UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
 
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): May 18, 2020
 
DENBURY RESOURCES INC.
(Exact name of registrant as specified in its charter)

	
					
Delaware	 	1-12935	 	20-0467835	
(State or other jurisdiction of incorporation)	 	(Commission File Number)	 	(IRS Employer Identification No.)	

	
										
5320 Legacy Drive	 	 	 	 	 	 	 	
Plano,	Texas	 	 	 	75024	 	 	(972)	673-2000	
(Address of principal executive offices)	 	 	(Zip code)	 	 	(Registrant’s telephone number, including area code)	

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

			
☐	 	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	

			
☐	 	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	

			
☐	 	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	

			
☐	 	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

Securities registered pursuant to Section 12(b) of the Exchange Act:

					
Title of each class	 	Trading Symbol	 	Name of each exchange on which registered	
Common Stock, par value $.001 per share	 	DNR	 	New York Stock Exchange	

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

	

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Section 2 – Financial Information

Item 2.02 – Results of Operations and Financial Condition

On May 18, 2020, Denbury Resources Inc. issued a press release announcing its 2020 first quarter financial and operating results. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

The information furnished in this Item 2.02 and in Exhibit 99.1 hereto shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and shall not be deemed incorporated by reference in any filing with the Securities and Exchange Commission (unless otherwise specifically provided therein), whether or not filed under the Securities Act of 1933, as amended, or the 1934 Act, regardless of any general incorporation language in any such document.

Section 9 – Financial Statements and Exhibits

Item 9.01 – Financial Statements and Exhibits

(d)	Exhibits.	

The following exhibit is furnished in accordance with the provisions of Item 601 of Regulation S-K:

			
Exhibit Number	 	Description	
99.1*	 	Denbury Press Release, dated May 18, 2020.
	
104	 	The cover page from the Company’s Current Report on Form 8-K dated May 18, 2020, has been formatted in Inline XBRL.	

*	Included herewith.	

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	
			
 	Denbury Resources Inc.
(Registrant)
 	
Date: May 18, 2020	By:	/s/ James S. Matthews	
 	 	James S. Matthews	
 	 	Executive Vice President, Chief Administrative Officer,
General Counsel and Secretary	

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News

DENBURY RESOURCES REPORTS FIRST QUARTER 2020 RESULTS

Plano, Texas – May 18, 2020 – Denbury Resources Inc. (NYSE: DNR) (“Denbury” or the “Company”) today announced its first quarter 2020 financial and operating results.

FIRST QUARTER HIGHLIGHTS

•	Net income of $74 million, or $0.14 per diluted share	

◦	Adjusted net income(1) (a non-GAAP measure) of $27 million, or $0.06 per diluted share	

◦	Adjusted EBITDAX(1) (a non-GAAP measure) of $116 million	

◦	Generated $35 million of free cash flow(1) (a non-GAAP measure)	

•	Produced 55,965 barrels of oil equivalent (“BOE”) per day (“BOE/d”), in line with expectations	

•	Reduced debt principal by $34 million, primarily through open market debt repurchases, and ended the first quarter with no outstanding borrowings on the Company’s bank credit facility	

•	Reduced 2020 capital budget by $80 million, or 44%, to current expected range of $95 million to $105 million	

•	Restructured a portion of 2020 three-way collars into fixed-price swaps to increase downside protection. Current hedge portfolio covers 39,500 Bbls/d for the second quarter of 2020 and 35,500 Bbls/d for the third and fourth quarters of 2020, with over half of those contracts being fixed-price swaps and the remainder being three-way collars	

•	Completed the sale in early March of half of the Company’s nearly 100% working interests in four conventional southeast Texas oil fields for $40 million net cash and a carried interest in 10 wells to be drilled by the purchasers (the “Gulf Coast Working Interests Sale”)	

•	Reacted quickly to the COVID-19 pandemic, prioritizing employee health and safety while maintaining operations and making adjustments to the business in response to the impact of the significant decline in oil prices resulting from the global disruption in oil demand caused by the pandemic	

(1)	A non-GAAP measure. See accompanying schedules that reconcile GAAP to non-GAAP measures along with a statement indicating why the Company believes the non-GAAP measures provide useful information for investors.	

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SELECTED QUARTERLY COMPARATIVE DATA

													
 	 	Quarter Ended	
(in millions, except per-share and per-unit data)	 	March 31, 2020	 	Dec. 31, 2019	 	March 31, 2019	
Net income (loss)	 	$	74		 	$	23		 	$	(26	)	
Adjusted net income(1) (non-GAAP measure)	 	27		 	47		 	45		
Adjusted EBITDAX(1) (non-GAAP measure)	 	116		 	155		 	138		
Net income (loss) per diluted share	 	0.14		 	0.05		 	(0.06	)	
Adjusted net income per diluted share(1)(2) (non-GAAP measure)	 	0.06		 	0.09		 	0.10		
Cash flows from operations	 	62		 	151		 	64		
Adjusted cash flows from operations(1) (non-GAAP measure)	 	105		 	116		 	119		
Development capital expenditures	 	39		 	47		 	61		
 	 	 	 	 	 	 	
Oil, natural gas, and related product sales	 	$	230		 	$	294		 	$	295		
CO2, purchased oil sales and other	 	12		 	17		 	10		
Total revenues and other income	 	$	242		 	$	311		 	$	305		
 	 	 	 	 	 	 	
Receipt on settlements of commodity derivatives	 	$	25		 	$	9		 	$	8		
 	 	 	 	 	 	 	
Average realized oil price per barrel (excluding derivative settlements)	 	$	45.96		 	$	56.58		 	$	56.50		
Average realized oil price per barrel (including derivative settlements)	 	50.92		 	58.30		 	58.09		
 	 	 	 	 	 	 	
Total production (BOE/d)	 	55,965		 	57,511		 	59,218		
Total continuing production (BOE/d)(3)	 	55,185		 	56,341		 	57,715		

