10-Q 1 den-20210930.htm FORM 10-Q den-20210930
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2021
OR

   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to ________

Commission file number: 001-12935
den-20210930_g1.jpg
DENBURY INC.
(Exact name of registrant as specified in its charter)

Delaware 20-0467835
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
5851 Legacy Circle,
Plano, TX 75024
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (972)673-2000

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:Trading Symbol:Name of Each Exchange on Which Registered:
Common Stock $.001 Par ValueDENNew York Stock Exchange

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
  (Do not check if a smaller reporting 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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ☑

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes    No ☐

The number of shares outstanding of the registrant’s Common Stock, $.001 par value, as of October 31, 2021, was 50,122,417.





Denbury Inc.

Table of Contents

Page
 
 


2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Denbury Inc.
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par value and share data)
Successor
September 30, 2021December 31, 2020
Assets
Current assets  
Cash and cash equivalents$1,783 $518 
Restricted cash 1,000 
Accrued production receivable144,370 91,421 
Trade and other receivables, net20,867 19,682 
Derivative assets 187 
Prepaids10,872 14,038 
Total current assets177,892 126,846 
Property and equipment  
Oil and natural gas properties (using full cost accounting)  
Proved properties1,011,545 851,208 
Unevaluated properties108,258 85,304 
CO2 properties
188,752 188,288 
Pipelines193,669 133,485 
Other property and equipment94,763 86,610 
Less accumulated depletion, depreciation, amortization and impairment(151,844)(41,095)
Net property and equipment1,445,143 1,303,800 
Operating lease right-of-use assets18,253 20,342 
Intangible assets, net90,533 97,362 
Other assets80,444 86,408 
Total assets$1,812,265 $1,634,758 
Liabilities and Stockholders’ Equity
Current liabilities  
Accounts payable and accrued liabilities$211,894 $112,671 
Oil and gas production payable69,717 49,165 
Derivative liabilities193,015 53,865 
Current maturities of long-term debt17,332 68,008 
Operating lease liabilities3,338 1,350 
Total current liabilities495,296 285,059 
Long-term liabilities  
Long-term debt, net of current portion 70,000 
Asset retirement obligations243,184 179,338 
Derivative liabilities16,435 5,087 
Deferred tax liabilities, net1,241 1,274 
Operating lease liabilities17,362 19,460 
Other liabilities25,954 20,872 
Total long-term liabilities304,176 296,031 
Commitments and contingencies (Note 8)
Stockholders’ equity
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding  
Common stock, $.001 par value, 250,000,000 shares authorized; 50,120,895 and 49,999,999 shares issued, respectively50 50 
Paid-in capital in excess of par1,128,030 1,104,276 
Accumulated deficit(115,287)(50,658)
Total stockholders equity
1,012,793 1,053,668 
Total liabilities and stockholders’ equity$1,812,265 $1,634,758 
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3


Denbury Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per-share data)
SuccessorPredecessor
Three Months Ended
Sept. 30, 2021
Period from Sept. 19, 2020 through
Sept. 30, 2020
Period from July 1, 2020 through
Sept. 18, 2020
Revenues and other income  
Oil, natural gas, and related product sales$308,454 $22,321 $153,090 
CO2 sales and transportation fees
12,237 967 6,517 
Oil marketing revenues12,593 151 3,332 
Other income10,451 94 7,097 
Total revenues and other income343,735 23,533 170,036 
Expenses  
Lease operating expenses116,536 11,484 59,708 
Transportation and marketing expenses5,985 1,344 8,155 
CO2 operating and discovery expenses
1,963 242 955 
Taxes other than income24,154 2,073 13,473 
Oil marketing purchases11,940 139 3,288 
General and administrative expenses15,388 1,735 15,013 
Interest, net of amounts capitalized of $1,249, $183 and $4,704, respectively669 334 7,704 
Depletion, depreciation, and amortization37,691 5,283 36,317 
Commodity derivatives expense (income)41,745 (4,035)4,609 
Write-down of oil and natural gas properties  261,677 
Reorganization items, net  849,980 
Other expenses4,553 2,164 22,084 
Total expenses260,624 20,763 1,282,963 
Income (loss) before income taxes83,111 2,770 (1,112,927)
Income tax provision (benefit)403 12 (303,807)
Net income (loss)$82,708 $2,758 $(809,120)
Net income (loss) per common share
Basic$1.62 $0.06 $(1.63)
Diluted$1.51 $0.06 $(1.63)
Weighted average common shares outstanding  
Basic51,094 50,000 497,398 
Diluted54,714 50,000 497,398 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4


