false--12-31Q1202000009457644.54.50.0010.0017500000005080654955084153780.0550.063750.0750.07750.09250.090.063750.046250.250105340009452000788600005999800086054000837510000.0010.0012500000025000000000016527711828444 0000945764 2020-01-01 2020-03-31 0000945764 2020-04-30 0000945764 2019-12-31 0000945764 2020-03-31 0000945764 dnr:FutureInterestPayableOnSeniorSecuredNotesMember 2019-12-31 0000945764 dnr:FutureInterestPayableOnSeniorSecuredNotesMember 2020-03-31 0000945764 2019-01-01 2019-03-31 0000945764 dnr:CarbondioxideMember 2019-01-01 2019-03-31 0000945764 dnr:CarbondioxideMember 2020-01-01 2020-03-31 0000945764 us-gaap:OilAndGasPurchasedMember 2019-01-01 2019-03-31 0000945764 us-gaap:OilAndGasPurchasedMember 2020-01-01 2020-03-31 0000945764 us-gaap:OilAndGasRefiningAndMarketingMember 2020-01-01 2020-03-31 0000945764 us-gaap:OilAndGasMember 2019-01-01 2019-03-31 0000945764 us-gaap:OilAndGasRefiningAndMarketingMember 2019-01-01 2019-03-31 0000945764 us-gaap:OtherIncomeMember 2020-01-01 2020-03-31 0000945764 us-gaap:OilAndGasMember 2020-01-01 2020-03-31 0000945764 us-gaap:OtherIncomeMember 2019-01-01 2019-03-31 0000945764 2019-03-31 0000945764 2018-12-31 0000945764 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0000945764 us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0000945764 us-gaap:TreasuryStockMember 2019-03-31 0000945764 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000945764 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0000945764 us-gaap:RetainedEarningsMember 2018-12-31 0000945764 us-gaap:TreasuryStockMember 2018-12-31 0000945764 us-gaap:CommonStockMember 2019-03-31 0000945764 us-gaap:CommonStockMember 2018-12-31 0000945764 us-gaap:RetainedEarningsMember 2019-03-31 0000945764 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0000945764 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000945764 us-gaap:CommonStockMember 2019-12-31 0000945764 us-gaap:TreasuryStockMember 2020-03-31 0000945764 us-gaap:TreasuryStockMember 2020-01-01 2020-03-31 0000945764 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000945764 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0000945764 us-gaap:CommonStockMember 2020-03-31 0000945764 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0000945764 us-gaap:TreasuryStockMember 2019-12-31 0000945764 us-gaap:RetainedEarningsMember 2019-12-31 0000945764 us-gaap:RetainedEarningsMember 2020-03-31 0000945764 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0000945764 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0000945764 us-gaap:StockAppreciationRightsSARSMember 2019-01-01 2019-03-31 0000945764 us-gaap:StockAppreciationRightsSARSMember 2020-01-01 2020-03-31 0000945764 us-gaap:RestrictedStockMember 2019-01-01 2019-03-31 0000945764 us-gaap:RestrictedStockMember 2020-01-01 2020-03-31 0000945764 us-gaap:SubsequentEventMember 2020-05-13 0000945764 dnr:A9SeniorSecuredSecondLienNotesDue2021Member 2020-03-31 0000945764 srt:OilReservesMember 2019-04-01 2020-03-31 0000945764 dnr:RestructuredDerivativeContractsMember 2020-03-31 0000945764 2020-03-31 2020-03-31 0000945764 srt:NaturalGasReservesMember 2019-04-01 2020-03-31 0000945764 2020-03-04 2020-03-04 0000945764 dnr:OilSalesMember 2019-01-01 2019-03-31 0000945764 dnr:NaturalGasSalesMember 2020-01-01 2020-03-31 0000945764 dnr:CO2SalesAndTransportationFeesMember 2020-01-01 2020-03-31 0000945764 dnr:NaturalGasSalesMember 2019-01-01 2019-03-31 0000945764 dnr:CO2SalesAndTransportationFeesMember 2019-01-01 2019-03-31 0000945764 dnr:OilSalesMember 2020-01-01 