MANAGEMENT COMMENT

Chris Kendall, Denbury’s President and CEO, commented, “We took multiple steps in the first quarter to further enhance Denbury’s operational and financial performance and preserve liquidity, including the significant reduction to our 2020 capital spending plans that we announced in late March, and we have redoubled our first quarter efforts over the past two months to further reduce costs in response to the deep impact of the COVID-19 pandemic on the energy markets. Denbury’s first quarter results reflect our focus on operational execution and efficiency, as we continued to generate free cash and maintained relatively consistent continuing production levels while spending significantly less capital. The Company has sufficient liquidity to meet its operating needs, with nothing drawn on our bank facility at the end of the first quarter, and we believe the actions we are taking will help the Company maintain access to ample liquidity as we manage through this challenging environment. In addition, we are working with advisors to evaluate a range of strategic alternatives, and we are engaging in discussions with our lenders and bondholders as part of that process.

(1)	A non-GAAP measure. See accompanying schedules that reconcile GAAP to non-GAAP measures along with a statement indicating why the Company believes the non-GAAP measures provide useful information for investors.	
		
(2)	Calculated using weighted average diluted shares outstanding of 586.2 million, 571.0 million, and 455.5 million for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively.	
		
(3)	Continuing production excludes production from the Gulf Coast Working Interests Sale completed on March 4, 2020 and for the first quarter of 2019 also excludes production from Citronelle Field sold on July 1, 2019.	

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“Denbury’s low decline assets and industry-leading carbon reduction capabilities set our company apart in our industry, and we expect these same core strengths will continue to differentiate us in the future. As always, our top priority is the health and safety of our employees, and I want to express my sincere gratitude to our team for its continued commitment to Denbury under these unprecedented conditions.”

REVIEW OF OPERATING AND FINANCIAL RESULTS

Denbury’s oil and natural gas production averaged 55,965 BOE/d during first quarter 2020. Total continuing production, which excludes production associated with the Gulf Coast Working Interests Sale, was 55,185 BOE/d during the first quarter of 2020, a decrease of 2% from the fourth quarter of 2019 (the “prior quarter”) and 4% compared to continuing production in the prior-year first quarter. Further production information is provided on page 15 of this press release.

Denbury’s first quarter 2020 average realized oil price, including derivative settlements, was $50.92 per barrel (“Bbl”), a decrease of 13% from the prior quarter and 12% from the prior-year first quarter. Denbury’s NYMEX differential for the first quarter 2020 was $0.38 per Bbl below NYMEX WTI oil prices, compared to $0.44 per Bbl below NYMEX WTI in the prior quarter and $1.63 per Bbl above NYMEX WTI in first quarter 2019. The year-over-year decrease was primarily attributable to a lower Gulf Coast premium in the first quarter of 2020, affecting approximately 60% of the Company’s crude oil production.

Total lease operating expenses in first quarter 2020 were $109 million, or $21.46 per BOE, a decrease of $7 million, or 6%, compared to the prior quarter due primarily to lower labor and overhead and a decrease of $16 million, or 13%, compared to first quarter 2019 due primarily to reductions in CO2 costs and workovers.

Taxes other than income, which includes ad valorem, production and franchise taxes, decreased $3 million, or 12%, from the prior quarter and decreased $4 million, or 17%, from the prior-year first quarter, generally due to a decrease in production taxes resulting from lower oil and natural gas revenues.

General and administrative expenses (“G&A”) were $10 million in first quarter 2020, unchanged from the prior quarter when excluding $19 million of severance expense associated with the Company’s December 2019 voluntary separation program. Compared to the first quarter of 2019, G&A expenses decreased $9 million, or 49%, due to lower headcount and lower bonus and other performance-based compensation expense in the current-year period.

Interest expense, net of capitalized interest, totaled $20 million in first quarter 2020, a $1 million decrease from the prior quarter and an increase of $3 million compared to first quarter 2019. The sequential-quarter decrease was primarily due to senior subordinated notes repurchases in the fourth quarter of 2019, and the prior-year increase was primarily due to additional noncash expense for amortization of debt discounts associated with new notes (the Company’s 7¾% Senior Secured Second Lien Notes due 2024

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and 6⅜% Convertible Senior Notes due 2024) issued as part of the June 2019 debt exchanges. A schedule detailing the components of interest expense is included on page 17 of this press release.

The Company recognized a full cost pool ceiling test write-down of $73 million during the three months ended March 31, 2020. Representative oil prices utilized in the Company’s full cost ceiling test were roughly consistent with adjusted prices used to calculate the December 31, 2019 full cost ceiling value; however, the decline in NYMEX oil prices during March 2020 due to OPEC supply pressures and a reduction in worldwide oil demand amid the COVID-19 pandemic contributed to an impairment of the Company’s unevaluated oil and natural gas properties and the transfer of $245 million of unevaluated costs to the full cost amortization base during first quarter 2020. Based on current oil price futures, the Company would expect to record significant write-downs in subsequent quarters, as the 12-month average price used in determining the full cost ceiling value would then continue to decline throughout 2020.

Depletion, depreciation, and amortization (“DD&A”) was $97 million during first quarter 2020, compared to $57 million in first quarter 2019 and $63 million in fourth quarter 2019, primarily due to an accelerated depreciation charge of $37 million attributable to certain depreciable costs associated with the impaired unevaluated properties discussed above. Excluding the accelerated depreciation charge, DD&A increased $2 million from the prior-year quarter primarily due to a decrease in proved oil and natural gas reserve volumes and decreased $4 million from the sequential-quarter primarily due to a decrease in depletable costs.

Denbury’s effective tax rate for first quarter 2020 was negative 17%, significantly lower than the Company’s estimated statutory rate of 25% due primarily to tax relief offered under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which included the full release of a $25 million valuation allowance against a portion of business interest expense that was previously estimated to be disallowed. The Company currently forecasts that its effective tax rate for the remainder of 2020 will be approximately 16%, depending in part on taxable income.

