4 | .4 | First Supplemental Indenture for $225 million of 7.5% Senior Subordinated Notes due 2013 dated as of December 29, 2003, among Denbury Resources Inc., certain of its subsidiaries, and the JP Morgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.1 of Denbury’s Form 8-K filed with the SEC on December 29, 2003). | ||
4 | .5 | First Supplemental Indenture for $150 million of 7.5% Senior Subordinated Notes due 2015, dated April 3, 2008, between Denbury Resources Inc., as issuer, and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 of Denbury’s Form 8-K filed with the SEC on April 3, 2007). | ||
5 | .1* | Opinion of Baker & Hostetler LLP. | ||
8 | .1* | Opinion of Baker & Hostetler LLP regarding tax matters. | ||
8 | .2* | Opinion of Baker Botts L.L.P. regarding tax matters. | ||
23 | .1* | Consent of Baker & Hostetler LLP (included in the opinion filed as Exhibit 5.1). | ||
23 | .2* | Consent of Baker & Hostetler LLP (included in the opinion filed as Exhibit 8.1). | ||
23 | .3* | Consent of Baker Botts L.L.P. (included in the opinion filed as Exhibit 8.2). | ||
23 | .4* | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm for Denbury Resources Inc. | ||
23 | .5* | Consent of Ernst & Young LLP, independent registered public accounting firm for Encore Acquisition Company. | ||
23 | .6* | Consent of DeGolyer and MacNaughton, independent petroleum engineering firm for Denbury Resources Inc. | ||
23 | .7* | Consent of Miller and Lents, Ltd., independent petroleum engineering firm for Encore Acquisition Company. |
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Exhibit | ||||
Number | Description | |||
24 | .1** | Powers of Attorney (included on the signature page of this Registration Statement on Form S-4). | ||
99 | .1* | Form of Proxy Card for Denbury Resources Inc.’s Special Meeting. | ||
99 | .2* | Form of Proxy Card for Encore Acquisition Company’s Special Meeting. | ||
99 | .3* | Consent of Barclays Capital Inc. | ||
99 | .4* | Consent of J.P. Morgan Securities Inc. | ||
99 | .5* | Form of Election Form and related instruments. |
* | Filed herewith. |
** | Previously filed. |