2020-03-31 0000945764 dnr:Year2020Member 2020-01-01 2020-03-31 0000945764 dnr:A638ConvertibleSeniorNotesDue2024Member 2020-03-31 0000945764 dnr:Q1Member dnr:Year2021Member 2020-01-01 2020-03-31 0000945764 2020-03-01 2020-03-31 0000945764 dnr:A734SeniorSecuredSecondLienNotesDue2024Member 2020-03-31 0000945764 dnr:A5.5SeniorSubordinatedNotesDue2022Member 2019-12-31 0000945764 dnr:A712SeniorSecuredSecondLienNotesdue2024Member 2019-12-31 0000945764 dnr:A914SeniorSecuredSecondLienNotesDue2022Member 2020-03-31 0000945764 dnr:SeniorSubordinatedNotesDue2023Member 2020-03-31 0000945764 dnr:SeniorSubordinatedNotesDue2021Member 2019-12-31 0000945764 dnr:A734SeniorSecuredSecondLienNotesDue2024Member 2019-12-31 0000945764 dnr:A9SeniorSecuredSecondLienNotesDue2021Member 2019-12-31 0000945764 dnr:A638ConvertibleSeniorNotesDue2024Member 2019-12-31 0000945764 dnr:SeniorSubordinatedNotesDue2021Member 2020-03-31 0000945764 dnr:A712SeniorSecuredSecondLienNotesdue2024Member 2020-03-31 0000945764 dnr:A5.5SeniorSubordinatedNotesDue2022Member 2020-03-31 0000945764 dnr:A914SeniorSecuredSecondLienNotesDue2022Member 2019-12-31 0000945764 dnr:SeniorSubordinatedNotesDue2023Member 2019-12-31 0000945764 dnr:Q3Member dnr:Year2021Member 2020-01-01 2020-03-31 0000945764 dnr:Q2Member dnr:Year2021Member 2020-01-01 2020-03-31 0000945764 2019-01-01 2019-12-31 0000945764 dnr:Q3ThroughQ4Member dnr:NYMEXMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2ThroughQ4Member dnr:NYMEXMember srt:MinimumMember us-gaap:SwapMember 2020-03-31 0000945764 dnr:Q2Member dnr:LLSMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q3ThroughQ4Member dnr:LLSMember srt:MinimumMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2ThroughQ4Member dnr:LLSMember us-gaap:SwapMember 2020-03-31 0000945764 dnr:Q2Member dnr:LLSMember srt:MinimumMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q3ThroughQ4Member dnr:LLSMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2Member dnr:NYMEXMember srt:MaximumMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2ThroughQ4Member dnr:NYMEXMember us-gaap:SwapMember 2020-03-31 0000945764 dnr:Q2ThroughQ4Member dnr:LLSMember srt:MaximumMember us-gaap:SwapMember 2020-03-31 0000945764 dnr:Q3ThroughQ4Member dnr:LLSMember srt:MaximumMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2Member dnr:NYMEXMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2Member dnr:NYMEXMember srt:MinimumMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2Member dnr:LLSMember srt:MaximumMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2ThroughQ4Member dnr:LLSMember srt:MinimumMember us-gaap:SwapMember 2020-03-31 0000945764 dnr:Q3ThroughQ4Member dnr:NYMEXMember srt:MaximumMember dnr:ThreewayCollarMember 2020-03-31 0000945764 dnr:Q2ThroughQ4Member dnr:NYMEXMember srt:MaximumMember us-gaap:SwapMember 2020-03-31 0000945764 dnr:Q3ThroughQ4Member dnr:NYMEXMember srt:MinimumMember dnr:ThreewayCollarMember 2020-03-31 0000945764 us-gaap:FairValueInputsLevel1Member 2019-12-31 0000945764 us-gaap:FairValueInputsLevel2Member 2020-03-31 0000945764 us-gaap:FairValueInputsLevel1Member 2020-03-31 0000945764 us-gaap:FairValueInputsLevel3Member 2020-03-31 0000945764 us-gaap:FairValueInputsLevel3Member 2019-12-31 0000945764 us-gaap:FairValueInputsLevel2Member 2019-12-31 0000945764 dnr:OtherCostsAssociatedWithSettlementMember 2020-03-31 0000945764 dnr:TotalLiquidatedDamagesMember 2020-03-31 xbrli:pure iso4217:USD xbrli:shares utreg:bbl dnr:d iso4217:USD utreg:MMBTU iso4217:USD utreg:Barrel utreg:Rate iso4217:USD xbrli:shares