BANK CREDIT FACILITY AND FIRST QUARTER DEBT TRANSACTIONS

As of March 31, 2020, the Company had no outstanding borrowings on the senior secured bank credit facility, consistent with March 31, 2019 and December 31, 2019, leaving $520 million of borrowing availability after consideration of $95 million of currently outstanding letters of credit. The borrowing base under the Company’s senior secured bank credit facility is evaluated semi-annually, generally around May 1 and November 1. As of today, the bank group has not yet completed the process for the spring redetermination and therefore the borrowing base and commitment levels remain at $615 million. The Company currently anticipates that the banks will complete the redetermination process over the next several weeks, and it is uncertain if there will be any change to the borrowing base or banks’ commitment levels.

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During the first quarter, Denbury repurchased $30 million in aggregate principal amount of its then outstanding 9% Senior Secured Second Lien Notes due 2021 in open-market transactions for a total purchase price of $14 million, excluding accrued interest. In connection with these transactions, the Company recognized a $19 million gain on debt extinguishment, net of unamortized debt issuance costs and future interest payable written off, during the three months ended March 31, 2020.

2020 CAPITAL BUDGET

As previously announced, the Company’s 2020 estimated development capital budget, excluding acquisitions and capitalized interest, is currently anticipated to be between $95 million and $105 million, an $80 million, or 44%, reduction from the originally disclosed amount of between $175 million and $185 million. The capital budget consists of approximately $70 million for tertiary and non-tertiary field investments and CO2 supply, plus approximately $30 million of estimated capitalized costs (including capitalized internal acquisition, exploration and development costs and pre-production tertiary startup costs). Of this combined capital expenditure amount, $39 million (39%) has been incurred through first quarter 2020. In addition, late in the first quarter, the Company’s Board of Directors determined to defer the Company’s Cedar Creek Anticline CO2 tertiary flood development project beyond 2020.

SHUT-IN PRODUCTION

As a result of the significant decline in oil prices, the Company has focused its efforts to optimize cash flow through evaluating production economics and shutting in production where validated. Beginning in late March and accelerating through April 2020, the Company estimates that approximately 2,000 BOE/d of uneconomic production was shut-in during April as a result of those efforts. In May 2020, the Company continued evaluations around expected oil prices and production costs, and has shut-in additional production, bringing the total shut-in production to approximately 8,500 BOE/d. Management plans to continue this routine evaluation to assess levels of uneconomic production based on its expectations for wellhead oil prices and variable production costs, and will actively make decisions to either shut-in additional production or bring production back online as conditions warrant. As a result of these actions, along with reduced capital and workover spend, the Company expects production to decline from the first quarter to the second quarter. Production could be further curtailed by future regulatory actions or limitations in storage and/or takeaway capacity.

FIRST QUARTER CONFERENCE CALL INFORMATION

Denbury management will host a conference call to review and discuss first quarter 2020 financial and operating results today, Monday, May 18, at 8:00 A.M. (Central). Additionally, Denbury will post presentation materials on its website which will be referenced during the conference call. Individuals who would like to participate should dial 877.705.6003 or 201.493.6725 ten minutes before the scheduled start

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time. To access a live webcast of the conference call and accompanying slide presentation, please visit the investor relations section of the Company’s website at www.denbury.com. The webcast will be archived on the website and a telephonic replay will be accessible for approximately one month after the call by dialing 844.512.2921 or 412.317.6671 and entering confirmation number 13696083.

Denbury is an independent oil and natural gas company with operations focused in two key operating areas: the Gulf Coast and Rocky Mountain regions. The Company’s goal is to increase the value of its properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis relating to CO2 enhanced oil recovery operations. For more information about Denbury, please visit www.denbury.com.

# # #

This press release contains forward-looking statements that involve risks and uncertainties that presently cannot be quantified, including factors that could affect future production levels, expense reductions, cash flows, liquidity, debt levels and capital expenditures, and other risks and uncertainties detailed in the Company’s filings with the Securities and Exchange Commission, including Denbury’s most recent Form 10-Q filed today and its 2019 Form 10-K. These risks and uncertainties are incorporated by this reference as though fully set forth herein, including specifically whether the Company can continue in future quarters to comply with the required financial ratios or financial condition tests under its senior secured bank credit facility, or repay, refinance or restructure its $585 million outstanding principal balance of the senior secured second lien notes due in May 2021, and their related impact on the Company’s ability to continue as a going concern. These statements are based on financial and market, engineering, geological and operating assumptions that management believes are reasonable based on currently available information; however, management’s assumptions and the Company’s future performance are both subject to a wide range of risks, and there is no assurance that these goals and projections can or will be met. Actual results may vary materially. In addition, any forward-looking statements represent the Company’s estimates only as of today and should not be relied upon as representing its estimates as of any future date. Denbury assumes no obligation to update its forward-looking statements.

DENBURY CONTACTS:
Mark C. Allen, Executive Vice President and Chief Financial Officer, 972.673.2000
John Mayer, Director of Investor Relations, 972.673.2383

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FINANCIAL AND STATISTICAL DATA TABLES AND RECONCILIATION SCHEDULES

Following are unaudited financial highlights for the comparative three-month periods ended March 31, 2020 and 2019 and the three-month period ended December 31, 2019. All production volumes and dollars are expressed on a net revenue interest basis with gas volumes converted to equivalent barrels at 6:1.

