As filed with the Securities and Exchange Commission on February 2, 2010

Registration Statement No. 333-      

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

1311

(Primary Standard Industrial Classification Code Number)

 

Mark C. Allen, Senior Vice President and Chief Financial Officer

Denbury Resources Inc.

5100 Tennyson Pkwy., Ste. 1200

Plano, Texas 75024

(972) 673-2000

(Name, address and telephone number of Registrant’s executive offices and agent for service)

 

Copies to:

 

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

 

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.  o

 

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.  þ

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box.  þ

 

If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

Subject to completion, dated February 2, 2010

 

Preliminary Prospectus

 

Denbury Resources Inc.

 

$1,000,000,000     
     % Senior Subordinated Notes due 2020

 

Interest payable      and     

 

Issue price:     %

 

We are offering $1,000,000,000 aggregate principal amount of     % Senior Subordinated Notes due 2020 (the “notes”). The notes will bear interest at     % per year and will mature on          , 2020. Interest will be payable on           and           of each year, beginning on          , 2010.

 

We may redeem the notes in whole or in part on and after          , 2015 at the redemption price described herein. In addition, except as noted below, prior to          , 2015 we may redeem the notes in whole or in part at a price equal to 100% of the principal amount thereof plus a “make whole” premium and accrued and unpaid interest. We may also redeem up to 35% of the notes before          , 2013, with the proceeds of certain equity offerings. If we sell all or substantially all of our assets or experience specific kinds of changes in control, we must offer to repurchase the notes. There is no sinking fund for the notes.

 

The notes are being offered to finance in part our acquisition of Encore Acquisition Company, or Encore. Upon consummation of the offering of the notes, we will deposit the net proceeds from this offering into escrow as described in “Description of the notes — Escrow of proceeds; special mandatory redemption.” If the merger with Encore does not occur on or prior to May 31, 2010, or if the merger agreement is terminated at any time prior thereto, we will be required to redeem all of the notes offered hereby at a redemption price equal to the aggregate issue price of the notes, plus accrued and unpaid interest.

 

Approximately $400.0 million of the net proceeds from this offering will be used to fund a portion of the purchase price for Encore and the remainder will be used to fund tender offers or change of control offers for $600.0 million principal amount of Encore senior subordinated notes. After the merger, to the extent that fewer than $600.0 million principal amount of Encore senior subordinated notes are tendered for repurchase by August 1, 2010, we will be required to redeem an amount of notes offered hereby equal to such shortfall at a redemption price equal to the issue price of the notes, plus accrued and unpaid interest. See “Description of the notes — Escrow of proceeds; special mandatory redemption.”

 

The notes are our senior subordinated obligations. The notes will be unsecured and will rank equally with all of our existing and future unsecured senior subordinated debt, will be subordinated to all of our existing and future senior debt and will rank senior to all of our existing and future subordinated debt. Our obligations under the notes are guaranteed on a senior subordinated basis by substantially all of our current and future domestic subsidiaries.

 

Investing in the notes involves substantial risk. See “Risk factors” beginning on page 22.

 

 

 

The notes will not be listed on any securities exchange. Currently there is no public market for the notes.

 

Delivery of the notes, in book-entry form, will be made on or about          , 2010 through The Depository Trust Company.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

Joint book-running managers

 

 

Co-managers

 

 

          , 2010

 

About this prospectus

 

This prospectus relates to the offer and sale by us of the notes. You should rely on the information contained or incorporated by reference into this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone else provides you with different or inconsistent information, you should not rely on it. We and the underwriters are not making an offer to sell the notes in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus and the documents incorporated by reference are accurate only as of their respective dates. Our business, results of operations, financial condition and prospects may have changed since those dates.

 

Table of contents

 

 

Our principal executive office is located at 5100 Tennyson Parkway, Suite 1200, Plano, Texas 75024 and our telephone number is (972) 673-2000. We also have four primary field offices, located in Jackson, Mississippi; Laurel, Mississippi; McComb, Mississippi; and Pearland, Texas.

Cautionary statements concerning forward-looking statements

 

This document and the documents incorporated by reference herein include “forward-looking statements” about Denbury, Encore and the combined company after the merger of Encore into Denbury, within the meaning of Section 27A of the Securities Act of 1933, as amended (which is referred to as the Securities Act in this prospectus), Section 21E of the Securities Exchange Act of 1934, as amended (which is referred to as the Exchange Act in this prospectus), and the Private Securities Litigation Reform Act of 1995, regarding the financial position, business strategy, production and reserve growth, possible or assumed future results of operations, and other plans and objectives for the future operations of Denbury following the merger, and statements regarding integration of the businesses of Denbury and Encore and general economic conditions. See “Summary—The merger” and “Risk factors.”

 

The events and circumstances referred to in forward-looking statements are subject to numerous risks and uncertainties. Although we believe that in making such statements our expectations are based on reasonable assumptions, the events and circumstances referred to may be influenced by factors that could cause actual outcomes and results to be materially different from those projected.

 

Except for its obligations to disclose material information under United States federal securities laws, Denbury does not undertake any obligation to release publicly any revision to any forward-looking statement, to report events or circumstances after the date of this document or to report the occurrence of unanticipated events.

 

Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “will,” “would,” “should,” “plans,” “likely,” “expects,” “anticipates,” “intends,” “believes,” “estimates,” “thinks,” “may” and similar expressions, are forward-looking statements. The following important factors, in addition to those discussed under “Risk factors” and elsewhere in this document, could affect the future results of the energy industry in general, and Denbury after the merger in particular, and could cause those results to differ materially from those expressed in or implied by such forward-looking statements:

 

 

 

All written and oral forward-looking statements attributable to Denbury or persons acting on behalf of Denbury are expressly qualified in their entirety by such factors. For additional information with respect to these factors, see “Where you can find more information.”

 

Where you can find more information

 

We are subject to the informational requirements of the Securities Exchange Act of 1934, which requires us to file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document that we file at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of its public reference room. You may view our reports electronically at the SEC’s Internet site at http://www.sec.gov, or at our own website at http://www.denbury.com.

 

This prospectus constitutes part of a Registration Statement on Form S-3 filed with the SEC under the Securities Act of 1933. It omits some of the information contained in the Registration Statement, and reference is made to the Registration Statement for further information with respect to us and the securities we are offering. Any statement contained in this prospectus concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the SEC is not necessarily complete, and in each instance reference is made to the filed document.