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 March 31, 2020

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

DENBURY RESOURCES INC.

(Exact name of registrant as specified in its charter)

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

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):

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 ☑

The number of shares outstanding of the registrant’s Common Stock, $.001 par value, as of April 30, 2020, was 506,481,777.

EXPLANATORY NOTE

As previously disclosed in the Current Report on Form 8-K filed by Denbury Resources Inc. (the “Company” or “Denbury”) on May 7, 2020, the Company expected that the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Report”), originally due on May 11, 2020, would be delayed due to disruptions caused by the COVID-19 coronavirus (“COVID-19”) pandemic. In particular, the ongoing COVID-19 pandemic’s effect on economic activity across the globe resulted in a rapid and precipitous drop in demand for oil, which in turn has caused oil prices to plummet since the first week of March 2020, negatively affecting the Company’s cash flow, liquidity and financial position. These events have worsened a deteriorated oil market which followed the early-March 2020 failure by the group of oil producing nations known as OPEC+ to reach an agreement over proposed oil production cuts. These significant and rapid changes required complex accounting judgments and revisions of estimates upon which the Company’s financial statements are based, which required additional time for compilation, preparation, and review necessary to prepare the Company’s Quarterly Report.

The Company relied on Release No. 34-88465 issued by the Securities and Exchange Commission on March 25, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, to delay the filing of this Quarterly Report.

Table of Contents

Denbury Resources Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value and share data)

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Note 1. Basis of Presentation

Organization and Nature of Operations

Denbury Resources Inc., a Delaware corporation, is an independent oil and natural gas company with operations focused in two key operating areas: the Gulf Coast and Rocky Mountain regions.  Our goal is to increase the value of our properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis relating to CO₂ enhanced oil recovery operations.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Denbury Resources 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, 2019 (the “Form 10-K”).  Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Denbury,” refer to Denbury Resources 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 statement of our consolidated financial position as of March 31, 2020, our consolidated results of operations for the three months ended March 31, 2020 and 2019, our consolidated cash flows for the three months ended March 31, 2020 and 2019, and our consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2020 and 2019.

Risks and Uncertainties

In March 2020, the World Health Organization declared the ongoing COVID-19 outbreak a pandemic, and the President of the United States declared the COVID-19 pandemic a national emergency. The COVID-19 pandemic has caused a rapid and precipitous drop in the worldwide demand for oil, which worsened an already deteriorated oil market that resulted from the early-March 2020 failure by the group of oil producing nations known as OPEC+ to reach an agreement over proposed oil production cuts. Although OPEC+ has subsequently reached an agreement to curtail production, it is estimated that the near-term impact on global oil demand is significantly greater than the magnitude of production curtailments, and storage centers in the United States and around the world could potentially reach maximum storage levels. Together, these events have caused oil prices to plummet since the first week of March 2020, which has continued, and is expected to significantly decrease our realized oil prices in the second quarter of 2020 and potentially beyond.

Oil prices are expected to continue to be volatile as a result of these events and the ongoing COVID-19 outbreak, and as changes in oil inventories, oil demand and economic performance are reported. Because the realized oil prices we have received since early March 2020 have been significantly reduced, our operating cash flow and liquidity have been adversely affected. The extent of the impact on our operational and financial performance is dependent upon future developments that drive domestic and global oil supply and demand, including the duration and spread of the pandemic, its severity, the actions to contain the disease or mitigate its impact, related restrictions on travel, and future levels of domestic and global oil production.