DENBURY RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The following information is based on GAAP reported earnings (along with additional required disclosures) included or to be included in the Company’s periodic reports:

													
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
In thousands, except per-share data	 	2020	 	2019	 	2019	
Revenues and other income	 	 	 	 	 	 	
Oil sales	 	$	228,577		 	$	291,965		 	$	292,447		
Natural gas sales	 	1,047		 	2,612		 	1,383		
CO2 sales and transportation fees	 	8,028		 	8,570		 	8,610		
Purchased oil sales	 	3,721		 	215		 	5,924		
Other income	 	828		 	2,090		 	2,249		
Total revenues and other income	 	242,201		 	305,452		 	310,613		
Expenses	 	 	 	 	 	 	
Lease operating expenses	 	109,270		 	125,423		 	116,015		
Transportation and marketing expenses	 	9,621		 	10,773		 	9,734		
CO2 discovery and operating expenses	 	752		 	556		 	906		
Taxes other than income	 	19,686		 	23,785		 	22,440		
Purchased oil expenses	 	3,661		 	213		 	5,911		
General and administrative expenses	 	9,733		 	18,925		 	28,332		
Interest, net of amounts capitalized of $9,452, $10,534 and $9,126, respectively	 	19,946		 	17,398		 	20,960		
Depletion, depreciation, and amortization	 	96,862		 	57,297		 	63,191		
Commodity derivatives expense (income)	 	(146,771	)	 	83,377		 	54,616		
Gain on debt extinguishment	 	(18,994	)	 	—		 	(49,778	)	
Write-down of oil and natural gas properties	 	72,541		 	—		 	—		
Other expenses	 	2,494		 	4,138		 	2,523		
Total expenses	 	178,801		 	341,885		 	274,850		
Income (loss) before income taxes	 	63,400		 	(36,433	)	 	35,763		
Income tax provision (benefit)	 	 	 	 	 	 	
Current income taxes	 	(6,407	)	 	(1,281	)	 	2,667		
Deferred income taxes	 	(4,209	)	 	(9,478	)	 	10,017		
Net income (loss)	 	$	74,016		 	$	(25,674	)	 	$	23,079		
 	 	 	 	 	 	 	
Net income (loss) per common share	 	 	 	 	 	 	
Basic	 	$	0.15		 	$	(0.06	)	 	$	0.05		
Diluted	 	$	0.14		 	$	(0.06	)	 	$	0.05		
 	 	 	 	 	 	 	
Weighted average common shares outstanding	 	 	 	 	 	 	
Basic	 	494,259		 	451,720		 	478,030		
Diluted	 	586,190		 	451,720		 	571,000		

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DENBURY RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

									
 	 	Three Months Ended	
 	 	March 31,	
In thousands	 	2020	 	2019	
Cash flows from operating activities	 	 	 	 	
Net income (loss)	 	$	74,016		 	$	(25,674	)	
Adjustments to reconcile net income (loss) to cash flows from operating activities	 	 	 	 		
Depletion, depreciation, and amortization	 	96,862		 	57,297		
Write-down of oil and natural gas properties	 	72,541		 	—		
Deferred income taxes	 	(4,209	)	 	(9,478	)	
Stock-based compensation	 	2,453		 	3,263		
Commodity derivatives expense (income)	 	(146,771	)	 	83,377		
Receipt on settlements of commodity derivatives	 	24,638		 	8,206		
Gain on debt extinguishment	 	(18,994	)	 	—		
Debt issuance costs and discounts	 	4,926		 	1,263		
Other, net	 	(673	)	 	908		
Changes in assets and liabilities, net of effects from acquisitions	 	 		 	 		
Accrued production receivable	 	66,937		 	(21,591	)	
Trade and other receivables	 	(22,914	)	 	1,024		
Other current and long-term assets	 	2,539		 	(387	)	
Accounts payable and accrued liabilities	 	(72,607	)	 	(35,966	)	
Oil and natural gas production payable	 	(15,948	)	 	4,605		
Other liabilities	 	(954	)	 	(2,481	)	
Net cash provided by operating activities	 	61,842		 	64,366		
 	 	 	 	 	
Cash flows from investing activities	 	 		 	 		
Oil and natural gas capital expenditures	 	(46,016	)	 	(86,986	)	
Pipelines and plants capital expenditures	 	(6,294	)	 	(1,682	)	
Net proceeds from sales of oil and natural gas properties and equipment	 	40,543		 	104		
Other	 	(4,521	)	 	(3,237	)	
Net cash used in investing activities	 	(16,288	)	 	(91,801	)	
 	 	 	 	 	
Cash flows from financing activities	 	 		 	 		
Bank repayments	 	(161,000	)	 	(103,000	)	
Bank borrowings	 	161,000		 	103,000		
Interest payments treated as a reduction of debt	 	(18,211	)	 	—		
Cash paid in conjunction with debt repurchases	 	(14,171	)	 	—		
Pipeline financing and capital lease debt repayments	 	(3,690	)	 	(4,108	)	
Other	 	(2,953	)	 	(1,099	)	
Net cash used in financing activities	 	(39,025	)	 	(5,207	)	
Net increase (decrease) in cash, cash equivalents, and restricted cash	 	6,529		 	(32,642	)	
Cash, cash equivalents, and restricted cash at beginning of period	 	33,045		 	54,949		
Cash, cash equivalents, and restricted cash at end of period	 	$	39,574		 	$	22,307		

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DENBURY RESOURCES INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of net income (loss) (GAAP measure) to adjusted net income (non-GAAP measure)

Adjusted net income is a non-GAAP measure provided as a supplement to present an alternative net income (loss) measure which excludes expense and income items (and their related tax effects) not directly related to the Company’s ongoing operations. Management believes that adjusted net income may be helpful to investors by eliminating the impact of noncash and/or special or unusual items not indicative of the Company’s performance from period to period, and is widely used by the investment community, while also being used by management, in evaluating the comparability of the Company’s ongoing operational results and trends. Adjusted net income should not be considered in isolation, as a substitute for, or more meaningful than, net income (loss) or any other measure reported in accordance with GAAP, but rather to provide additional information useful in evaluating the Company’s operational trends and performance.