Denbury Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per-share data)
SuccessorPredecessor
Nine Months Ended
Sept. 30, 2021
Period from Sept. 19, 2020 through
Sept. 30, 2020
Period from Jan. 1, 2020 through
Sept. 18, 2020
Revenues and other income   
Oil, natural gas, and related product sales$826,607 $22,321 $492,101 
CO2 sales and transportation fees
31,599 967 21,049 
Oil marketing revenues26,538 151 8,543 
Other income11,518 94 8,419 
Total revenues and other income896,262 23,533 530,112 
Expenses   
Lease operating expenses308,731 11,484 250,271 
Transportation and marketing expenses22,304 1,344 27,164 
CO2 operating and discovery expenses
4,487 242 2,592 
Taxes other than income65,499 2,073 43,531 
Oil marketing purchases25,763 139 8,399 
General and administrative expenses62,821 1,735 48,522 
Interest, net of amounts capitalized of $3,500, $183 and $22,885, respectively3,457 334 48,267 
Depletion, depreciation, and amortization113,522 5,283 188,593 
Commodity derivatives expense (income)330,152 (4,035)(102,032)
Gain on debt extinguishment   (18,994)
Write-down of oil and natural gas properties14,377  996,658 
Reorganization items, net  849,980 
Other expenses9,913 2,164 35,868 
Total expenses961,026 20,763 2,378,819 
Income (loss) before income taxes(64,764)2,770 (1,848,707)
Income tax provision (benefit)(135)12 (416,129)
Net income (loss)$(64,629)$2,758 $(1,432,578)
Net income (loss) per common share
Basic$(1.27)$0.06 $(2.89)
Diluted$(1.27)$0.06 $(2.89)
Weighted average common shares outstanding   
Basic50,807 50,000 495,560 
Diluted50,807 50,000 495,560 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5


Denbury Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
SuccessorPredecessor
 Nine Months Ended
Sept. 30, 2021
Period from Sept. 19, 2020 through
Sept. 30, 2020
Period from Jan. 1, 2020 through
Sept. 18, 2020
Cash flows from operating activities  
Net income (loss)$(64,629)$2,758 $(1,432,578)
Adjustments to reconcile net income (loss) to cash flows from operating activities 
Noncash reorganization items, net  810,909 
Depletion, depreciation, and amortization113,522 5,283 188,593 
Write-down of oil and natural gas properties14,377  996,658 
Deferred income taxes(34)6 (408,869)
Stock-based compensation22,788  4,111 
Commodity derivatives expense (income)330,152 (4,035)(102,032)
Receipt (payment) on settlements of commodity derivatives(179,466)6,660 81,396 
Gain on debt extinguishment  (18,994)
Debt issuance costs and discounts2,055 114 11,571 
Gain from asset sales and other(7,026) (6,723)
Other, net(2,448)589 7,162 
Changes in assets and liabilities, net of effects from acquisitions  
Accrued production receivable(52,948)38,537 26,575 
Trade and other receivables(1,809)1,366 (22,343)
Other current and long-term assets7,337 705 743 
Accounts payable and accrued liabilities47,484 (7,980)(16,102)
Oil and natural gas production payable23,168 (11,064)(6,792)
Other liabilities(4,966)(29)123 
Net cash provided by operating activities247,557 32,910 113,408 
Cash flows from investing activities  
Oil and natural gas capital expenditures(113,041)(2,125)(99,582)
Acquisitions of oil and natural gas properties(10,927)(1) 
Pipelines and plants capital expenditures(19,123)(6)(11,601)
Net proceeds from sales of oil and natural gas properties and equipment19,053 880 41,322 
Other5,797 (308)12,747 
Net cash used in investing activities(118,241)(1,560)(57,114)
Cash flows from financing activities  
Bank repayments(697,000)(55,000)(551,000)
Bank borrowings627,000  691,000 
Interest payments treated as a reduction of debt  (46,417)
Cash paid in conjunction with debt repurchases  (14,171)
Costs of debt financing  (12,482)
Pipeline financing repayments(50,676)(54)(51,792)
Other(2,426) (9,363)
Net cash provided by (used in) financing activities(123,102)(55,054)5,775 
Net increase (decrease) in cash, cash equivalents, and restricted cash6,214 (23,704)62,069 
Cash, cash equivalents, and restricted cash at beginning of period42,248 95,114 33,045 
Cash, cash equivalents, and restricted cash at end of period$48,462 $71,410 $95,114 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6