Industry Conditions, Liquidity, Management’s Plans, and Going Concern

As discussed above, COVID-19 has had a significant impact on oil prices, which directly impacts our business in many ways. The decrease in oil prices directly impacts the operating cash flow we are able to generate from our production, and if prices are too low, it may not be economic for us to produce certain of our properties. The decrease in oil prices may also impact our other sources of liquidity, potentially reducing our borrowing capacity under our bank credit facility. Our primary sources of capital and liquidity are our cash flows from operations and availability of borrowing capacity under our bank credit facility. As of May 13, 2020, our bank credit facility availability was $520.3 million, based on a $615 million borrowing base and $94.7 million of

letters of credit currently outstanding. Our most significant cash outlays relate to our development capital expenditures, current period operating expenses, and our debt service obligations.

Our senior secured bank credit facility and the indentures related to our senior secured second lien notes, senior convertible notes, and senior subordinated notes are subject to a variety of covenants. Throughout 2019 and the three months ended March 31, 2020, we were in compliance with all covenants under our senior secured bank credit facility, including maintenance financial covenants, as well as covenants within our long-term note indentures. However, declining industry conditions and reductions in our cash flows and liquidity over the past few months have made our ability to comply with the maximum permitted ratio of total net debt to consolidated EBITDAX maintenance financial covenant in our senior secured bank credit facility increasingly unlikely if these conditions continue, and we foresee the potential to be in violation of this covenant by the end of the second or third quarter of this year.

Our senior secured bank credit facility matures on December 9, 2021, provided that the maturity date may be accelerated to earlier dates in 2021 (February 12, 2021, May 14, 2021 or August 13, 2021) if certain defined liquidity ratios are not met, or if our 9% Senior Secured Second Lien Notes due May 15, 2021 (the “2021 Senior Secured Notes”) or our 6⅜% Senior Subordinated Notes due in August 2021 (the “2021 Senior Subordinated Notes”) are not repaid or refinanced by each of their respective maturity dates. Our maintenance financial covenants contained in our senior secured bank credit facility are described in Note 4, Long-Term Debt.

In this low oil price environment and period of uncertainty, we have taken various steps to preserve our liquidity including (1) by reducing our 2020 budgeted development capital spending by 44% from initial levels and to less than half of 2019 levels, (2) by continuing to focus on reducing our operating and overhead costs, and (3) by restructuring certain of our three-way collars covering 14,500 barrels per day into fixed-price swaps for the second through fourth quarters of 2020 to increase downside protection against current and potential further declines in oil prices. As the ability to fund our full 2020 development capital budget with cash flow from operations and asset sale proceeds is dependent in part upon future commodity pricing, which we cannot predict nor control, we expect to fund any potential shortfall with incremental borrowings under our senior secured bank credit facility. There can be no assurances that we will be able to fund any potential shortfall with borrowings under our senior secured bank credit facility.

Collectively, the above factors, along with the materially adverse change in industry market conditions and our cash flow over the past few months, have substantially diminished our ability to repay, refinance, or restructure our $584.7 million outstanding principal balance of 2021 Senior Secured Notes and have raised substantial doubt about our ability to continue as a going concern. Because the actions described above are not sufficient to significantly mitigate the substantial doubt about our ability to continue as a going concern over the next twelve months from the issuance of these financial statements, we have engaged advisors to assist with the evaluation of a range of strategic alternatives and are engaged in discussions with our lenders and bondholders regarding a potential comprehensive restructuring of our indebtedness. There can be no assurances that the Company will be able to successfully restructure its indebtedness, improve its financial position or complete any strategic transaction. The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not reflect any adjustments that might result if we are unable to continue as a going concern.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation. On the Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2019, “Purchased oil sales” is a new line item and includes sales related to purchases of oil from third-parties, which were reclassified from “Other income,” “Purchased oil expenses” is a new line item and includes expenses related to purchases of oil from third-parties, which were reclassified from “Marketing and plant operating expenses” used in prior reports, and “Transportation and marketing expenses” is a new line item, previously captioned “Marketing and plant operating expenses,” but adjusted to exclude both expenses related to plant operating expenses, which were reclassified to “Other expenses,” and also purchases of oil from third-parties. Such reclassifications had no impact on our reported total revenues, expenses, net income, current assets, total assets, current liabilities, total liabilities or stockholders’ equity.