																									
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
 	 	2020	 	2019	 	2019	
In thousands, except per-share data	 	Amount	 	Per Diluted Share	 	Amount	 	Per Diluted Share	 	Amount	 	Per Diluted Share	
Net income (loss) (GAAP measure)(1)	 	$	74,016		 	$	0.14		 	$	(25,674	)	 	$	(0.06	)	 	$	23,079		 	$	0.05		
Adjustments to reconcile to adjusted net income (non-GAAP measure)	 	 	 	 	 	 	 	 	 	 	 	 	
Noncash fair value losses (gains) on commodity derivatives(2)	 	(122,133	)	 	(0.21	)	 	91,583		 	0.20		 	63,508		 	0.11		
Write-down of oil and natural gas properties(3)	 	72,541		 	0.12		 	—		 	—		 	—		 	—		
Accelerated depreciation charge(4)	 	37,368		 	0.06		 	—		 	—		 	—		 	—		
Gain on debt extinguishment(5)	 	(18,994	)	 	(0.03	)	 	—		 	—		 	(49,778	)	 	(0.09	)	
Accrued expense related to litigation over a helium supply contract (included in other expenses)(6)	 	—		 	—		 	409		 	0.00		 	—		 	—		
Acquisition transaction costs related to previous Penn Virginia transaction (included in other expenses)	 	—		 	—		 	1,336		 	0.00		 	—		 	—		
Severance-related expense included in general and administrative expenses(7)	 	—		 	—		 	—		 	—		 	18,627		 	0.03		
Other adjustments(8)	 	1,404		 	0.00		 	1,310		 	0.00		 	(803	)	 	0.00		
Estimated income taxes on above adjustments to net income (loss) and other discrete tax items(9)	 	(16,782	)	 	(0.02	)	 	(23,708	)	 	(0.04	)	 	(7,846	)	 	(0.01	)	
Adjusted net income (non-GAAP measure)	 	$	27,420		 	$	0.06		 	$	45,256		 	$	0.10		 	$	46,787		 	$	0.09		

(1)	Diluted net income per common share includes the impact of potentially dilutive securities including nonvested restricted stock, nonvested performance-based equity awards, and shares into which the Company’s convertible senior notes are convertible. The basic and diluted earnings per share calculations are included on page 10.	
		
(2)	The net change between periods of the fair market values of open commodity derivative positions, excluding the impact of settlements on commodity derivatives during the period.	
		
(3)	Full cost pool ceiling test write-down related to the Company’s oil and natural gas properties during the three months ended March 31, 2020.	
		
(4)	Accelerated depreciation related to impaired unevaluated properties that were transferred to the full cost pool.	
		
(5)	Gain on extinguishment related to the Company’s 2019 and 2020 open market repurchases.	
		
(6)	Expense associated with a trial court’s unfavorable ruling related to the non-delivery of helium volumes from the Company’s Riley Ridge Unit under a helium supply contract. The accrual represents costs associated with the settlement of approximately <$1 million during the first quarter of 2019.	
		
(7)	Severance-related expense associated with the Company’s voluntary separation program.	
		
(8)	Other adjustments include (a) <$1 million of costs associated with the helium supply contract ruling and $1 million of costs associated with the Delta-Tinsley CO2 pipeline incident during the three months ended March 31, 2020, (b) $1 million of expense related to an impairment of assets during the three months ended March 31, 2019, and (c) $2 million gain on land sales, <$1 million of expense related to an impairment of assets, and <$1 million of costs associated with the helium supply contract ruling during the three months ended December 31, 2019.	
		
(9)	The estimated income tax impacts on adjustments to net income for the three months ended March 31, 2020 are computed based upon an estimated annual effective tax rate of 16%, with other discrete tax adjustments totaling $39 million primarily comprised of the tax effect of the ceiling test and accelerated depreciation, impacts of the CARES Act, and the periodic tax impacts of a shortfall (benefit) on the stock-based compensation deduction. The estimated income tax impacts on adjustments to net income (loss) for the three months ended March 31, 2019 and December 31, 2019 are generally computed based upon a statutory rate of 25%.	

9

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

	
																									
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
 	 	2020	 	2019	 	2019	
In thousands, except per-share data	 	Amount	 	Per Share	 	Amount	 	Per Share	 	Amount	 	Per Share	
Numerator	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) – basic	 	$	74,016		 	$	0.15		 	$	(25,674	)	 	$	(0.06	)	 	$	23,079		 	$	0.05		
Effect of potentially dilutive securities	 			 	 	 	 		 	 	 	 	 	 	
Interest on convertible senior notes, net of tax	 	5,857		 	 	 	—		 	 	 	6,685		 	 	
Net income (loss) – diluted	 	$	79,873		 	$	0.14		 	$	(25,674	)	 	$	(0.06	)	 	$	29,764		 	$	0.05		
 	 	 	 	 	 	 	 	 	 	 	 	 	
Denominator	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding – basic	 	494,259		 	 	 	451,720		 	 	 	478,030		 	 	
Effect of potentially dilutive securities	 	 	 	 	 	 	 	 	 	 	 	 	
Restricted stock and performance-based equity awards	 	1,078		 	 	 	—		 	 	 	2,117		 	 	
Convertible senior notes	 	90,853		 	 	 	—		 	 	 	90,853		 	 	
Weighted average common shares outstanding – diluted	 	586,190		 	 	 	451,720		 	 	 	571,000		 	 	

10

DENBURY RESOURCES INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of cash flows from operations (GAAP measure) to adjusted cash flows from operations (non-GAAP measure) to adjusted cash flows from operations less special items (non-GAAP measure) and free cash flow (non-GAAP measure)

Adjusted cash flows from operations is a non-GAAP measure that represents cash flows provided by operations before changes in assets and liabilities, as summarized from the Company’s Unaudited Condensed Consolidated Statements of Cash Flows. Adjusted cash flows from operations measures the cash flows earned or incurred from operating activities without regard to the collection or payment of associated receivables or payables. Adjusted cash flows from operations less special items is an additional non-GAAP measure that removes other special items. Free cash flow is a non-GAAP measure that represents adjusted cash flows from operations less special items and interest treated as debt reduction, development capital expenditures and capitalized interest, but before acquisitions. Management believes that it is important to consider these additional measures, along with cash flows from operations, as it believes the non-GAAP measures can often be a better way to discuss changes in operating trends in its business caused by changes in production, prices, operating costs and related factors, without regard to whether the earned or incurred item was collected or paid during that period.