 

The SEC allows us to “incorporate by reference” the information we file with it, which means that we can disclose important information to you by referring you to that information. Any information referred to in this way is considered part of this prospectus from the date we file the document containing it. Any reports filed by us with the SEC after the date of this prospectus and before the date that the offering of the securities by means of this prospectus is terminated will automatically update and, where applicable, supersede any information contained in this prospectus or incorporated by reference in this prospectus. We incorporate by reference (excluding any information furnished pursuant to Item 2.02 or 7.01 of any report on Form 8-K) the documents listed below and any future filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until we sell all the securities covered by this prospectus:

 

Incorporated documents

 

 

 

You may request a copy of these filings at no cost by writing or telephoning Laurie Burkes, Investor Relations at Denbury Resources Inc., 5100 Tennyson Pkwy., Suite 1200, Plano, Texas 75024, phone: (972) 673-2000.

 

Summary

•	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;

•	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.

•	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.
•	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 79% 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.
•	The merger will expand 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.
•	Denbury anticipates that the increased size, scale and diversification of the combined company will allow it to ultimately reduce its 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 expects the combined company reserves and production to double.
•	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 Encore Energy Partners LP (“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.
•	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.
•	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).
•	Integration of the companies should be facilitated by the two companies being headquartered within the same greater metropolitan area.

Issuer		Denbury Resources Inc.
Notes offered		$1,000,000,000 aggregate principal amount of     % Senior Subordinated Notes due 2020.
Maturity		The notes will mature on          , 2020.
Interest		Interest on the notes will accrue at a rate of     % per annum, payable semi-annually in arrears on           and           of each year, commencing          , 2010.
Optional redemption		Except as set forth below, we cannot redeem the notes before          , 2015. On and after          , 2015, we can redeem some or all of the notes in cash at the redemption prices described in this prospectus, plus accrued and unpaid interest to the date of redemption. Interest will accrue from          , 2010.
		At any time prior to          , 2015, we may redeem all or a portion of the notes at a price equal to 100% of the principal amount of the notes to be redeemed plus a “make whole” premium and accrued and unpaid interest. In addition, at any time and from time to time, on and before          , 2013, we may redeem up to 35% of the notes with the proceeds of certain equity offerings, in each case, at the redemption prices set forth in this prospectus, plus accrued and unpaid interest.
Escrow of proceeds; special mandatory redemption		Upon consummation of the offering of the notes, we will deposit the net proceeds into escrow.
		If the merger with Encore does not occur on or prior to May 31, 2010, or if the merger agreement is terminated at any time prior thereto, we will be required to redeem all of the notes offered hereby, at a redemption price equal to the issue price of the notes, plus accrued and unpaid interest. After the merger, to the extent that fewer than $600.0 million principal amount of Encore senior subordinated notes are tendered for repurchase by August 1, 2010, we will be required to redeem an amount of notes offered hereby equal to such shortfall at a redemption price equal to the issue price of the notes, plus accrued and unpaid interest. See “Description of the notes—Escrow of proceeds; special mandatory redemption.”
Change of control		If a change of control occurs, subject to certain conditions, we must give holders of the notes an opportunity to sell us the notes at a purchase price of 101% of the principal amount of the notes, plus accrued and unpaid interest to the date of the purchase. See “Description of the notes—Change of control.”
Guarantees		The payment of the principal, premium and interest on the notes will be fully and unconditionally guaranteed on a senior subordinated basis by substantially all of our current and future domestic subsidiaries, including after the merger, the Encore subsidiaries. The subsidiary guarantees are subordinated to all existing and future

		senior indebtedness of our guarantor subsidiaries, including their guarantees of our obligations under our senior secured credit facilities. See “Description of the notes—Guarantees.”
Ranking		The notes are our senior subordinated unsecured obligations. The notes and the guarantees rank:
		• junior to all of our and the guarantors’ existing and future senior indebtedness, including our senior secured credit facilities;
		• equally with any of our and the guarantors’ existing and future senior subordinated indebtedness; and
		• senior to any of our and the guarantors’ existing and future subordinated indebtedness.
		The notes will be pari passu with our existing $951.4 million in aggregate principal amount of senior subordinated notes and up to $825 million of Encore’s senior subordinated notes (the “Existing Notes”) if the Existing Notes are not repurchased, and subordinate to our bank indebtedness, capital lease obligations for pipelines and other capital lease obligations, which totaled $1.1 billion on an as-adjusted basis as of September 30, 2009. See “Description of the notes—Ranking.” See also “Capitalization” for an as-adjusted presentation of the obligations of the combined company.
Covenants		We will issue the notes under an indenture with Wells Fargo Bank, National Association, as trustee. The indenture governing the notes will contain covenants that will limit our ability and certain of our subsidiaries’ ability to:
		• incur additional debt;
		• pay dividends on our capital stock or redeem, repurchase or retire our capital stock or subordinated debt;
		• make investments;
		• create liens on our assets;
		• create restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;
		• engage in transactions with our affiliates;
		• transfer or sell assets; and
		• consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries.
		These covenants are subject to important exceptions and qualifications, which are described under the caption “Description of the notes—Certain covenants.”
Use of proceeds		We estimate that the net proceeds from the offering, after deducting underwriters’ discounts and commissions and before deducting other estimated offering expenses payable by us, will be approximately $           million. We will deposit the net proceeds of this offering

		into escrow. Approximately $400.0 million of the net proceeds from this offering will be used to fund a portion of the purchase price for Encore and the remainder will be used to fund tender offers or change of control offers for $600.0 million principal amount of Encore senior subordinated notes. After the merger, to the extent that fewer than $600.0 million principal amount of Encore senior subordinated notes are tendered for repurchase by August 1, 2010, we will be required to redeem an amount of notes offered hereby equal to such shortfall at a redemption price equal to the issue price of the notes, plus accrued and unpaid interest. See “Use of proceeds.”
Risk factors		Investing in the notes involves substantial risk. See “Risk factors” beginning on page 22 of this prospectus for a discussion of certain factors that you should consider carefully before investing in the notes.

 

Selected historical consolidated financial data

		Nine months ended
		September 30,								Year ended December 31,
(in thousands)		2009				2008				2008				2007				2006(a)
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
CO2 sales and transportation fees			9,708				9,705				13,858				13,630				9,376
Interest income and other			1,948				3,525				4,834				6,642				5,603
Total revenues			612,598				1,141,778				1,365,702				973,060				731,536
Expenses:
Lease operating expenses			241,908				228,134				307,550				230,932				167,271
Production taxes and marketing expenses			24,294				50,978				55,770				43,130				31,993
Transportation expense—Genesis			6,143				5,623				7,982				5,961				4,358
CO2 operating expenses			3,442				2,836				4,216				4,214				3,190
General and administrative			79,828				45,821				60,374				48,972				43,014
Interest, net of amounts capitalized(b)			36,960				23,988				32,596				30,830				23,575
Depletion, depreciation and amortization			177,145				160,896				221,792				195,900				149,165
Commodity derivative expense (income)			177,061				43,591				(200,053	)			18,597				(19,828	)
Abandoned acquisition cost(c)			–				30,426				30,601				–				–
Write-down of oil and natural gas properties(c)			–				–				226,000				–				–
Total expenses			746,781				592,293				746,828				578,536				402,738
Equity in net income (loss) of Genesis			5,802				3,796				5,354				(1,110	)			776
Income (loss) before income taxes			(128,381	)			553,281				624,228				393,414				329,574
Income tax provision (benefit):
Current income taxes			18,140				44,769				40,812				30,074				19,865
Deferred income taxes			(67,869	)			163,909				195,020				110,193				107,252
Net income (loss)		$	(78,652	)		$	344,603			$	388,396			$	253,147			$	202,457

		Nine months ended
		September 30,								Year ended December 31,
(in thousands)		2009				2008				2008				2007				2006(a)
Consolidated statements of cash flows data:
Oil and natural gas capital expenditures		$	452,644			$	440,133			$	622,732			$	662,736			$	826,327
CO2 capital expenditures, including pipelines			523,411				236,433				462,889				171,182				63,586
Cash provided by (used in):
Operating activities			406,434				632,771				774,519				570,214				461,810
Investing activities			(736,390	)			(617,677	)			(994,659	)			(762,513	)			(856,627	)
Financing activities			334,576				100,109				177,102				198,533				283,601

		As of September 30,								As of December 31,
(in thousands)		2009				2008				2008				2007				2006
Consolidated balance sheet data:
Oil and natural gas properties, net(d)		$	2,047,798			$	2,215,911			$	2,140,208			$	1,967,541			$	1,612,688
Total assets			3,903,260				3,468,532				3,589,674				2,771,077				2,139,837
Total long-term debt			1,196,061				776,991				852,767				680,330				507,786
Stockholders’ equity			1,790,659				1,787,985				1,840,068				1,404,378				1,106,059

(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)		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 and $11.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.

(c)		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.

(d)		Excludes net book value of CO2 related property and equipment.

		Nine months ended
		September 30,(a)(b)								Year ended December 31,(a)(b)
(in thousands)		2009				2008				2008				2007				2006
Consolidated statements of operations data:
Revenues(c):
Oil		$	374,915			$	776,001			$	897,443			$	562,817			$	346,974
Natural gas			86,908				182,973				227,479				150,107				146,325
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
Expenses:
Production:
Lease operating			122,817				130,013				175,115				143,426				98,194
Production, ad valorem and severance taxes			48,074				95,845				110,644				74,585				49,780
Depletion, depreciation and amortization			217,361				159,114				228,252				183,980				113,463
Impairment of long-lived assets(e)			–				26,292				59,526				–				–
Exploration			43,801				30,462				39,207				27,726				30,519
General and administrative			40,743				36,549				48,421				39,124				23,194
Marketing(c)			1,612				9,362				9,570				40,549				148,571
Derivative fair value loss (gain)(f)			(741	)			82,093				(346,236	)			112,483				(24,388	)
Provision for doubtful accounts			7,116				4				1,984				5,816				1,970
Other operating			22,303				9,801				12,975				17,066				8,053
Total expenses			503,086				579,535				339,458				644,755				449,356
Operating income (loss)			(39,255	)			388,179				795,960				110,190				191,506
Other income (expenses):
Interest			(57,009	)			(54,669	)			(73,173	)			(88,704	)			(45,131	)
Other			1,811				3,090				3,898				2,667				1,429
Total other expenses			(55,198	)			(51,579	)			(69,275	)			(86,037	)			(43,702	)
Income (loss) before income taxes			(94,453	)			336,600				726,685				24,153				147,804
Income tax benefit (provision)			25,254				(118,595	)			(241,621	)			(14,476	)			(55,406	)
Consolidated net income (loss)			(69,199	)			218,005				485,064				9,677				92,398
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
Consolidated statements of cash flows data:
Cash provided by (used in):
Operating activities		$	633,153			$	528,987			$	663,237			$	319,707			$	297,333
Investing activities			(710,316	)			(536,094	)			(728,346	)			(929,556	)			(397,430	)
Financing activities			81,807				9,230				65,444				610,790				99,206

		As of September 30,(a)(b)								As of December 31,(a)(b)
(in thousands)		2009				2008				2008				2007				2006
Consolidated balance sheets data:
Oil and natural gas properties, net		$	3,266,463			$	2,764,699			$	2,891,234			$	2,420,124			$	1,716,682
Total assets			3,713,814				3,286,141				3,633,195				2,784,561				2,006,900
Long-term debt			1,243,496				1,217,604				1,319,811				1,120,236				661,696
Equity			1,668,765				1,239,392				1,483,248				1,070,689				816,865

(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. 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 and $0.03 for the years ended December 31, 2008 and 2006, respectively, reduced Encore’s diluted earnings per share by $0.06, $0.01 and $0.01 for the years ended December 31, 2008, 2007 and 2006, 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 Notes 2 and 11 to Encore’s unaudited consolidated financial statements for the quarter ended September 30, 2009 and Notes 2 and 11 to Encore’s audited consolidated financial statements as of December 31, 2008 and 2007 and for each year in the three year period ended December 31, 2008 which were attached as exhibits to Denbury’s Form 8-K filed with the SEC on February 2, 2010 for additional information regarding the adoption of these accounting standards.

(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 and 2006, Encore reduced oil and natural gas revenues for net profits interests owned by others by $56.5 million, $32.5 million and $23.4 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, 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)		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 pretax 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.

(f)		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).”

		December 31,
		2009				2008				2007
Summary oil and natural gas reserves data:
Estimated net proved reserves (at end of year prices):
Oil (MBbls)			192,879				179,126				134,978
Natural gas (MMcf)			87,975				427,955				358,608
Oil equivalent (MBOE)			207,542				250,452				194,746
Carbon dioxide (MMcf)(a)			6,302,836				5,612,167				5,641,054
Percentage of total MBOE:
Proved producing			51%				47%				56%
Proved non-producing			11%				11%				13%
Proved undeveloped			38%				42%				31%
Representative oil and natural gas prices(b):
Oil—NYMEX		$	61.18			$	44.60			$	95.98
Natural gas—Henry Hub		$	3.87				5.71				6.80
Present values (in thousands):
Discounted estimated future net cash flow before income taxes (PV-10 Value)(c)		$	3,075,459			$	1,926,855			$	5,385,123
Standardized measure of discounted future net cash flow after income taxes(d)			(e	)			1,415,498				3,539,617