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:

Amounts included in restricted cash included in “Other assets” in the accompanying Unaudited Condensed Consolidated Balance Sheets represent escrow accounts that are legally restricted for certain of our asset retirement obligations.

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 (loss) per common share is calculated in the same manner, but includes the impact of potentially dilutive securities.  Potentially dilutive securities consist of nonvested restricted stock, nonvested performance-based equity awards, and shares into which our convertible senior notes are convertible.

The following table sets forth the reconciliations of net income (loss) and weighted average shares used for purposes of calculating the basic and diluted net income (loss) per common share for the periods indicated:

Basic weighted average common shares exclude shares of nonvested restricted stock. As these restricted shares vest, they will be included in the shares outstanding used to calculate basic net income (loss) per common share (although time-vesting restricted stock is issued and outstanding upon grant). For purposes of calculating diluted weighted average common shares during the three months ended March 31, 2020, the nonvested restricted stock and performance-based equity awards are included in the computation using the treasury stock method, with the deemed proceeds equal to the average unrecognized compensation during

the period, and for the shares underlying the convertible senior notes as if the convertible senior notes were converted at the beginning of the 2020 period.

The following securities could potentially dilute earnings per share in the future, but were excluded from the computation of diluted net income (loss) per share, as their effect would have been antidilutive:

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 in the course of these properties being 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 project development activities. Given the significant recent declines in NYMEX oil prices to approximately $20 per Bbl in late March 2020 due to OPEC supply pressures and a reduction in worldwide oil demand amid the COVID-19 pandemic, as well as the uncertainty of future oil prices from demand destruction caused by the pandemic, we recognized an impairment of $244.9 million of our unevaluated costs during the three months ended March 31, 2020, whereby these costs were transferred to the full cost amortization base.

Write-Down of Oil and Natural Gas Properties. 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 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 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 $72.5 million during the three months ended March 31, 2020, with first-day-of-the-month prices for the preceding 12 months averaging $55.17 per Bbl for crude oil and $1.68 per MMBtu for natural gas, after adjustments for market differentials by field. If oil prices were to remain at or near early-May 2020 levels in subsequent periods, we currently expect that we would also record significant write-downs in subsequent quarters, as the 12-month average price used in determining the full cost ceiling value will continue to decline during each rolling quarterly period in 2020.

Impairment Assessment of Long-Lived Assets

We test long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. These long-lived assets, which are not subject to our full cost pool ceiling test, are principally comprised of our capitalized CO₂ properties and pipelines. Given the significant recent declines in NYMEX oil prices to approximately $20 per Bbl in late March 2020 due to OPEC supply pressures and a reduction in worldwide oil demand amid the COVID-19 pandemic, we performed a long-lived asset impairment test for our two long-lived asset groups (Gulf Coast region and Rocky Mountain region).

We perform our long-lived asset impairment test by comparing the net carrying costs of our two long-lived asset groups to the respective expected future undiscounted net cash flows that are supported by these long-lived assets which include production of our probable and possible oil and natural gas reserves. The portion of our capitalized CO₂ costs related to CO₂ reserves and CO₂ pipelines that we estimate will be consumed in the process of producing our proved oil and natural gas reserves is included in the full cost pool ceiling test as a reduction to future net revenues.  The remaining net capitalized costs that are not included in the full cost pool ceiling test, and related intangible assets, are subject to long-lived asset impairment testing. These costs totaled approximately $1.3 billion as of March 31, 2020. If the undiscounted net cash flows are below the net carrying costs for an asset group, we must record an impairment loss by the amount, if any, that net carrying costs exceed the fair value of the long-lived asset group. The undiscounted net cash flows for our asset groups exceeded the net carrying costs; thus, step two of the impairment test was not required and no impairment was recorded.