													
 	 	Three Months Ended	
In thousands	 	March 31,	 	Dec. 31,	
	 	2020	 	2019	 	2019	
Net income (loss) (GAAP measure)	 	$	74,016		 	$	(25,674	)	 	$	23,079		
Adjustments to reconcile to adjusted cash flows from operations	 	 	 	 	 	 	
Depletion, depreciation, and amortization	 	96,862		 	57,297		 	63,191		
Deferred income taxes	 	(4,209	)	 	(9,478	)	 	10,017		
Stock-based compensation	 	2,453		 	3,263		 	2,604		
Noncash fair value losses (gains) on commodity derivatives	 	(122,133	)	 	91,583		 	63,508		
Gain on debt extinguishment	 	(18,994	)	 	—		 	(49,778	)	
Write-down of oil and natural gas properties	 	72,541		 	—		 	—		
Other	 	4,253		 	2,171		 	2,962		
Adjusted cash flows from operations (non-GAAP measure)	 	104,789		 	119,162		 	115,583		
Net change in assets and liabilities relating to operations	 	(42,947	)	 	(54,796	)	 	34,982		
Cash flows from operations (GAAP measure)	 	$	61,842		 	$	64,366		 	$	150,565		
 	 	 	 	 	 	 	
Adjusted cash flows from operations (non-GAAP measure)	 	$	104,789		 	$	119,162		 	$	115,583		
Severance-related expense	 	—		 	—		 	18,627		
Adjusted cash flows from operations less special items (non-GAAP measure)	 	104,789		 	119,162		 	134,210		
Interest on notes treated as debt reduction	 	(21,354	)	 	(21,279	)	 	(21,448	)	
Development capital expenditures	 	(38,785	)	 	(61,163	)	 	(47,482	)	
Capitalized interest	 	(9,452	)	 	(10,534	)	 	(9,126	)	
Free cash flow (non-GAAP measure)	 	$	35,198		 	$	26,186		 	$	56,154		

11

DENBURY RESOURCES INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of commodity derivatives income (expense) (GAAP measure) to noncash fair value gains (losses) on commodity derivatives (non-GAAP measure)

Noncash fair value adjustments on commodity derivatives is a non-GAAP measure and is different from “Commodity derivatives expense (income)” in the Unaudited Condensed Consolidated Statements of Operations in that the noncash fair value gains (losses) on commodity derivatives represents only the net change between periods of the fair market values of open commodity derivative positions, and excludes the impact of settlements on commodity derivatives during the period. Management believes that noncash fair value gains (losses) on commodity derivatives is a useful supplemental disclosure to “Commodity derivatives expense (income)” because the GAAP measure also includes settlements on commodity derivatives during the period; the non-GAAP measure is widely used within the industry and by securities analysts, banks and credit rating agencies in calculating EBITDA and in adjusting net income (loss) to present those measures on a comparative basis across companies, as well as to assess compliance with certain debt covenants.

													
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
In thousands	 	2020	 	2019	 	2019	
Receipt on settlements of commodity derivatives	 	$	24,638		 	$	8,206		 	$	8,892		
Noncash fair value gains (losses) on commodity derivatives (non-GAAP measure)	 	122,133		 	(91,583	)	 	(63,508	)	
Commodity derivatives income (expense) (GAAP measure)	 	$	146,771		 	$	(83,377	)	 	$	(54,616	)	

12

DENBURY RESOURCES INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of net income (loss) (GAAP measure) to Adjusted EBITDAX (non-GAAP measure)

Adjusted EBITDAX is a non-GAAP financial measure which management uses and is calculated based upon (but not identical to) a financial covenant related to “Consolidated EBITDAX” in the Company’s senior secured bank credit facility, which excludes certain items that are included in net income (loss), the most directly comparable GAAP financial measure. Items excluded include interest, income taxes, depletion, depreciation, and amortization, and items that the Company believes affect the comparability of operating results such as items whose timing and/or amount cannot be reasonably estimated or are non-recurring. Management believes Adjusted EBITDAX may be helpful to investors in order to assess the Company’s operating performance as compared to that of other companies in the industry, without regard to financing methods, capital structure or historical costs basis. It is also commonly used by third parties to assess leverage and the Company’s ability to incur and service debt and fund capital expenditures. Adjusted EBITDAX should not be considered in isolation, as a substitute for, or more meaningful than, net income (loss), cash flow from operations, or any other measure reported in accordance with GAAP. The Company’s Adjusted EBITDAX may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDAX, EBITDAX or EBITDA in the same manner.  The following table presents a reconciliation of the Company’s net income (loss) to Adjusted EBITDAX.

													
 	 	Three Months Ended	
In thousands	 	March 31,	 	Dec. 31,	
	 	2020	 	2019	 	2019	
Net income (loss) (GAAP measure)	 	$	74,016		 	$	(25,674	)	 	$	23,079		
Adjustments to reconcile to Adjusted EBITDAX	 	 	 	 	 	 	
Interest expense	 	19,946		 	17,398		 	20,960		
Income tax expense (benefit)	 	(10,616	)	 	(10,759	)	 	12,684		
Depletion, depreciation, and amortization	 	96,862		 	57,297		 	63,191		
Noncash fair value losses (gains) on commodity derivatives	 	(122,133	)	 	91,583		 	63,508		
Stock-based compensation	 	2,453		 	3,263		 	2,604		
Gain on debt extinguishment	 	(18,994	)	 	—		 	(49,778	)	
Write-down of oil and natural gas properties	 	72,541		 	—		 	—		
Severance-related expense	 	—		 	—		 	18,627		
Noncash, non-recurring and other	 	2,364		 	4,786		 	130		
Adjusted EBITDAX (non-GAAP measure)(1)	 	$	116,439		 	$	137,894		 	$	155,005		

(1)	Excludes pro forma adjustments related to qualified acquisitions or dispositions under the Company’s senior secured bank credit facility.	

13

DENBURY RESOURCES INC.
OPERATING HIGHLIGHTS (UNAUDITED)

													
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
 	 	2020	 	2019	 	2019	
Production (daily – net of royalties)	 	 	 	 	 	 	
Oil (barrels)	 	54,649		 	57,414		 	56,185		
Gas (mcf)	 	7,899		 	10,827		 	7,954		
BOE (6:1)	 	55,965		 	59,218		 	57,511		
Unit sales price (excluding derivative settlements)	 	 	 	 	 	 	
Oil (per barrel)	 	$	45.96		 	$	56.50		 	$	56.58		
Gas (per mcf)	 	1.46		 	2.68		 	1.89		
BOE (6:1)	 	45.09		 	55.27		 	55.53		
Unit sales price (including derivative settlements)	 	 	 	 	 	 	
Oil (per barrel)	 	$	50.92		 	$	58.09		 	$	58.30		
Gas (per mcf)	 	1.46		 	2.68		 	1.89		
BOE (6:1)	 	49.93		 	56.81		 	57.21		
NYMEX differentials	 	 	 	 	 	 	
Gulf Coast region	 	 	 	 	 	 	
Oil (per barrel)	 	$	1.18		 	$	4.26		 	$	0.90		
Gas (per mcf)	 	(0.06	)	 	(0.10	)	 	0.01		
Rocky Mountain region	 	 	 	 	 	 	
Oil (per barrel)	 	$	(2.78	)	 	$	(2.56	)	 	$	(2.48	)	
Gas (per mcf)	 	(0.91	)	 	(0.28	)	 	(1.26	)	
Total company	 	 	 	 	 	 	
Oil (per barrel)	 	$	(0.38	)	 	$	1.63		 	$	(0.44	)	
Gas (per mcf)	 	(0.41	)	 	(0.20	)	 	(0.52	)	

14

DENBURY RESOURCES INC.
OPERATING HIGHLIGHTS (UNAUDITED)

										
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
Average Daily Volumes (BOE/d) (6:1)	 	2020	 	2019	 	2019	
Tertiary oil production	 	 	 	 	 	 	
Gulf Coast region	 	 	 	 	 	 	
Delhi	 	3,813		 	4,474		 	4,085		
Hastings	 	5,232		 	5,539		 	5,097		
Heidelberg	 	4,371		 	3,987		 	4,409		
Oyster Bayou	 	3,999		 	4,740		 	4,261		
Tinsley	 	4,355		 	4,659		 	4,343		
West Yellow Creek	 	775		 	436		 	807		
Mature properties(1)	 	6,386		 	6,479		 	6,347		
Total Gulf Coast region	 	28,931		 	30,314		 	29,349		
Rocky Mountain region	 	 	 	 	 	 	
Bell Creek	 	5,731		 	4,650		 	5,618		
Salt Creek	 	2,149		 	2,057		 	2,223		
Other	 	50		 	52		 	60		
Total Rocky Mountain region	 	7,930		 	6,759		 	7,901		
Total tertiary oil production	 	36,861		 	37,073		 	37,250		
Non-tertiary oil and gas production	 	 	 	 	 	 	
Gulf Coast region	 	 	 	 	 	 	
Mississippi	 	748		 	1,034		 	952		
Texas	 	3,419		 	3,298		 	3,212		
Other	 	6		 	10		 	5		
Total Gulf Coast region	 	4,173		 	4,342		 	4,169		
Rocky Mountain region	 	 	 	 	 	 	
Cedar Creek Anticline	 	13,046		 	14,987		 	13,730		
Other	 	1,105		 	1,313		 	1,192		
Total Rocky Mountain region	 	14,151		 	16,300		 	14,922		
Total non-tertiary production	 	18,324		 	20,642		 	19,091		
Total continuing production	 	55,185		 	57,715		 	56,341		
Property sales	 	 	 	 	 	 	
Gulf Coast Working Interests Sale(2)	 	780		 	1,047		 	1,170		
Citronelle(3)	 	—		 	456		 	—		
Total production	 	55,965		 	59,218		 	57,511		

(1)	Mature properties include Brookhaven, Cranfield, Eucutta, Little Creek, Mallalieu, Martinville, McComb and Soso fields.	
		
(2)	Includes non-tertiary production related to the sale of 50% of our working interests in Webster, Thompson, Manvel, and East Hastings fields, sold in March 2020.	
		
(3)	Includes production from Citronelle Field sold in July 2019.	

15

DENBURY RESOURCES INC.
PER-BOE DATA (UNAUDITED)

													
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
 	 	2020	 	2019	 	2019	
Oil and natural gas revenues	 	$	45.09		 	$	55.27		 	$	55.53		
Receipt on settlements of commodity derivatives	 	4.84		 	1.54		 	1.68		
Lease operating expenses	 	(21.46	)	 	(23.53	)	 	(21.93	)	
Production and ad valorem taxes	 	(3.53	)	 	(4.13	)	 	(3.98	)	
Transportation and marketing expenses	 	(1.89	)	 	(2.02	)	 	(1.84	)	
Production netback	 	23.05		 	27.13		 	29.46		
CO2 sales, net of operating and exploration expenses	 	1.43		 	1.51		 	1.46		
General and administrative expenses(1)	 	(1.91	)	 	(3.55	)	 	(5.35	)	
Interest expense, net	 	(3.92	)	 	(3.26	)	 	(3.96	)	
Other	 	1.92		 	0.53		 	0.24		
Changes in assets and liabilities relating to operations	 	(8.43	)	 	(10.28	)	 	6.61		
Cash flows from operations	 	12.14		 	12.08		 	28.46		
DD&A – excluding accelerated depreciation charge	 	(11.68	)	 	(10.75	)	 	(11.94	)	
DD&A – accelerated depreciation charge(2)	 	(7.34	)	 	—		 	—		
Write-down of oil and natural gas properties	 	(14.24	)	 	—		 	—		
Deferred income taxes	 	0.83		 	1.78		 	(1.89	)	
Gain on debt extinguishment	 	3.73		 	—		 	9.41		
Noncash fair value gains (losses) on commodity derivatives	 	23.98		 	(17.18	)	 	(12.00	)	
Other noncash items	 	7.11		 	9.25		 	(7.68	)	
Net income (loss)	 	$	14.53		 	$	(4.82	)	 	$	4.36		

(1)	General and administrative expenses includes an accrual for severance-related costs of $18.6 million associated with the Company’s voluntary separation program for the three months ended December 31, 2019, which if excluded, would have averaged $1.83 per BOE.	
		
(2)	Represents an accelerated depreciation charge related to impaired unevaluated properties that were transferred to the full cost pool.	

CAPITAL EXPENDITURE SUMMARY (UNAUDITED)(1) 

													
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
In thousands	 	2020	 	2019	 	2019	
Capital expenditure summary	 	 	 	 	 	 	
Tertiary oil fields	 	$	14,726		 	$	26,028		 	$	20,998		
Non-tertiary fields	 	10,954		 	21,674		 	15,075		
Capitalized internal costs(2)	 	8,881		 	11,890		 	10,642		
Oil and natural gas capital expenditures	 	34,561		 	59,592		 	46,715		
CO2 pipelines, sources and other	 	4,224		 	1,571		 	767		
Capital expenditures, before acquisitions and capitalized interest	 	38,785		 	61,163		 	47,482		
Acquisitions of oil and natural gas properties	 	42		 	29		 	162		
Capital expenditures, before capitalized interest	 	38,827		 	61,192		 	47,644		
Capitalized interest	 	9,452		 	10,534		 	9,126		
Capital expenditures, total	 	$	48,279		 	$	71,726		 	$	56,770		

(1)	Capital expenditure amounts include accrued capital.	
		
(2)	Includes capitalized internal acquisition, exploration and development costs and pre-production tertiary startup costs.	

16

DENBURY RESOURCES INC.
INTEREST AND FINANCING EXPENSES (UNAUDITED)

													
 	 	Three Months Ended	
 	 	March 31,	 	Dec. 31,	
In thousands	 	2020	 	2019	 	2019	
Cash interest(1)	 	$	45,826		 	$	47,948		 	$	46,838		
Interest not reflected as expense for financial reporting purposes(1)	 	(21,354	)	 	(21,279	)	 	(21,448	)	
Noncash interest expense	 	1,031		 	1,263		 	1,037		
Amortization of debt discount(2)	 	3,895		 	—		 	3,659		
Less: capitalized interest	 	(9,452	)	 	(10,534	)	 	(9,126	)	
Interest expense, net	 	$	19,946		 	$	17,398		 	$	20,960		

(1)	Cash interest includes interest which is paid semiannually on the Company’s 9% Senior Secured Second Lien Notes due 2021 and 9¼% Senior Secured Second Lien Notes due 2022. As a result of the accounting for certain exchange transactions in previous years, most of the future interest related to these notes was recorded as debt as of the debt issuance dates, which is reduced as semiannual interest payments are made, and therefore not reflected as interest for financial reporting purposes.	
		
(2)	Represents the amortization of debt discounts related to the Company’s 7¾% Senior Secured Second Lien Notes due 2024 (“7¾% Senior Secured Notes”) and 6⅜% Convertible Senior Notes due 2024 (“6⅜% Convertible Senior Notes”) issued in June 2019. In accordance with FASC 470-50, Modifications and Extinguishments, the 7¾% Senior Secured Notes and 6⅜% Convertible Senior Notes were recorded on the Company’s balance sheet at a discount of $30 million and $80 million, respectively, which will be amortized as interest expense over the term of the notes.	

SELECTED BALANCE SHEET DATA (UNAUDITED)

													
 	 	March 31,	 	December 31,	 	March 31,	
In thousands	 	2020	 	2019	 	2019	
Cash and cash equivalents	 	$	6,917		 	$	516		 	$	5,749		
Total assets	 	4,607,091		 	4,691,867		 	4,691,162		
 	 	 	 	 	 	 	
Borrowings under senior secured bank credit facility	 	$	—		 	$	—		 	$	—		
Borrowings under senior secured second lien notes (principal only)(1)	 	1,592,839		 	1,623,049		 	1,520,587		
Borrowings under senior convertible notes (principal only)(2)	 	245,548		 	245,548		 	—		
Borrowings under senior subordinated notes (principal only)	 	245,690		 	245,690		 	826,185		
Financing and capital leases	 	163,748		 	167,439		 	178,919		
Total debt (principal only)	 	$	2,247,825		 	$	2,281,726		 	$	2,525,691		
 	 	 	 	 	 	 	
Total stockholders’ equity	 	$	1,489,445		 	$	1,412,259		 	$	1,119,320		

(1)	Excludes $144 million, $165 million, and $250 million of future interest payable on the notes as of March 31, 2020, December 31, 2019, and March 31, 2019, respectively, accounted for as debt for financial reporting purposes and also excludes a $26 million and $27 million discount to par on the 7¾% Senior Secured Notes as of March 31, 2020 and December 31, 2019, respectively.	
		
(2)	Excludes a $72 million and $75 million discount to par on the 6⅜% Convertible Senior Notes as of March 31, 2020 and December 31, 2019, respectively.	

17