Denbury Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity
(Dollar amounts in thousands)
Common Stock
($.001 Par Value)
Paid-In
Capital in
Excess of
Par
Retained
Earnings (Accumulated Deficit)
Treasury Stock
(at cost)
SharesAmountSharesAmountTotal Equity
Balance – December 31, 2020 (Successor)49,999,999 $50 $1,104,276 $(50,658)— $— $1,053,668 
Stock-based compensation— — 19,172 — — — 19,172 
Tax withholding for stock compensation plans— — (1,467)— — — (1,467)
Issued pursuant to exercise of warrants5,620 0 195 — — — 195 
Net loss— — — (69,642)— — (69,642)
Balance – March 31, 2021 (Successor)50,005,619 50 1,122,176 (120,300)— — 1,001,926 
Stock-based compensation— — 2,682 — — — 2,682 
Tax withholding for stock compensation plans— — (7)— — — (7)
Issued pursuant to exercise of warrants11,872 0 292 — — — 292 
Net loss— — — (77,695)— — (77,695)
Balance – June 30, 2021 (Successor)50,017,491 50 1,125,143 (197,995)— — 927,198 
Stock-based compensation— — 2,686 — — — 2,686 
Issued pursuant to exercise of warrants103,404 0 201 — — — 201 
Net income— — — 82,708 — — 82,708 
Balance – September 30, 2021 (Successor)50,120,895 $50 $1,128,030 $(115,287)— $— $1,012,793 

Common Stock
($.001 Par Value)
Paid-In
Capital in
Excess of
Par
Retained
Earnings (Accumulated Deficit)
Treasury Stock
(at cost)
SharesAmountSharesAmountTotal Equity
Balance – December 31, 2019 (Predecessor)508,065,495 $508 $2,739,099 $(1,321,314)1,652,771 $(6,034)$1,412,259 
Issued pursuant to stock compensation plans312,516 — — — — — — 
Issued pursuant to directors’ compensation plan37,367 — — — — — — 
Stock-based compensation— — 3,204 — — — 3,204 
Tax withholding for stock compensation plans— — — — 175,673 (34)(34)
Net income— — — 74,016 — — 74,016 
Balance – March 31, 2020 (Predecessor)508,415,378 508 2,742,303 (1,247,298)1,828,444 (6,068)1,489,445 
Canceled pursuant to stock compensation plans(6,218,868)(6)6 — — — — 
Issued pursuant to notes conversion7,357,450 8 11,453 — — — 11,461 
Stock-based compensation— — 987 — — — 987 
Net loss— — — (697,474)— — (697,474)
Balance – June 30, 2020 (Predecessor)509,553,960 510 2,754,749 (1,944,772)1,828,444 (6,068)804,419 
Canceled pursuant to stock compensation plans(95,016)— — — — — — 
Issued pursuant to notes conversion14,800 — 40 — — — 40 
Stock-based compensation— — 10,126 — — — 10,126 
Tax withholding for stock compensation plans— — — — 567,189 (134)(134)
Net loss— — — (809,120)— — (809,120)
Cancellation of Predecessor equity(509,473,744)(510)(2,764,915)2,753,892 (2,395,633)6,202 (5,331)
Issuance of Successor equity49,999,999 50 1,095,369 — — — 1,095,419 
Balance – September 18, 2020 (Predecessor)49,999,999 $50 $1,095,369 $— — $— $1,095,419 
Balance – September 19, 2020 (Successor)49,999,999 $50 $1,095,369 $— — $— $1,095,419 
Net income— — — 2,758 — — 2,758 
Balance – September 30, 2020 (Successor)49,999,999 50 1,095,369 2,758 — — 1,098,177 
Stock-based compensation— — 8,907 — — — 8,907 
Net loss— — — (53,416)— — (53,416)
Balance – December 31, 2020 (Successor)49,999,999 $50 $1,104,276 $(50,658)— $— $1,053,668 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

7


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

Organization and Nature of Operations

Denbury Inc. (“Denbury,” “Company” or the “Successor”), a Delaware corporation, is an independent energy company with operations focused in the Gulf Coast and Rocky Mountain regions. The Company is differentiated by its focus on CO2 enhanced oil recovery (“EOR”) and the emerging carbon capture, use, and storage (“CCUS”) industry, supported by the Company’s CO2 EOR technical and operational expertise and its extensive CO2 pipeline infrastructure. The utilization of captured industrial-sourced CO2 in EOR significantly reduces the carbon footprint of the oil that Denbury produces, making the Company’s scope 1 and 2 CO2 emissions negative today, with a goal to also fully offset scope 3 CO2 emissions within this decade, primarily through increasing the amount of captured industrial-sourced CO2 used in its operations.

Emergence from Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code

On July 30, 2020 (the “Petition Date”), Denbury Resources Inc. (the “Predecessor”) and its subsidiaries filed petitions for reorganization in a “prepackaged” voluntary bankruptcy (the “Chapter 11 Restructuring”) under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) under the caption “In re Denbury Resources Inc., et al., Case No. 20-33801”. On September 2, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the prepackaged joint plan of reorganization (the “Plan”) and approving the Disclosure Statement, and on September 18, 2020 (the “Emergence Date”), the Plan became effective in accordance with its terms and the Company emerged from Chapter 11 as the successor reporting company of Denbury Resources Inc. On April 23, 2021, the Bankruptcy Court entered a final decree closing the Chapter 11 case captioned “In re Denbury Resources Inc., et al., Case No. 20-33801”; therefore, we have no remaining obligations related to this reorganization.

Upon emergence from bankruptcy, we met the criteria and were required to adopt fresh start accounting in accordance with Financial Accounting Standards Board Codification (“FASC”) Topic 852, Reorganizations. Fresh start accounting requires that new fair values be established for the Company’s assets, liabilities and equity as of the Emergence Date, and therefore certain values and operational results of the condensed consolidated financial statements subsequent to September 18, 2020 are not comparable to those in the Company’s condensed consolidated financial statements prior to, and including September 18, 2020. The Emergence Date fair values of the Successor’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets of the Predecessor contained in periodic reports previously filed with the Securities and Exchange Commission. References to “Successor” relate to the financial position and results of operations of the Company subsequent to September 18, 2020, and references to “Predecessor” relate to the financial position and results of operations of the Company prior to, and including, September 18, 2020.

Reorganization Items, Net

Reorganization items, net, include (i) expenses incurred during the Chapter 11 Restructuring subsequent to the Petition Date as a direct result of the Plan, (ii) gains or losses from liabilities settled and (iii) fresh start accounting adjustments and are recorded in “Reorganization items, net” in our Unaudited Condensed Consolidated Statements of Operations. Professional service provider charges associated with our restructuring that were incurred before the Petition Date and after the Emergence Date are recorded in “Other expenses” in our Unaudited Condensed Consolidated Statements of Operations.


8


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes the losses (gains) on reorganization items, net:
Predecessor
In thousandsPeriod from July 1, 2020 through
Sept. 18, 2020
Gain on settlement of liabilities subject to compromise$(1,024,864)
Fresh start accounting adjustments1,834,423 
Professional service provider fees and other expenses11,267 
Success fees for professional service providers9,700 
Loss on rejected contracts and leases10,989 
Valuation adjustments to debt classified as subject to compromise757 
Debtor-in-possession credit agreement fees3,107 
Acceleration of Predecessor stock compensation expense4,601 
Total reorganization items, net$849,980 

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Denbury Inc. and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”).  Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Denbury,” refer to Denbury Inc. and its subsidiaries.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end, and the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year.  In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of our consolidated financial position as of September 30, 2021 (Successor); our consolidated results of operations and consolidated statement of changes in stockholders’ equity for the three and nine months ended September 30, 2021 (Successor), for the period September 19, 2020 through September 30, 2020 (Successor), for the period July 1, 2020 through September 18, 2020 (Predecessor) and January 1, 2020 through September 18, 2020 (Predecessor); and our consolidated cash flows for the nine months ended September 30, 2021 (Successor), for the period September 19, 2020 through September 30, 2020 (Successor) and for the period January 1, 2020 through September 18, 2020 (Predecessor). Upon the adoption of fresh start accounting, the Company’s assets and liabilities were recorded at their fair values as of the fresh start reporting date. As a result of the adoption of fresh start accounting, certain values and operational results of the Company’s condensed consolidated financial statements subsequent to September 18, 2020 are not comparable to those in its condensed consolidated financial statements prior to, and including September 18, 2020.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on our reported net income (loss), current assets, total assets, current liabilities, total liabilities or stockholders’ equity.

9


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported within the Unaudited Condensed Consolidated Balance Sheets to “Cash, cash equivalents, and restricted cash at end of period” as reported within the Unaudited Condensed Consolidated Statements of Cash Flows:
Successor
In thousandsSeptember 30, 2021December 31, 2020
Cash and cash equivalents$1,783 $518 
Restricted cash, current 1,000 
Restricted cash included in other assets46,679 40,730 
Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statements of Cash Flows$48,462 $42,248 

Restricted cash included in other assets in the table above consists of escrow accounts that are legally restricted for certain of our asset retirement obligations, and are included in “Other assets” in the accompanying Unaudited Condensed Consolidated Balance Sheets.

Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Diluted net income per common share is calculated in the same manner but includes the impact of potentially dilutive securities.  Potentially dilutive securities during the Successor periods consist of nonvested restricted stock units and outstanding series A and series B warrants, and during the Predecessor periods consisted of nonvested restricted stock, nonvested performance-based equity awards, and convertible senior notes. For each of the three and nine months ended September 30, 2021 and for the periods September 19, 2020 through September 30, 2020 (Successor), July 1, 2020 through September 18, 2020 (Predecessor) and January 1, 2020 through September 18, 2020 (Predecessor), there were no adjustments to net income (loss) for purposes of calculating basic and diluted net income (loss) per common share.

The following table reconciles the weighted average shares used in the basic and diluted net income (loss) per common share calculations for the periods indicated:
SuccessorPredecessor
In thousandsThree Months Ended
Sept. 30, 2021
Period from Sept. 19, 2020 through
Sept. 30, 2020
Period from July 1, 2020 through
Sept. 18, 2020
Weighted average common shares outstanding – basic51,094 50,000 497,398 
Effect of potentially dilutive securities
Restricted stock units908   
Warrants2,712   
Weighted average common shares outstanding – diluted54,714 50,000 497,398 

For the nine months ended September 30, 2021 and for each of the periods from July 1, 2020 through September 18, 2020 (Predecessor) and from January 1, 2020 through September 18, 2020 (Predecessor), the weighted average common shares outstanding used to calculate basic earnings per share and diluted earnings per share were the same, since the Company generated a net loss during those periods. The weighted average diluted shares outstanding would have been 53.4 million for the nine months ended September 30, 2021, 580.0 million for the period July 1, 2020 through September 18, 2020, and 584.4 million for the period January 1, 2020 through September 18, 2020 if the Company had recognized net income during those periods.


10


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Basic weighted average common shares during the Successor periods includes 987,987 and 767,228 performance stock units during the three and nine months ended September 30, 2021, respectively, with vesting parameters tied to the Company’s common stock trading prices and which became fully vested on March 3, 2021. Although the performance measures for vesting of these awards have been achieved, the shares underlying these awards are not currently outstanding as actual delivery of the shares is not scheduled to occur until after the end of the performance period, December 4, 2023. Basic weighted average common shares includes time-vesting restricted stock units during the Successor periods and restricted stock during the Predecessor periods that vested during the periods.

For purposes of calculating diluted weighted average common shares for the three months ended September 30, 2021, the nonvested restricted stock units and warrants are included in the computation using the treasury stock method.

The following outstanding securities were excluded from the computation of diluted net loss per share for the nine months ended September 30, 2021 and from diluted net income per share for the period September 19, 2020 to September 30, 2020, as their effect would have been antidilutive, as of the respective dates:
Successor
In thousandsSeptember 30, 2021September 30, 2020
Restricted stock units1,255  
Warrants5,314 5,526 

For the nine months ended September 30, 2021 Successor period, the Company’s restricted stock units and series A and series B warrants were antidilutive based on the Company’s net loss position for the period. Despite the Company’s net income position for the period September 19, 2020 to September 30, 2020, the Company’s series A and series B warrants were antidilutive because the Company’s stock price during the period was lower than the warrant exercise prices. At September 30, 2021, the Company had approximately 5.3 million warrants outstanding that can be exercised for shares of the Successor’s common stock, at an exercise price of $32.59 per share for the 2.6 million series A warrants outstanding and at an exercise price of $35.41 per share for the 2.7 million series B warrants outstanding. The series A warrants are exercisable until September 18, 2025, and the series B warrants are exercisable until September 18, 2023, at which time the warrants expire. The warrants were issued pursuant to the Plan to holders of the Predecessor’s convertible senior notes, senior subordinated notes, and equity. As of September 30, 2021, 8,390 series A warrants and 203,501 series B warrants had been exercised. The warrants may be exercised for cash or on a cashless basis. If warrants are exercised on a cashless basis, the amount of dilution will be less than 5.3 million shares.

Oil and Natural Gas Properties

Unevaluated Costs. Under full cost accounting, we exclude certain unevaluated costs from the amortization base and full cost ceiling test pending the determination of whether proved reserves can be assigned to such properties. These costs are transferred to the full cost amortization base as these properties are developed, tested and evaluated. At least annually, we test these assets for impairment based on an evaluation of management’s expectations of future pricing, evaluation of lease expiration terms, and planned development activities. In the first quarter of 2020 Predecessor period, given the significant declines in NYMEX oil prices in March and April 2020, we reassessed our development plans and transferred $244.9 million of our unevaluated costs to the full cost amortization base. Upon emergence from bankruptcy, the Company adopted fresh start accounting which resulted in our oil and natural gas properties, including unevaluated properties, being recorded at their fair values at the Emergence Date.

Write-Down of Oil and Natural Gas Properties. Under full cost accounting, the net capitalized costs of oil and natural gas properties are limited to the lower of unamortized cost or the cost center ceiling. The cost center ceiling is defined as (1) the present value of estimated future net revenues from proved oil and natural gas reserves before future abandonment costs (discounted at 10%), based on the average first-day-of-the-month oil and natural gas price for each month during a 12-month rolling period prior to the end of a particular reporting period; plus (2) the cost of properties not being amortized; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) related income tax effects. Our future net revenues from proved oil and natural gas reserves are not reduced for development costs related to the cost of drilling for and developing CO2 reserves nor those related to the cost of constructing CO2 pipelines, as we do not have to incur additional CO2 capital costs to develop the proved oil and natural gas reserves. Therefore, we include in the ceiling test, as a reduction of future net revenues, that portion of our capitalized CO2 costs related to CO2 reserves and CO2

11


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
pipelines that we estimate will be consumed in the process of producing our proved oil and natural gas reserves. The fair value of our oil and natural gas derivative contracts is not included in the ceiling test, as we do not designate these contracts as hedge instruments for accounting purposes. The cost center ceiling test is prepared quarterly.

We recognized a full cost pool ceiling test write-down of $14.4 million during the three months ended March 31, 2021, with first-day-of-the-month NYMEX oil prices for the preceding 12 months averaging $36.40 per Bbl, after adjustments for market differentials and transportation expenses by field. The write-down was primarily a result of the March 2021 acquisition of Wyoming property interests (see Note 2, Acquisition and Divestitures) which was recorded based on a valuation that utilized NYMEX strip oil prices at the acquisition date, which were significantly higher than the average first-day-of-the-month NYMEX oil prices used to value the cost ceiling.

The Predecessor also recognized full cost pool ceiling test write-downs of $261.7 million during the period from July 1, 2020 through September 18, 2020, $662.4 million during the three months ended June 30, 2020 and $72.5 million during the three months ended March 31, 2020. We did not record any ceiling test write-downs during the Successor periods from September 19, 2020 through September 30, 2020, for the three months ended June 30, 2021, or for the three months ended September 30, 2021.

Recent Accounting Pronouncements

Recently Adopted

Income Taxes. In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The objective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. Effective January 1, 2021, we adopted ASU 2019-02. The implementation of this standard did not have a material impact on our consolidated financial statements and related footnote disclosures.

Note 2. Acquisition and Divestitures

Acquisition of Wyoming CO2 EOR Fields

On March 3, 2021, we acquired a nearly 100% working interest (approximately 83% net revenue interest) in the Big Sand Draw and Beaver Creek EOR fields located in Wyoming from a subsidiary of Devon Energy Corporation for $10.9 million cash (after final closing adjustments), including surface facilities and a 46-mile CO2 transportation pipeline to the acquired fields. The acquisition agreement provides for us to make two contingent cash payments, one in January 2022 and one in January 2023, of $4 million each, conditioned on NYMEX WTI oil prices averaging at least $50 per Bbl during each of 2021 and 2022. The fair value of the contingent consideration on the acquisition date was $5.3 million, and as of September 30, 2021, the fair value of the contingent consideration recorded on our Unaudited Condensed Consolidated Balance Sheets was $7.4 million. The $2.1 million increase at September 30, 2021 from the March 2021 acquisition date fair value was the result of higher NYMEX WTI oil prices and was recorded to “Other expenses” in our Unaudited Condensed Consolidated Statements of Operations.

The fair values allocated to our assets acquired and liabilities assumed for the acquisition were based on significant inputs not observable in the market and considered level 3 inputs. The fair value of the assets acquired and liabilities assumed was finalized during the third quarter of 2021, after consideration of final closing adjustments and evaluation of reserves and

12


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
liabilities assumed. The following table presents a summary of the fair value of assets acquired and liabilities assumed in the acquisition:

In thousands
Consideration:
Cash consideration$10,906 
Less: Fair value of assets acquired and liabilities assumed:
Proved oil and natural gas properties60,101 
Other property and equipment1,685 
Asset retirement obligations(39,794)
Contingent consideration(5,320)
Other liabilities(5,766)
Fair value of net assets acquired$10,906 

Divestitures

Hartzog Draw Deep Mineral Rights

On June 30, 2021, we closed the sale of undeveloped, unconventional deep mineral rights in Hartzog Draw Field in Wyoming. The cash proceeds of $18 million were recorded to “Proved properties” in our Unaudited Condensed Consolidated Balance Sheets. The proceeds reduced our full cost pool; therefore, no gain or loss was recorded on the transaction, and the sale had no impact on our production or reserves.

Houston Area Land Sales

During the third quarter of 2021, we completed sales of a portion of certain non-producing surface acreage in the Houston area. We recognized cash proceeds of $11.8 million from the sales and recorded a $7.0 million gain to “Other income” in our Unaudited Condensed Consolidated Statements of Operations.

Note 3. Revenue Recognition

We record revenue in accordance with FASC Topic 606, Revenue from Contracts with Customers. The core principle of FASC Topic 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount of consideration that it expects to be entitled to receive for those goods or services. Once we have delivered the volume of commodity to the delivery point and the customer takes delivery and possession, we are entitled to payment and we invoice the customer for such delivered production. Payment under most oil and CO2 contracts is received within a month following product delivery, and for natural gas and NGL contracts, payment is generally received within two months following delivery. Timing of revenue recognition may differ from the timing of invoicing to customers; however, as the right to consideration after delivery is unconditional based on only the passage of time before payment of the consideration is due, upon delivery we record a receivable in “Accrued production receivable” in our Unaudited Condensed Consolidated Balance Sheets. From time to time, the Company enters into marketing arrangements for the purchase and sale of crude oil for third parties. Revenues and expenses from these transactions are presented on a gross basis, as we act as a principal in the transaction by assuming control of the commodities purchased and responsibility to deliver the commodities sold. Revenue is recognized when control transfers to the purchaser at the delivery point based on the price received from the purchaser.


13


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Disaggregation of Revenue

The following tables summarize our revenues by product type for the periods indicated:
SuccessorPredecessor
In thousandsThree Months Ended
Sept. 30, 2021
Period from Sept. 19, 2020 through
Sept. 30, 2020
Period from July 1, 2020 through
Sept. 18, 2020
Oil sales$305,093 $22,311 $152,136 
Natural gas sales3,361 10 954 
CO2 sales and transportation fees
12,237 967 6,517 
Oil marketing revenues12,593 151 3,332 
Total revenues$333,284 $23,439 $162,939 

SuccessorPredecessor
In thousandsNine Months Ended
Sept. 30, 2021
Period from Sept. 19, 2020 through
Sept. 30, 2020
Period from Jan. 1, 2020 through
Sept. 18, 2020
Oil sales$818,714 $22,311 $489,251 
Natural gas sales7,893 10 2,850 
CO2 sales and transportation fees
31,599 967 21,049 
Oil marketing revenues26,538 151 8,543 
Total revenues$884,744 $23,439 $521,693 

Note 4. Long-Term Debt

The table below reflects long-term debt outstanding as of the dates indicated:
Successor
In thousandsSeptember 30, 2021December 31, 2020
Senior Secured Bank Credit Agreement$ $70,000 
Pipeline financings17,332 68,008 
Total debt principal balance17,332 138,008 
Less: current maturities of long-term debt(17,332)(68,008)
Long-term debt $ $70,000 

Senior Secured Bank Credit Agreement

On the Emergence Date, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders party thereto (the “Bank Credit Agreement”). The Bank Credit Agreement is a senior secured revolving credit facility with a borrowing base and lender commitments of $575 million. Availability under the Bank Credit Agreement is subject to a borrowing base, which is redetermined semiannually on or around May 1 and November 1 of each year, with our next scheduled redetermination around May 1, 2022. The borrowing base is adjusted at the lenders’ discretion and is based, in part, upon external factors over which we have no control. If our outstanding debt under the Ban