Significant assumptions impacting expected future undiscounted net cash flows include projections of future oil and natural gas prices, projections of estimated quantities of oil and natural gas reserves, projections of future rates of production, timing and amount of future development and operating costs, projected availability and cost of CO₂, projected recovery factors of tertiary reserves and risk-adjustment factors applied to the cash flows.

Recent Accounting Pronouncements

Recently Adopted

Financial Instruments – Credit Losses. In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, and requires the use of a new forward-looking expected loss model that will result in the earlier recognition of allowances for losses. Effective January 1, 2020, we adopted ASU 2016-13. The implementation of this standard did not have a material impact on our consolidated financial statements.

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”). ASU 2018-13 adds, modifies, or removes certain disclosure requirements for recurring and nonrecurring fair value measurements based on the FASB’s consideration of costs and benefits. Effective January 1, 2020, we adopted ASU 2018-13. The implementation of this standard did not have a material impact on our consolidated financial statements or footnote disclosures.

Not Yet Adopted

Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions to ease financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) or another reference rate to alternative reference rates. The amendments in this ASU are effective beginning on March 12, 2020, and an entity may elect to apply the amendments prospectively through December 31, 2022. We are currently evaluating the impact this guidance may have on our consolidated financial statements and related footnote disclosures.

Income Taxes. In December 2019, the 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. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the impact this guidance may have on our consolidated financial statements and related footnote disclosures.

Note 2. Divestiture

On March 4, 2020, we closed a farm-down transaction for the sale of half of our working interest positions in four southeast Texas oil fields for $40 million net cash and a carried interest in ten wells to be drilled by the purchaser. The sale had an effective date of January 1, 2019.  We did not record a gain or loss on the sale of the properties in accordance with the full cost method of accounting.

We record revenue in accordance with Financial Accounting Standards Board Codification (“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 made within a month following product delivery and for natural gas and NGL contracts is generally made 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, which was $72.5 million and $139.4 million as of March 31, 2020 and December 31, 2019, respectively. The Company enters into purchase transactions with third parties and separate sale transactions with third parties in the Gulf Coast region. 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 the 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.

Disaggregation of Revenue

The following table summarizes our revenues by product type for the three months ended March 31, 2020 and 2019:

Note 4. Long-Term Debt

The table below reflects long-term debt outstanding as of the dates indicated:

The ultimate parent company in our corporate structure, Denbury Resources Inc. (“DRI”), is the sole issuer of all our outstanding senior secured, convertible senior, and senior subordinated notes. DRI has no independent assets or operations. Each of the subsidiary guarantors of such notes is 100% owned, directly or indirectly, by DRI, and the guarantees of the notes are full and unconditional and joint and several; any subsidiaries of DRI that are not subsidiary guarantors of such notes are minor subsidiaries.

Senior Secured Bank Credit Facility

In December 2014, we entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders party thereto (as amended, the “Bank Credit Agreement”), which has been amended periodically since that time. The Bank Credit Agreement is a senior secured revolving credit facility with a maturity date of December 9, 2021, provided that the maturity date may be accelerated to earlier dates in 2021 (February 12, 2021, May 14, 2021 or August 13, 2021) if certain defined liquidity ratios are not met, or if the 2021 Senior Secured Notes due in May 2021 or 2021 Senior Subordinated Notes due in August 2021 are not repaid or refinanced by each of their respective maturity dates. The borrowing base under the Bank Credit Agreement is evaluated semi-annually, generally around May 1 and November 1. As of May 13, 2020, the bank group has not yet completed the process for the spring redetermination, and therefore the borrowing base and commitment levels currently remain at $615 million. The Company currently anticipates that the bank group will complete the redetermination process over the next several weeks, and it is currently uncertain if there will be any change to the borrowing base or banks’ commitment levels. If our outstanding debt under the Bank Credit Agreement were to ever exceed the borrowing base, we would be required to repay the excess amount over a period not to exceed six months. We incur a commitment fee of 0.50% on the undrawn portion of the aggregate lender commitments under the Bank Credit Agreement.