		Nine Months Ended
		September 30,								Year Ended December 31,
		2009				2008				2008				2007				2006
Summary operating data(f):
Production (average daily):
Oil (Bbls)			36,819				30,859				31,436				27,925				22,936
Natural gas (Mcf)			75,523				89,087				89,442				97,141				83,075
BOE (6:1)			49,406				45,707				46,343				44,115				36,782
Unit sales price (excluding impact of derivative settlements):
Oil (per Bbl)		$	52.68			$	106.37			$	92.73			$	69.80			$	59.87
Natural gas (per Mcf)			3.46				9.39				8.56				6.81				7.10
Unit sales price (including impact of derivative settlements):
Oil (per Bbl)		$	67.25			$	102.74			$	90.04			$	68.84			$	59.23
Natural gas (per Mcf)			3.46				8.16				7.74				7.66				7.10
Costs per BOE:
Lease operating		$	17.94			$	18.22			$	18.13			$	14.34			$	12.46
Production taxes and marketing expenses			2.26				4.52				3.76				3.05				2.71
Depletion, depreciation and amortization			13.13				12.85				13.08				12.17				11.11
General and administrative(g)			5.92				3.66				3.56				3.04				3.20
Abandoned acquisition cost			–				–				1.80				–				–
Writedown of oil and natural gas properties			–				–				13.32				–				–
Costs incurred (in thousands)(h):
Property acquisitions:
Proved		$	247,060			$	5,094			$	32,781			$	15,531			$	147,655
Unevaluated			8,626				12,439				16,129				60,079				205,506
Development			249,843				421,764				575,947				553,315				443,866
Exploration			2,606				5,037				5,710				42,726				43,564
Total costs incurred		$	508,135			$	444,334			$	630,567			$	671,651			$	840,591

(a)		Based on gross working interest basis and includes reserves dedicated to volumetric production payments of 127.0 Bcf, 153.8 Bcf, and 182.3 Bcf at December 31, 2009, 2008, and 2007, respectively.
(b)		The reference prices for 2009 were based on the average first day of the month prices for each month during 2009. The reference prices for 2008 and 2007 were based on each respective year end prices. For all periods presented, these representative prices were 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 that PV-10 Value is a pre-tax number and the Standardized Measure is an after-tax number. The information used to calculate PV-10 Value is derived directly from data determined in accordance with the FASC “Extractive Industries—Oil and Gas” topic. Denbury believes that PV-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. The PV-10 Value and the Standardized Measure do not purport to represent the fair value of the oil and natural gas reserves.
(d)		Determined in accordance with the guidelines of the FASC “Extractive Industries—Oil and Gas” topic.
(e)		Information not yet available for year ended December 31, 2009.
(f)		In mid-2009, Denbury sold 60% of its interest in its Barnett Shale natural gas assets. Denbury sold its remaining 40% of Barnett Shale assets in late December 2009.
(g)		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.

(h)		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 which is not included in total cost incurred. During 2008, 2007 and 2006, Denbury spent $462.9 million, $171.2 million and $63.6 million, respectively, on capital expenditures relating to CO2 properties, equipment and pipelines which is not included in total costs incurred.

		December 31,(a)
		2009				2008				2007
Summary oil and natural gas reserves data:
Estimated net proved reserves (at end of period prices):
Oil (MBbls)			147,094				134,452				188,587
Natural gas (MMcf)			439,072				307,520				256,447
Oil equivalent (MBOE)			220,273				185,705				231,328
Percentage of total MBOE:
Proved producing			78	%			77	%			66%
Proved non-producing			2	%			3	%			2%
Proved undeveloped			20	%			20	%			32%
Representative oil and natural gas prices:
Oil		$	61.18			$	44.60			$	96.01
Natural gas			3.83				5.62				7.47
Present values (in thousands):
Discounted estimated future net cash flow before income taxes (PV-10 Value)(b)		$	2,130,005			$	1,399,330			$	4,462,452
Standardized measure of discounted future net cash flows after income taxes(c)			(d	)			1,219,954				3,291,709

		Nine Months Ended,
		September 30,(a)								Year Ended December 31,(a)
		2009				2008				2008				2007				2006
Summary operating data:
Production (average daily):
Oil (Bbls)			27,281				27,174				27,459				26,152				20,096
Natural gas (Mcf)			89,405				69,031				72,060				65,651				64,262
BOE (6:1)			42,182				38,679				39,470				37,094				30,807
Average realized prices (excluding the impact of derivative settlements)
Oil ($/Bbl)		$	50.34			$	104.61			$	89.58			$	63.50			$	54.42
Natural gas ($/Mcf)			3.56				9.67				8.63				6.69				6.59
Average realized prices (including the impact of derivative settlements)
Oil ($/Bbl)		$	50.34			$	104.23			$	89.30			$	58.96			$	47.30
Natural gas ($/Mcf)			3.56				9.67				8.63				6.26				6.24
Average costs per BOE:
Lease operating		$	10.67			$	12.27			$	12.12			$	10.59			$	8.73
Production, ad valorem and severance taxes			4.17				9.04				7.66				5.51				4.43
Depletion, depreciation and amortization			18.88				15.01				15.80				13.59				10.09
Impairment of long-lived assets(e)			–				2.48				4.12				–				–
Exploration			3.80				2.87				2.71				2.05				2.71
General and administrative			3.54				3.45				3.35				2.89				2.06
Marketing, net of revenues(f)			(0.03	)			0.06				(0.06	)			(0.11	)			0.09
Cost incurred (in thousands):
Acquisitions:
Proved properties		$	397,974			$	29,304			$	28,840			$	796,239			$	5,271
Unproved properties			6,004				95,916				128,635				52,306				24,462
Development:			95,217				250,911				362,609				270,161				253,631
Exploration:			140,138				179,217				256,437				97,453				95,205
Total costs incurred		$	639,333			$	555,348			$	776,521			$	1,216,159			$	378,569

(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. 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)		PV-10 Value is a non-GAAP measure and is different from the Standardized Measure in that PV-10 Value is a pre-tax number and the Standardized Measure is an after-tax number. The information used to calculate PV-10 Value is derived directly from data determined in accordance with the FASC “Extractive Industries—Oil and Gas” topic. Encore believes that PV-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. The PV-10 Value and the Standardized Measure do not purport to represent the fair value of the oil and natural gas reserves.
(c)		Determined in accordance with the guidelines of the FASC “Extractive Industries—Oil and Gas” topic.
(d)		Information not yet available for year ended December 31, 2009.
(e)		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 pretax 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.
(f)		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.

		Nine months
		ended,				Year ended
		September 30,				December 31,
(in thousands)		2009				2008
Statements of operations data:
Revenues and other income
Oil, natural gas and related product sales		$	999,935			$	2,237,071
CO2 sales and transportation fees			9,708				13,858
Interest income and other			5,863				19,704
Total revenues			1,015,506				2,270,633
Expenses
Lease operating expenses			366,578				472,775
Production taxes and marketing expenses			72,651				160,582
Transportation expense—Genesis			6,143				7,982
CO2 operating expenses			3,442				4,216
General and administrative			116,806				105,933
Interest, net of amounts capitalized			137,128				154,110
Depletion, depreciation and amortization			370,145				403,909
Commodity derivative expense			176,320				(546,289	)
Abandoned acquisition cost			–				30,601
Ceiling test write-down			–				226,000
Impairment of long-lived assets			–				59,526
Total expenses			1,249,213				1,079,345
Equity in net income of Genesis			5,802				5,354
Income (loss) before income taxes			(227,905	)			1,196,642
Income tax provision (benefit)			(77,025	)			418,849
Consolidated income (loss)			(150,880	)			777,793
Income (loss) attributable to noncontrolling interest			(10,776	)			50,879
Net income (loss) attributable to stockholders		$	(140,104	)		$	726,914

		Denbury
		pro forma
(in thousands)		combined
Assets
Cash and cash equivalents		$	218,372
Other current assets			399,883
Property and equipment, net			7,600,241
Goodwill			1,228,168
Other assets			340,628
		$	9,787,292
Liabilities and equity
Current liabilities		$	569,479
Long-term debt			3,501,864	(1)
Other long-term liabilities			179,899
Deferred income taxes			1,329,053
Equity			4,206,997
		$	9,787,292

(1)		Long-term debt per the unaudited pro forma combined balance sheet differs from as-adjusted long-term debt presented under “Capitalization”, or the Capitalization table. Pro forma long-term debt was prepared in accordance with SEC rules related to pro forma presentation and assumes that the $600 million par value of Encore’s Old Notes are neither tendered in the tender offers nor in the change of control tender offers. Because it would be economically advantageous to the noteholders to do so, Denbury expects the holders of all of Encore’s Old Notes to tender their shares. As such, the Capitalization table assumes Encore’s Old Notes are repurchased by Denbury. As-adjusted long-term debt per the Capitalization table of $3,533 million exceeds pro forma long-term debt presented above by $31 million primarily due to a) additional borrowings of $12 million incurred to finance issuance costs on the additional $600 million borrowings of the notes hereby offered, b) additional borrowings of $6 million to finance the 1% change of control premium on Encore’s Old Notes and c) exclusion in the Capitalization table of discounts and premiums on long-term debt of $14.7 million.

		Denbury
		pro forma
		combined
Estimated proved reserves:
Oil (MBbl)			339,973
Natural Gas (MMcf)			527,047
MBOE			427,815
Estimated proved developed reserves:
Oil (MBbl)			237,592
Natural Gas (MMcf)			391,936
MBOE			302,915
Present value of estimated net cash flow:
Present value of discounted estimated future net cash flow before income taxes (PV-10 Value)(in thousands)		$	5,216,496

 

In this section captioned “Risk Factors”, when we use the term “Denbury,” the “Company,” “we,” “us” or “our,” we mean Denbury Resources Inc. and its subsidiaries on a consolidated basis including the subsidiaries of Encore following the consummation of the merger, unless otherwise indicated or the context requires otherwise. Investing in the notes involves risks. Before purchasing any notes we offer, you should carefully consider the risk factors that are incorporated by reference herein from Item 1.A., captioned “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2008 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009, and in our Form 8-K filed on February 2, 2010 incorporating by reference risk factors from Encore’s Annual Report on Form 10-K for the year ended December 31, 2009 and Encore’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009. There are additional risk factors related to our indebtedness and notes, as described below.

 

Risks relating to the notes

 

Our level of indebtedness may adversely affect operations and limit our growth.

 

Denbury will be more leveraged after the merger than it has been historically. Upon closing of the merger and the revolving credit facility contemplated by the merger agreement, we will have $1.975 billion of revolving credit facilities. Borrowings under the newly committed credit facility combined with Denbury’s existing debt and the notes offered hereby are expected to be approximately $3.5 billion of total pro forma combined long-term debt after the completion of the merger. This level of indebtedness could result in Denbury having difficulty accessing capital markets or raising capital on favorable terms and Denbury’s financial results could be negatively affected by its inability to raise capital or because of the cost of such capital.

 

Our substantial debt following the merger and the issuance of the notes could have important consequences for us. For example, it could:

 

 

Realization of any of these factors could adversely affect our financial condition. In addition, although we and Encore both have hedges in place for 2010 and 2011, these hedges have varying floors and ceilings and will only partially protect the combined company’s cash flow. A decline in commodity prices may require that we reduce our planned capital expenditures, which may have a corresponding negative effect on our anticipated production growth.

 

If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on our indebtedness or if we otherwise fail to comply with the various covenants in such indebtedness, including covenants in our senior secured credit facilities, we

would be in default. This default would permit the holders of such indebtedness to accelerate the maturity of such indebtedness and could cause defaults under other indebtedness, including the notes, or result in our bankruptcy. Such defaults, or any bankruptcy resulting therefrom, could result in a default on the notes and could delay or preclude payment of principal of, or interest on, the notes. Our ability to meet our obligations will depend upon our future performance, which will be subject to prevailing economic conditions, commodity prices, and to financial, business and other factors, including factors beyond our control.

 

Upon consummation of the merger, we and all of our restricted subsidiaries must comply with various restrictive covenants contained in our revolving credit facilities, the indentures related to our senior subordinated notes and any of our future debt arrangements. These covenants will, among other things, limit our ability and the ability of all of our restricted subsidiaries to:

 

 

Your right to receive payments on the notes is junior to our existing senior indebtedness and the existing senior indebtedness of our subsidiary guarantors.

 

The indebtedness evidenced by the notes and the guarantees are our and our subsidiaries’ senior subordinated obligations. The payment of the principal of, premium on, if any, and interest on the notes and the payment of the subsidiary guarantees are each subordinate in right of payment, as set forth in the indenture, to the prior payment in full of all senior indebtedness of Denbury or the senior indebtedness of our subsidiary guarantors, as the case may be, including the obligations of Denbury under, and the obligations of our subsidiary guarantors with respect to, our senior secured credit facilities. Any future subsidiary guarantee will be similarly subordinated to senior indebtedness of such subsidiary guarantor.

 

As of September 30, 2009, on an as-adjusted basis after giving effect to the merger and related financing transactions, our senior debt included $844.5 million of credit facilities indebtedness, $248 million of pipeline capital lease obligations, approximately $5 million of other capital lease obligations. See “Capitalization.“ As of September 30, 2009, on an as-adjusted basis, we would have had approximately $756 million additional borrowing capacity under our newly committed credit facility. Any additional bank borrowings would also be senior indebtedness when incurred. Although the indenture contains limitations on the amount of additional indebtedness that we may incur, under certain circumstances the amount of such indebtedness could be substantial and, in any case, such indebtedness may be senior indebtedness. See “Description of the notes—Certain covenants—Limitations on indebtedness.”

 

Because the notes are unsecured and because of the subordination provisions of the notes, in the event of our bankruptcy, liquidation or dissolution of any subsidiary guarantor, our assets and the assets of the subsidiary guarantors would be available to pay obligations under the notes only after all payments had been made on our and the subsidiary guarantors’ senior

indebtedness, including under our senior secured credit facilities. We cannot assure you that sufficient assets would remain after we make all these payments to make any payments on the notes, including payments of interest when due. Also, because of these subordination provisions, you may recover less ratably than our other creditors in a bankruptcy, liquidation or dissolution. In addition, all payments on the notes and the guarantees will be prohibited in the event of a payment default on senior indebtedness, including borrowings under our senior secured credit facilities, and may be prohibited for up to 180 days in the event of non-payment defaults on certain of our senior indebtedness, including our senior secured credit facilities. See “Description of the notes—Ranking.”

 

The notes are not secured by our assets or those of our subsidiary guarantors.

 

The notes are our general unsecured obligations and are effectively subordinated in right of payment to all of our secured indebtedness. If we become insolvent or are liquidated, our assets which serve as collateral under our secured indebtedness would be made available to satisfy our obligations under any secured debt before any payments are made on the notes. Our obligations under our senior secured credit facilities are secured by substantially all of our producing oil and gas properties.

 

If we undergo a change of control, we may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture governing the notes, which would violate the terms of the notes.

 

Upon the occurrence of a change of control, holders of the notes will have the right to require us to purchase all or any part of such holders’ notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. The events that constitute a change of control under the indenture would constitute a default under our senior secured credit facilities, which prohibits the purchase of the notes by us in the event of certain change of control events, unless, and until, such time as our indebtedness under the senior secured credit facilities is repaid in full. There can be no assurance that either we or our subsidiary guarantors would have sufficient financial resources available to satisfy all of our or their obligations under the senior secured credit facilities and these notes in the event of a change in control. Our failure to purchase the notes as required under the indenture would result in a default under the indenture, the indentures governing our Existing Notes and under the senior secured credit facilities, each of which could have material adverse consequences for us and the holders of the notes. See “Description of the notes—Change of control.”

 

In addition, you should note that recent case law suggests that, in the event that incumbent directors are replaced as a result of a contested election, issuers may nevertheless avoid triggering a change of control under a clause similar to clause (2) of the definition of “Change of Control” under the caption “Description of the notes—Change of control,” if the outgoing directors were to approve the new directors for the purpose of such change of control clause.

 

A subsidiary guarantee could be voided if it constitutes a fraudulent transfer under U.S. bankruptcy or similar state law, which would prevent the holders of the notes from relying on that subsidiary to satisfy claims.

 

Under U.S. bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee can be voided, or claims under the guarantee may be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee or, in some states, when payments become due under

the guarantee, received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee and:

 

 

A guarantee may also be voided, without regard to the above factors, if a court found that the guarantor entered into the guarantee with the actual intent to hinder, delay or defraud its creditors.

 

A court would likely find that a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee if the guarantor did not substantially benefit directly or indirectly from the issuance of the notes. If a court were to void a guarantee, you would no longer have a claim against the guarantor. Sufficient funds to repay the notes may not be available from other sources, including the remaining guarantors, if any. In addition, the court might direct you to repay any amounts that you had already received from the subsidiary guarantor.

 

The measures of insolvency for purposes of fraudulent transfer laws vary depending upon the governing law. Generally, a guarantor would be considered insolvent if:

 

 

Each subsidiary guarantee contains a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer. This provision may not be effective to protect the subsidiary guarantees from being voided under fraudulent transfer law.

 

Because the notes may be issued with original issue discount, holders may be required to pay tax on amounts included in gross income before cash payments on the notes are received.

 

The notes may be issued at a discount from their stated principal amount for U.S. federal income tax purposes. Consequently, original issue discount may be included in the gross income of a U.S. holder of the notes for U.S. federal income tax purposes in advance of the receipt of cash payments on such notes. For more information, see “Material U.S. federal income tax considerations.”

If a bankruptcy petition were filed by or against us, holders of the notes may receive a lesser amount for their claim than they would have been entitled to receive under the indenture governing the notes.

 

If a bankruptcy petition were filed by or against us under the United States Bankruptcy Code after the issuance of the notes, the claim by any holder of the notes for the principal amount of the notes may be limited to an amount equal to the sum of:

 

 

Any OID that was not amortized as of the date of the bankruptcy filing would constitute unmatured Interest. Accordingly, holders of the notes under these circumstances may receive a lesser amount than they would be entitled to under the terms of the indenture governing the notes, even if sufficient funds are available.

 

You cannot be sure that there will be an active trading market for the notes.

 

We do not intend to list the notes on any national securities exchange or to seek the admission of the notes for quotation through the National Association of Securities Dealers Automated Quotation System. The underwriters intend to make a market for the notes, but they are not obligated to do so and may cease their market-making activities at any time. In addition, the liquidity of the trading market in the notes, and the market price quoted for the notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the financial performance or prospects of companies in our industry generally. As a result, we cannot assure you that an active trading market will develop or be maintained for the notes offered hereby. If an active market does not develop or is not maintained, the market price and liquidity of the notes may be adversely affected.

 

We will deposit the net proceeds from this offering into escrow and will be required to redeem all of the notes if we do not consummate the merger, or to redeem some of the notes if we consummate the merger and certain outstanding Encore notes are not tendered pursuant to a tender offer or change of control offer.

 

This offering will be consummated before the closing of the merger. We will deposit the net proceeds of this offering into escrow. If the merger does not occur on or prior to May 31, 2010, or if the merger agreement is terminated at any time prior thereto, then the indenture will require that we redeem all of the notes at a redemption price equal to 100% of the aggregate issue price of the notes plus accrued and unpaid interest to, but not including, the redemption date. In addition, after the merger, to the extent fewer than $600.0 million principal amount of Encore senior subordinated notes are tendered, we will be required to redeem an amount of notes offered hereby equal to such shortfall at a redemption price equal to the issue price of the notes, plus accrued and unpaid interest. See “Description of the notes—Escrow of proceeds; special mandatory redemption.”

 

Your decision to invest in these notes is made at the time of purchase. Changes in our business or financial condition, or the terms of the merger or the financing thereof, between the closing of this offering and the closing of the merger will have no effect on your rights as a purchaser of the notes.

Risks relating to the merger

 

If we do not complete the merger on or prior to May 31, 2010, we will be required to redeem the notes. We will be required to redeem some of the notes if we complete the merger and certain outstanding Encore notes are not tendered pursuant to a tender offer or change of control offer. If we are required to redeem any notes, you may not obtain your expected return on the notes.

 

We may not be able to consummate the merger within the timeframe specified under “Description of the notes—Escrow of proceeds; special mandatory redemption.” Our ability to consummate the merger is subject to various closing conditions, many of which are beyond our control and we may not be able to complete the merger. If we are not able to consummate the merger on or prior to May 31, 2010, or the merger agreement is terminated at any time prior to that date, we will be required to redeem all notes at a redemption price equal to 100% of the aggregate issue price thereof, plus accrued and unpaid interest from the date of initial issuance to but not including the special mandatory redemption date. In addition, after the merger, to the extent fewer than $600.0 million principal amount of Encore senior subordinated notes are tendered, we will be required to redeem an amount of notes offered hereby equal to such shortfall at a redemption price equal to the issue price of the notes, plus accrued and unpaid interest. If your notes are redeemed in either such case, you may not obtain your expected return on the notes and may not be able to reinvest the proceeds from a special mandatory redemption in an investment that results in a comparable return. Your decision to invest in the notes is made at the time of the offering of the notes. Changes in our business or financial condition, or the terms of the merger or the financing thereof, between the closing of this offering and the closing of the merger will have no effect on your rights as a purchaser of the notes.

 

Denbury and Encore are parties to pending lawsuits in connection with the merger.

 

Three shareholder lawsuits styled as class actions have been filed against Encore and its board of directors. The lawsuits are entitled Sanjay Israni, Individually and On Behalf of All Others Similarly Situated vs. Encore Acquisition Company et al. (filed November 4, 2009 in the District Court of Tarrant County, Texas), Teamsters Allied Benefit Funds, Individually and On Behalf of All Others Similarly Situated vs. Encore Acquisition Company et al. (filed November 5, 2009 in the Court of Chancery in the State of Delaware) and Thomas W. Scott, Jr., individually and on behalf of all others similarly situated v. Encore Acquisition Company et al. (filed November 6, 2009 in the District Court of Tarrant County, Texas). The Teamsters and Scott lawsuits also name Denbury as a defendant. The complaints generally allege that (1) Encore’s directors breached their fiduciary duties in negotiating and approving the merger and by administering a sale process that failed to maximize shareholder value and (2) Encore, and, in the case of the Teamsters and Scott complaints, Denbury aided and abetted Encore’s directors in breaching their fiduciary duties. The Teamsters complaint also alleges that Encore’s directors and executives stand to receive substantial financial benefits if the transaction is consummated on its current terms.

 

The plaintiffs in these lawsuits seek, among other things, to enjoin the merger and to rescind the merger agreement. Encore and Denbury believe that the lawsuits are without merit and that they have valid defenses to all claims. Encore and Denbury will defend this litigation vigorously.

A shareholder suit regarding a compensation matter brought as a derivative action on behalf of Denbury against Denbury’s board of directors, entitled Harbor Police Retirement System v. Gareth Roberts, et al, in the District Court of Dallas County, Texas, was amended in January 2010, to generally allege breach of the Denbury directors’ fiduciary duties based upon the further allegation that the directors approved an unreasonably high purchase price in the merger. The plaintiff seeks monetary damages and equitable relief. Denbury believes these allegations are without merit and that its directors have valid defenses to all claims. Denbury and its directors intend to defend this litigation vigorously.

 

Business uncertainties and contractual restrictions while the merger is pending may have an adverse effect on Encore or Denbury.

 

Uncertainty about the effect of the merger on employees, suppliers, partners, regulators and customers may have an adverse effect on Encore. These uncertainties may impair Encore’s ability to attract, retain and motivate key personnel until the merger is consummated and could cause suppliers, customers and others that deal with Encore to defer purchases or other decisions concerning Encore or seek to change existing business relationships with Encore. In addition, the merger agreement restricts both Denbury and Encore from making certain acquisitions and taking other specified actions without the other’s approval. Because these restrictions could prevent either party from pursuing attractive business opportunities that may arise prior to the completion of the merger, the overall value of the combined company could be negatively impacted.

 

Risks relating to the combined company after the merger

 

We may not realize the benefits of integrating our companies.

 

To be successful after the merger, Denbury will need to combine and integrate our operations and the operations of Encore into one company. Integration will require substantial management attention and could detract attention from the day-to-day business of the combined company. We could encounter difficulties in the integration process, such as the need to revisit assumptions about reserves, future production, revenues, capital expenditures and operating costs, including synergies, the loss of key employees or commercial relationships or the need to address unanticipated liabilities. If we cannot successfully integrate our business with Encore’s business, we may fail to realize the expected benefits of the merger.

 

The combined company may be unable to secure sufficient amounts of carbon dioxide to expand its CO₂ EOR operations into the Rocky Mountain region.

 

Our long-term growth strategy is focused on our CO₂ tertiary recovery operations. Production of crude oil from the expansion of our tertiary operations into the Rocky Mountain region depends on having access to sufficient amounts of CO₂ in this region. The ability to produce this oil and execute this growth strategy would be hindered if we were unable to obtain necessary CO₂ volumes in the Rocky Mountain region at a cost that is economically viable.

 

The combined company may experience an impairment of its goodwill.

 

We expect to recognize a substantial amount of goodwill in connection with consummation of the merger and the allocation of the purchase price thereto. We test goodwill for impairment annually during the fourth quarter, or between annual tests if an event occurs or circumstances

change that may indicate the fair value of a reporting unit is less than the carrying amount. The need to test for impairment can be based on several indicators, including but not limited to a significant reduction in the price of oil or natural gas, a full cost ceiling write-down of oil and natural gas properties, unfavorable revisions to oil and natural gas reserves and significant changes in the expected timing of production, or changes in the regulatory environment.

 

Fair value calculated for the purpose of testing for impairment of our goodwill is estimated using the expected present value of future cash flows method and comparative market prices when appropriate. A significant amount of judgment is involved in performing these fair value estimates for goodwill since the results are based on estimated future cash flows and assumptions related thereto. Significant assumptions include estimates of future oil and natural gas prices, projections of estimated quantities of oil and natural gas reserves, estimates of future rates of production, timing and amount of future development and operating costs, estimated availability and cost of CO₂, projected recovery factors of reserves and risk-adjusted discount rates. We base our fair value estimates on projected financial information which we believe to be reasonable. However, actual results may differ from those projections.

 

The following table sets forth our ratio of earnings to fixed charges:

 

 

 

For purposes of computing the ratio of earnings to fixed charges, earnings are defined as:

 

 

Fixed charges are defined as the sum of the following:

 

 

The merger

 

On October 31, 2009, Denbury and Encore agreed to combine their businesses pursuant to a merger agreement described in Denbury’s current report on Form 8-K filed with the SEC on November 5, 2009, to which the merger agreement is attached as Exhibit 2.1. Pursuant to the merger agreement, Encore will merge with and into Denbury. As a result of the merger, Encore will cease to exist and Denbury will continue as a public company. The following description of the merger agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the merger agreement.

 

Based on the number of shares of Encore common stock outstanding as of a recent date, and including cash payments to Encore stock option holders, the transaction value of the merger is approximately $4.5 billion and the merger consideration will be approximately $890 million in cash and between 115 and 146 million in shares of Denbury common stock, due to the share exchange ratio in the merger being subject to a collar calculated with reference to future average prices of Denbury common stock.

 

The merger agreement contains customary representations and warranties by Denbury and Encore made to each other as of specific dates. The merger agreement also contains customary covenants and agreements, including with respect to the operation of Denbury’s business and Encore’s business between signing and closing, restrictions on solicitation of proposals by Encore with respect to alternative transactions, public disclosures and other matters.

 

The merger is subject to a number of closing conditions, including, among others, the adoption of the merger agreement by Encore’s and Denbury’s stockholders; the effectiveness of the registration statement on Form S-4, and the absence of a 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, (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.

 

Either party to the merger agreement may choose to complete the merger even though a condition has not been satisfied if the law allows Encore and Denbury to do so; however, neither Denbury nor Encore can give any assurance regarding when or if all of the conditions to the merger will either be satisfied or waived or that the merger will occur as intended.

 

The merger is intended to qualify as a reorganization for federal income tax purposes.

 

The merger agreement contains certain termination rights for Denbury and Encore. On a termination of the merger agreement under certain circumstances, Encore may be required to pay Denbury a termination fee of either $60 million or $120 million, or Denbury may be required to pay Encore a termination fee of $60 million, $120 million or $300 million, in each case depending on the circumstances of the termination. In addition, Encore is obligated to reimburse Denbury for up to $10 million of its expenses related to the merger if specified termination events occur.

Financing

 

Denbury received the revolving credit facility and bridge loan financing commitments described below. The commitments are subject to a number of conditions, including:

 

 

Revolving credit facility

 

Denbury received a financing commitment, subject to customary conditions, to underwrite a new senior secured revolving credit facility. The newly committed credit facility, together with the proceeds of this notes offering, will be used to fund a portion of the cash consideration for the merger (inclusive of payments due to Encore stock option holders), repay amounts outstanding under Denbury’s existing $750 million revolving credit facility, which had approximately $180 million outstanding as of January 31, 2010, potentially retire and replace up to $825 million of Encore’s senior subordinated notes that are outstanding, which have a change of control put option at 101% of par value, replace Encore’s existing revolving credit facility which had approximately $155 million outstanding as of January 31, 2010, pay Encore’s severance costs, pay transaction fees and expenses and provide additional liquidity. The aggregate commitment of the senior secured lenders is $1.6 billion and the term of the newly committed credit facility is four years. Denbury has been advised by the co-arrangers of this

newly committed credit facility, J.P. Morgan and Bank of America, N.A., that the syndication phase is complete, and documentation for this facility is being prepared. Subject to final documentation and satisfaction of closing conditions, Denbury anticipates finalizing this facility prior to the Denbury and Encore stockholder meetings.

 

Bridge loan

 

Denbury also received a financing commitment for a $1.25 billion unsecured bridge loan facility, which will be available if and to the extent Denbury does not receive the proceeds from this notes offering or has not secured alternate financing prior to the closing of the merger. If not fully drawn, Denbury may draw on the bridge loan one additional time within 45 days after the closing of the merger. The bridge facility, if drawn, will mature initially on the first anniversary of the closing of the merger, at which time the maturity of any outstanding loans thereunder will be extended automatically to the seventh anniversary of the closing of the merger, except to the extent they have been previously exchanged by the lenders for exchange notes due on that seventh anniversary. The amount available under the unsecured bridge loan facility will be reduced by the proceeds of any debt issuances, including the notes offered hereby.

 

The net proceeds from the sale of the notes offered hereby, after deducting underwriters’ discounts and commissions and before deducting other offering expenses payable by us, are estimated to be approximately $      million. Upon consummation of the offering of the notes, we will deposit the net proceeds of this offering into escrow as described in “Description of the notes — Escrow of proceeds; special mandatory redemption.” If the merger with Encore does not occur on or prior to May 31, 2010, or if the merger agreement is terminated at any time prior thereto, we will use all of the proceeds from this offering, plus cash on hand, to redeem the notes at a redemption price equal to 100% of the issue price of the notes, plus accrued and unpaid interest to, but not including, the special mandatory redemption date. See “Description of the notes — Escrow of proceeds; special mandatory redemption.”

 

Upon the closing of the merger, $400.0 million of the escrowed proceeds will be released to us to fund a portion of the purchase price for Encore and the remainder will be used to fund a tender offer or change of control offer for $600.0 million principal amount of Encore senior subordinated notes. After the merger, to the extent that fewer than $600.0 million principal amount of Encore senior subordinated notes are tendered for repurchase by August 1, 2010, we will use the amount remaining in escrow and cash on hand to redeem an amount of notes offered hereby equal to such shortfall at a redemption price equal to the issue price of the notes, plus accrued and unpaid interest. See “Description of the notes — Escrow of proceeds; special mandatory redemption.”

 

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2009 on (i) an actual basis for Denbury, (ii) on an actual basis for Encore, and (iii) on an as-adjusted basis giving effect to the merger and related financing transactions as if they occurred on September 30, 2009. The as-adjusted presentation included below assumes the Encore 6% Senior Subordinated Notes, 6.25% Senior Subordinated Notes and 7.25% Senior Subordinated Notes (collectively “Encore’s Old Notes”) with an aggregate par value of $600.0 million, are repurchased in full by Denbury pursuant to a tender offer or change of control offer, which cannot be assured, and assumes Encore’s 9.5% Senior Subordinated Notes will not be repurchased. This table should be read in conjunction with the Denbury Form 10-K for the year ended December 31, 2008, the Denbury Form 10-Q for the quarter ended September 30, 2009 and the Denbury Form 8-K filed February 1, 2010 to which Encore’s unaudited consolidated financial statements and historical consolidated financial statements for the pertinent periods are attached and incorporated by reference into this prospectus.