The Bank Credit Agreement contains certain financial performance covenants through the maturity of the facility, including the following:

For purposes of computing the current ratio per the Bank Credit Agreement, Consolidated Current Assets exclude the current portion of derivative assets but include borrowing base availability under the senior secured bank credit facility, and Consolidated Current Liabilities exclude the current portion of derivative liabilities as well as the current portions of long-term indebtedness outstanding.

As of March 31, 2020, we were in compliance with all debt covenants under the Bank Credit Agreement. However, declining industry conditions and reductions in our cash flows and liquidity over the past few months have made our ability to comply with the maximum permitted ratio of total net debt to consolidated EBITDAX maintenance financial covenant in our senior secured bank credit facility increasingly unlikely if these conditions continue, and we foresee the potential to be in violation of this covenant by the end of the second or third quarter of this year. The above description of our Bank Credit Agreement and defined terms are contained in the Bank Credit Agreement and the amendments thereto.

2020 Repurchases of Senior Secured Notes

During March 2020, we repurchased a total of $30.2 million in aggregate principal amount of our 2021 Senior Secured Notes in open-market transactions for a total purchase price of $14.2 million, excluding accrued interest. In connection with these transactions, we recognized a $19.0 million gain on debt extinguishment, net of unamortized debt issuance costs and future interest payable written off.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain taxpayer relief as a result of the COVID-19 pandemic. The CARES Act included several favorable provisions that impacted income taxes, primarily the modified rules on the deductibility of business interest expense for 2019 and 2020, a five-year carryback period for net operating losses generated after 2017 and before 2021, and the acceleration of refundable alternative minimum tax credits.

We evaluate our estimated annual effective income tax rate based on current and forecasted business results and enacted tax laws on a quarterly basis and apply this tax rate to our ordinary income or loss to calculate our estimated tax liability or benefit. Our income taxes are based on an estimated statutory rate of approximately 25% in 2020 and 2019. Our effective tax rate for the three months ended March 31, 2020, differed from our estimated statutory rate, primarily due to tax changes enacted by the CARES Act which resulted in the full release of a $24.5 million valuation allowance against a portion of our business interest expense deduction that we previously estimated would be disallowed, offset by the establishment of a valuation allowance on a portion of our enhanced oil recovery credits that currently are not expected to be utilized.

Note 6. Commodity Derivative Contracts

We do not apply hedge accounting treatment to our oil and natural gas derivative contracts; therefore, the changes in the fair values of these instruments are recognized in income in the period of change.  These fair value changes, along with the settlements of expired contracts, are shown under “Commodity derivatives expense (income)” in our Unaudited Condensed Consolidated Statements of Operations.

Historically, we have entered into various oil and natural gas derivative contracts to provide an economic hedge of our exposure to commodity price risk associated with anticipated future oil and natural gas production and to provide more certainty to our

future cash flows. We do not hold or issue derivative financial instruments for trading purposes. Generally, these contracts have consisted of various combinations of price floors, collars, three-way collars, fixed-price swaps, fixed-price swaps enhanced with a sold put, and basis swaps. The production that we hedge has varied from year to year depending on our levels of debt, financial strength and expectation of future commodity prices.

We manage and control market and counterparty credit risk through established internal control procedures that are reviewed on an ongoing basis.  We attempt to minimize credit risk exposure to counterparties through formal credit policies, monitoring procedures and diversification, and all of our commodity derivative contracts are with parties that are lenders under our Bank Credit Agreement (or affiliates of such lenders). As of March 31, 2020, all of our outstanding derivative contracts were subject to enforceable master netting arrangements whereby payables on those contracts can be offset against receivables from separate derivative contracts with the same counterparty. It is our policy to classify derivative assets and liabilities on a gross basis on our balance sheets, even if the contracts are subject to enforceable master netting arrangements.

The following table summarizes our commodity derivative contracts as of March 31, 2020, none of which are classified as hedging instruments in accordance with the FASC Derivatives and Hedging topic: