Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 	 	 	
þ	 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended March 31, 2011
 	 	 	
o	 	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)

Delaware
(State or other jurisdictions of
incorporation or organization)	 	20-0467835
(I.R.S. Employer
Identification No.)	
 	 	 	
5320 Legacy Drive
Plano, TX
(Address of principal executive offices)	 	75024
(Zip Code)	
Registrant’s telephone number, including area code: (972) 673-2000
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 þ       No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 þ       No 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):

Large accelerated filer     þ	 	Accelerated filer     o	 	Non-accelerated filer     o	 	Smaller reporting company     o	
 	 	 	 	 	 	 	
 	 	 	 	(Do not check if a smaller reporting company)	 	 	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o       No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	 	Outstanding at April 29, 2011	
 	 	 	
Common Stock, $.001 par value	 	401,887,373	

 

DENBURY RESOURCES INC.
INDEX
 	 	 	 	 	
 	 	Page	
PART I. FINANCIAL INFORMATION	 	 	 	 	
 	 	 	 	 	
Item 1. Financial Statements	 	 	 	 	
 	 	 	 	 	
Unaudited Condensed Consolidated Balance Sheets at March 31, 2011 and December 31, 2010	 	 	3	 	
 	 	 	 	 	
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010	 	 	4	 	
 	 	 	 	 	
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	 	 	5	 	
 	 	 	 	 	
Unaudited Condensed Consolidated Statements of Comprehensive Operations for the Three Months Ended March 31, 2011 and 2010	 	 	6	 	
 	 	 	 	 	
Notes to Unaudited Condensed Consolidated Financial Statements	 	 	7	 	
 	 	 	 	 	
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	23	 	
 	 	 	 	 	
Item 3. Quantitative and Qualitative Disclosures about Market Risk	 	 	37	 	
 	 	 	 	 	
Item 4. Controls and Procedures	 	 	38	 	
 	 	 	 	 	
PART II. OTHER INFORMATION	 	 	 	 	
 	 	 	 	 	
Item 1. Legal Proceedings	 	 	39	 	
 	 	 	 	 	
Item 1A. Risk Factors	 	 	39	 	
 	 	 	 	 	
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	 	 	39	 	
 	 	 	 	 	
Item 6. Exhibits	 	 	39	 	
 	 	 	 	 	
Signatures	 	 	40	 	
  EX-10.A	
  EX-10.B	
  EX-31.1	
  EX-31.2	
  EX-32	
  EX-101 INSTANCE DOCUMENT	
  EX-101 SCHEMA DOCUMENT	
  EX-101 CALCULATION LINKBASE DOCUMENT	
  EX-101 LABELS LINKBASE DOCUMENT	
  EX-101 PRESENTATION LINKBASE DOCUMENT	
  EX-101 DEFINITION LINKBASE DOCUMENT	
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DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
 	 	            	 	 	 	            	 	 	
 	 	March 31,	 	December 31,	
 		
 	 	2011	 	2010	
ASSETS	
 	 	 	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 $	127,857	 	 	 $	381,869	 	
 	 	 	 	 	 	 	 	 	
Accrued production receivable	 	 	264,150	 	 	 	223,584	 	
 	 	 	 	 	 	 	 	 	
Trade and other receivables, net of allowance of $471 and $456, respectively	 	 	138,026	 	 	 	114,149	 	
 	 	 	 	 	 	 	 	 	
Short-term investments	 	 	99,733	 	 	 	93,020	 	
 	 	 	 	 	 	 	 	 	
Derivative assets	 	 	19,345	 	 	 	24,242	 	
 	 	 	 	 	 	 	 	 	
Deferred tax assets	 	 	72,552	 	 	 	27,454	 	

Total current assets	 	 	721,663	 	 	 	864,318	 	

Property and equipment	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Oil and natural gas properties (using full cost accounting)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Proved	 	 	6,238,629	 	 	 	6,042,442	 	
 	 	 	 	 	 	 	 	 	
Unevaluated	 	 	912,267	 	 	 	870,130	 	
 	 	 	 	 	 	 	 	 	
CO 2 and other non-hydrocarbon gases - properties and pipelines	 	 	1,940,392	 	 	 	1,901,662	 	
 	 	 	 	 	 	 	 	 	
Other property and equipment	 	 	132,692	 	 	 	120,641	 	
 	 	 	 	 	 	 	 	 	
Less accumulated depletion, depreciation, amortization, and impairment	 	 	(2,295,952	)	 	 	(2,197,517	)	

Net property and equipment	 	 	6,928,028	 	 	 	6,737,358	 	

Derivative assets	 	 	9,203	 	 	 	12,919	 	
 	 	 	 	 	 	 	 	 	
Goodwill	 	 	1,232,418	 	 	 	1,232,418	 	
 	 	 	 	 	 	 	 	 	
Other assets	 	 	220,107	 	 	 	218,050	 	

Total assets	 	 $	9,111,419	 	 	 $	9,065,063	 	

LIABILITIES AND STOCKHOLDERS’ EQUITY		
 	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Accounts payable and accrued liabilities	 	 $	246,145	 	 	 $	345,998	 	
 	 	 	 	 	 	 	 	 	
Oil and gas production payable	 	 	161,471	 	 	 	143,145	 	
 	 	 	 	 	 	 	 	 	
Derivative liabilities	 	 	218,341	 	 	 	78,184	 	
 	 	 	 	 	 	 	 	 	
Current maturities of long-term debt	 	 	8,446	 	 	 	7,948	 	
 	 	 	 	 	 	 	 	 	
Other liabilities	 	 	4,070	 	 	 	4,070	 	

Total current liabilities	 	 	638,473	 	 	 	579,345	 	

Long-term liabilities	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Long-term debt, net of current portion	 	 	2,344,781	 	 	 	2,416,208	 	
 	 	 	 	 	 	 	 	 	
Asset retirement obligations	 	 	83,576	 	 	 	81,290	 	
 	 	 	 	 	 	 	 	 	
Derivative liabilities	 	 	47,745	 	 	 	29,687	 	
 	 	 	 	 	 	 	 	 	
Deferred taxes	 	 	1,589,912	 	 	 	1,547,992	 	
 	 	 	 	 	 	 	 	 	
Other liabilities	 	 	25,567	 	 	 	29,834	 	

Total long-term liabilities	 	 	4,091,581	 	 	 	4,105,011	 	

Commitments and contingencies (Note 7)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Stockholders’ equity	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Preferred stock, $.001 par value, 25,000,000 shares authorized, none issued and outstanding	 	 	-	 	 	 	-	 	
 	 	 	 	 	 	 	 	 	
Common stock, $.001 par value, 600,000,000 shares authorized; 402,155,781 and 400,291,033 shares issued, respectively	 	 	402	 	 	 	400	 	
 	 	 	 	 	 	 	 	 	
Paid-in capital in excess of par	 	 	3,061,793	 	 	 	3,045,937	 	
 	 	 	 	 	 	 	 	 	
Retained earnings	 	 	1,321,952	 	 	 	1,336,142	 	
 	 	 	 	 	 	 	 	 	
Accumulated other comprehensive income (loss)	 	 	3,692	 	 	 	(488	)	
 	 	 	 	 	 	 	 	 	
Treasury stock, at cost, 298,707 and 78,524 shares, respectively	 	 	(6,474	)	 	 	(1,284	)	

Total stockholders’ equity	 	 	4,381,365	 	 	 	4,380,707	 	

Total liabilities and stockholders’ equity	 	 $	9,111,419	 	 	 $	9,065,063	 	
 	 	 	 	 	
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
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DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 	 	            	 	 	 	            	 	 	
 	 	Three Months Ended	
 		
 	 	March 31,	
 		
 	 	2011	 	2010	
 	 	 	 	 	 	 	 	 	
Revenues and other income	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Oil, natural gas, and related product sales	 	  $	506,192	 	 	$	330,886	 	
 	 	 	 	 	 	 	 	 	
CO 2 sales and transportation fees	 	 	4,924	 	 	 	4,497	 	
 	 	 	 	 	 	 	 	 	
Gain on sale of interests in Genesis	 	 	-	 	 	 	101,568	 	
 	 	 	 	 	 	 	 	 	
Interest income and other income	 	 	3,049	 	 	 	1,870	 	

Total revenues and other income	 	 	514,165	 	 	 	438,821	 	

Expenses	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Lease operating expenses	 	 	127,097	 	 	 	96,220	 	
 	 	 	 	 	 	 	 	 	
Production taxes and marketing expenses	 	 	32,751	 	 	 	19,317	 	
 	 	 	 	 	 	 	 	 	
CO 2 discovery and operating expenses	 	 	2,154	 	 	 	1,368	 	
 	 	 	 	 	 	 	 	 	
General and administrative	 	 	43,846	 	 	 	32,709	 	
 	 	 	 	 	 	 	 	 	
Interest, net of amounts capitalized of $10,957 and $21,312, respectively	 	 	48,777	 	 	 	26,416	 	
 	 	 	 	 	 	 	 	 	
Depletion, depreciation, and amortization	 	 	93,594	 	 	 	81,872	 	
 	 	 	 	 	 	 	 	 	
Derivatives expense (income)	 	 	170,750	 	 	 	(41,225	)	
 	 	 	 	 	 	 	 	 	
Loss on early extinguishment of debt	 	 	15,783	 	 	 	-	 	
 	 	 	 	 	 	 	 	 	
Transaction and other costs related to the Encore Merger	 	 	2,359	 	 	 	44,999	 	

Total expenses	 	 	537,111	 	 	 	261,676	 	

Income (loss) before income taxes	 	 	(22,946	)	 	 	177,145	 	
 	 	 	 	 	 	 	 	 	
Income tax provision (benefit)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Current income taxes	 	 	(848	)	 	 	669	 	
 	 	 	 	 	 	 	 	 	
Deferred income taxes	 	 	(7,908	)	 	 	76,272	 	

Consolidated net income (loss)	 	 	(14,190	)	 	 	100,204	 	
 	 	 	 	 	 	 	 	 	
Less: net income attributable to noncontrolling interest	 	 	-	 	 	 	(3,316	)	

Net income (loss) attributable to Denbury stockholders	 	  $	(14,190	)	 	$	96,888	 	

Net income (loss) per common share	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Basic	 	  $	(0.04	)	 	$	0.33	 	
 	 	 	 	 	 	 	 	 	
Diluted	 	  $	(0.04	)	 	$	0.32	 	
 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Basic	 	 	397,386	 	 	 	294,143	 	
 	 	 	 	 	 	 	 	 	
Diluted	 	 	397,386	 	 	 	299,224	 	
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
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DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	
 		
 	 	March 31,	
 		
 	 	2011	 	2010	
 	 	 	 	 	 	 	 	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Consolidated net income (loss)	 	$	(14,190	)	 	 $	100,204	 	
 	 	 	 	 	 	 	 	 	
Adjustments needed to reconcile to net cash provided by operating activities	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Depletion, depreciation, and amortization	 	 	93,594	 	 	 	81,872	 	
 	 	 	 	 	 	 	 	 	
Deferred income taxes	 	 	(7,908	)	 	 	76,272	 	
 	 	 	 	 	 	 	 	 	
Gain on sale of interests in Genesis	 	 	-	 	 	 	(101,568	)	
 	 	 	 	 	 	 	 	 	
Stock-based compensation	 	 	10,201	 	 	 	7,806	 	
 	 	 	 	 	 	 	 	 	
Non-cash fair value derivative adjustments	 	 	172,338	 	 	 	(101,026	)	
 	 	 	 	 	 	 	 	 	
Loss on early extinguishment of debt	 	 	15,783	 	 	 	-	 	
 	 	 	 	 	 	 	 	 	
Other, net	 	 	1,399	 	 	 	2,410	 	
 	 	 	 	 	 	 	 	 	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Accrued production receivable	 	 	(44,243	)	 	 	(12,125	)	
 	 	 	 	 	 	 	 	 	
Trade and other receivables	 	 	(20,160	)	 	 	30,854	 	
 	 	 	 	 	 	 	 	 	
Other assets	 	 	(5,773	)	 	 	(2,775	)	
 	 	 	 	 	 	 	 	 	
Accounts payable and accrued liabilities	 	 	(90,382	)	 	 	21,971	 	
 	 	 	 	 	 	 	 	 	
Oil and natural gas production payable	 	 	18,770	 	 	 	13,394	 	
 	 	 	 	 	 	 	 	 	
Other liabilities	 	 	(4,597	)	 	 	(4,121	)	

Net cash provided by operating activities	 	 	124,832	 	 	 	113,168	 	

Cash flows used for investing activities	 	 	 	 	 	 	 	 	
Oil and natural gas capital expenditures	 	 	(190,296	)	 	 	(92,647	)	
 	 	 	 	 	 	 	 	 	
Acquisitions of oil and natural gas properties	 	 	(29,801	)	 	 	(340	)	
 	 	 	 	 	 	 	 	 	
Cash paid in Encore Merger, net of cash acquired	 	 	-	 	 	 	(801,489	)	
 	 	 	 	 	 	 	 	 	
CO 2 and other non-hydrocarbon gases - capital expenditures, including pipelines	 	 	(66,157	)	 	 	(72,647	)	
 	 	 	 	 	 	 	 	 	
Deposit received on divesture of Southern Assets	 	 	-	 	 	 	45,000	 	
 	 	 	 	 	 	 	 	 	
Net proceeds from sale of interests in Genesis	 	 	-	 	 	 	162,622	 	
 	 	 	 	 	 	 	 	 	
Other	 	 	1,211	 	 	 	(4,826	)	

Net cash used for investing activities	 	 	(285,043	)	 	 	(764,327	)	

Cash flows from financing activities	 	 	 	 	 	 	 	 	
Bank repayments	 	 	(130,000	)	 	 	(625,000	)	
 	 	 	 	 	 	 	 	 	
Bank borrowings	 	 	130,000	 	 	 	1,025,000	 	
 	 	 	 	 	 	 	 	 	
Repayment of senior subordinated notes	 	 	(469,552	)	 	 	(508,182	)	
 	 	 	 	 	 	 	 	 	
Premium paid on repayment of senior subordinated notes	 	 	(13,137	)	 	 	(6,257	)	
 	 	 	 	 	 	 	 	 	
Net proceeds from issuance of senior subordinated notes	 	 	400,000	 	 	 	1,000,000	 	
 	 	 	 	 	 	 	 	 	
Escrowed funds for redemption of senior subordinated notes	 	 	-	 	 	 	(65,566	)	
 	 	 	 	 	 	 	 	 	
Costs of debt financing	 	 	(8,441	)	 	 	(76,129	)	
 	 	 	 	 	 	 	 	 	
Other	 	 	(2,671	)	 	 	(4,113	)	

Net cash provided by (used for) financing activities	 	 	(93,801	)	 	 	739,753	 	

Net increase (decrease) in cash and cash equivalents	 	 	(254,012	)	 	 	88,594	 	
 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at beginning of period	 	 	381,869	 	 	 	20,591	 	

Cash and cash equivalents at end of period	 	 $	127,857	 	 	 $	109,185	 	
 	 	 	 	 	
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
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DENBURY RESOURCES INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(In thousands)
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	
 	 	 	 	 	 	 	 	 	
 	 	March 31,	
 	 	 	 	 	 	 	 	 	
 	 	2011	 	2010	
 	 	 	 	 	 	 	 	 	
Consolidated net income (loss)	 	  $	(14,190	)	 	  $	100,204	 	
 	 	 	 	 	 	 	 	 	
Other comprehensive income (loss), net of income tax:	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Net unrealized gains on available-for-sale securities, net of tax of $2,550	 	 	4,163	 	 	 	-	 	
 	 	 	 	 	 	 	 	 	
Interest rate lock derivative contracts reclassified to income,

net of tax of $11 in each period	 	 	17	 	 	 	17	 	
 	 	 	 	 	 	 	 	 	
Change in deferred hedge loss on interest rate swaps, net of tax of $10	 	 	-	 	 	 	(27	)	

Consolidated comprehensive income (loss)	 	 	(10,010	)	 	 	100,194	 	
 	 	 	 	 	 	 	 	 	
Less: comprehensive income attributable to noncontrolling interest	 	 	-	 	 	 	(3,285	)	

Comprehensive income (loss) attributable to Denbury stockholders	 	  $	(10,010	)	 	  $	96,909	 	
 	 	 	 	 	
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
Organization and Nature of Operations
     We are a growing independent oil and natural gas company. We are the largest oil and natural gas producer in both Mississippi and Montana, own the largest reserves of CO 2 used for tertiary oil recovery east of the Mississippi River, and hold significant operating acreage in the Rocky Mountain and Gulf Coast regions. Our goal is to increase the value of acquired properties through a combination of exploitation, drilling and proven engineering extraction practices, with our most significant emphasis on our CO 2 tertiary 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, 2010. Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” 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, 2011, our consolidated results of operations for the three months ended March 31, 2011 and 2010, and our consolidated cash flows for the three months ended March 31, 2011 and 2010. Certain prior period items have been reclassified to make the classification consistent with the classification in the most recent quarter.
Noncontrolling Interest
     From March 9, 2010 through December 31, 2010, we owned approximately 46% of Encore Energy Partners LP (“ENP”) outstanding common units and 100% of Encore Energy Partners GP LLC (“GP LLC”), which was ENP’s general partner. Considering the presumption of control of GP LLC in accordance with the Consolidation topic of the Financial Accounting Standards Board Codification (“FASC”), the results of operations and cash flows of ENP were consolidated with those of Denbury for this period. On December 31, 2010 we sold all of our ownership interests in ENP and, therefore, we have not consolidated ENP in our Unaudited Condensed Consolidated Balance Sheets as of December 31, 2010, nor do our Unaudited Condensed Consolidated Statement of Operations or Cash Flows for the three months ended March 31, 2011 include ENP’s results of operations or cash flows. As presented in the Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2010, “Net income attributable to noncontrolling interest” of $3.3 million represents ENP’s results of operations attributable to third-party ENP limited partner interest owners, other than Denbury, for the portion of that period for which we consolidated ENP.
Net Income Per Common Share
     Basic net income per common share is computed by dividing net income attributable to our stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is calculated in the same manner, but also considers the impact of the potential dilution from stock options, stock appreciation rights (“SARs”), unvested restricted stock, and unvested performance equity awards. For the three months ended March 31, 2011 and 2010, there were no adjustments to net income attributable to our stockholders for purposes of calculating diluted net income per common share. The following is a reconciliation of the weighted average common shares used in the basic and diluted net income per common share calculations for the periods indicated:
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
 	 	         	 	 	 	         	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
 		
In thousands	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	
Basic weighted average common shares	 	 	397,386	 	 	 	294,143	 	
Potentially dilutive securities:	 	 	 	 	 	 	 	 	
Stock options and SARs	 	 	-	 	 	 	3,690	 	
Performance equity awards	 	 	-	 	 	 	477	 	
Restricted stock	 	 	-	 	 	 	914	 	
 	 	 	 	 	
Diluted weighted average common shares	 	 	397,386	 	 	 	299,224	 	
 	 	 	 	 	
     Basic weighted average common shares excludes 3.5 million shares and 3.4 million shares at March 31, 2011 and 2010, respectively, of unvested restricted stock. As these restricted shares vest, they will be included in the shares outstanding used to calculate basic net income per common share, although all restricted stock is issued and outstanding upon grant. For purposes of calculating diluted weighted average common shares, unvested restricted stock is included in the computation using the treasury stock method, with the deemed proceeds equal to the average unrecognized compensation during the period, adjusted for any estimated future tax consequences recognized directly in equity.
     The following securities could potentially dilute earnings per share in the future, but were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive:
 	 	         	 	 	 	         	 	 	
 	 	Three Months Ended	 	
 		
 	 	March 31,	 	
 		
In thousands	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	
Stock options and SARs	 	 	12,641 	 	 	 	5,465 	 	
Restricted stock	 	 	3,453 	 	 	 	1,371 	 	
Short-term Investments
     Short-term investments are available-for-sale securities recorded at fair value with any unrealized gains or losses included in accumulated other comprehensive income. At March 31, 2011 and December 31, 2010, short-term investments consisted entirely of our investment in Vanguard Natural Resources LLC (“Vanguard”) common units obtained as partial consideration for the sale of our interests in ENP to a subsidiary of Vanguard on December 31, 2010. The cost basis of this investment is $93.0 million, and under the terms of the sale agreement with Vanguard we are restricted from divesting these Vanguard common units until July 31, 2011. In the first quarter of 2011 we received distributions of $1.8 million on the Vanguard common units we own which distributions are included in “Interest income and other income” on our Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2011. The unrealized gain on our short-term investment of $4.2 million, net of taxes of $2.6 million, is included in our Unaudited Condensed Consolidated Statement of Comprehensive Operations for the three months ended March 31, 2011.
Recently Adopted Accounting Pronouncements
     We have reviewed recently issued accounting pronouncements that became effective during the three months ended March 31, 2011, and have determined that none would have a material impact to our Unaudited Condensed Consolidated Financial Statements.
Note 2. Acquisitions and Divestitures
2010 Merger with Encore Acquisition Company
     On March 9, 2010, we acquired Encore Acquisition Company (“Encore”) pursuant to the Encore Merger Agreement entered into with Encore on October 31, 2009. The Encore Merger Agreement provided for a stock and cash transaction valued at approximately $4.8 billion at the acquisition date, including the assumption of debt and the value of the noncontrolling interest in ENP (the “Encore Merger”). Under the Encore Merger Agreement, Encore was merged with and into Denbury, with Denbury surviving the Encore Merger.
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements

     For the period from the March 9, 2010 Encore acquisition date to March 31, 2010, we recognized $59.7 million and $43.9 million of oil, natural gas and related product sales and field operating income (oil, natural gas and related product sales less lease operating expenses and production taxes and marketing expenses), respectively, related to the Encore Merger. We recognized a total of $2.4 million and $45.0 million of transaction and other costs related to the Encore Merger (primarily advisory, legal, accounting, due diligence, integration, and severance costs) for the three months ended March 31, 2011, and 2010, respectively.
2010 Acquisition of Reserves in Rocky Mountain Region at Riley Ridge
     In October 2010, we acquired a 42.5% non-operated working interest in the Riley Ridge Federal Unit (“Riley Ridge”), located in the LaBarge Field of southwestern Wyoming, for $132.3 million after preliminary closing adjustments. Riley Ridge contains natural gas resources, as well as helium and CO 2 resources. The purchase includes a working interest in a gas plant, which is currently under construction, which will separate the helium and natural gas from the commingled gas stream. The acquisition also includes approximately 33% of the CO 2 mineral rights in an additional 28,000 acres adjoining the Riley Ridge Unit. We own a non-operating interest in those 28,000 acres.
     The acquisition of Riley Ridge meets the definition of a business under the FASC Business Combinations topic. The purchase price allocation for the acquisition of interests in Riley Ridge Field is preliminary and subject to revision pending finalization of closing adjustments. The following table presents a summary of the preliminary fair value of assets acquired:
 	 	 	 	 	
   In thousands	 	 	
 	 	 	 	 	
Oil and natural gas properties	 	  $	19,646	 	
CO 2 and other non-hydrocarbon gases - properties and pipelines (CO 2 properties)	 	 	10,907	 	
CO 2 and other non-hydrocarbon gases - properties and pipelines (Riley Ridge plant)	 	 	72,070	 	
Prepaid construction and drilling costs	 	 	9,346	 	
Other assets	 	 	19,300	 	
Asset retirement obligations	 	 	(472	)	
Goodwill	 	 	1,460	 	
 	 	 	
Total	 	  $	132,257	 	
 	 	 	
Pro Forma Information
     Had the Encore Merger and Riley Ridge acquisition both occurred on January 1, 2010, our combined pro forma revenue and net income for the three months ended March 31, 2010, would have been as follows:
 	 	          	 	 	
In thousands, except per share amounts	 	 	
 	 	 	 	 	
Pro forma total revenues	 	  $	615,271	 	
Pro forma net income attributable to Denbury stockholders	 	 	112,489	 	
Pro forma net income per common share:	 	 	 	 	
Basic	 	  $	0.28	 	
Diluted	 	 	0.28	 	
2010 Sale of Interests in Genesis
     In February 2010, we sold our interest in Genesis Energy, LLC, the general partner of Genesis Energy, L.P. (“Genesis”), for net proceeds of approximately $84 million. In March 2010, we sold all of our Genesis common units in a secondary public offering for net proceeds of approximately $79 million. We recognized a pre-tax gain of approximately $101.5 million ($63.0 million after tax) on these dispositions.
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3. Long-Term Debt
     The following table shows the components of our long-term debt as of the periods indicated:
 	 	          	 	 	 	          	 	 	
 	 	March 31,	 	 	December 31,	 	
 		
In thousands	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	
Bank Credit Agreement	 	 $	-	 	 	 $	-	 	
 		
7 1 / 2 % Senior Subordinated Notes due 2013, including discount of $96 and $437, respectively (1)	 	 	55,352	 	 	 	224,563	 	
 		
7 1 / 2 % Senior Subordinated Notes due 2015, including premium of $427	 	 	-	 	 	 	300,427	 	
9 1 / 2 % Senior Subordinated Notes due 2016, including premium of $13,906 and $14,589, respectively	 	 	238,826	 	 	 	239,509	 	
 		
9 3 / 4 % Senior Subordinated Notes due 2016, including discount of $21,067 and $22,139, respectively	 	 	405,283	 	 	 	404,211	 	
 		
8 1 / 4 % Senior Subordinated Notes due 2020	 	 	996,273	 	 	 	996,273	 	
 		
6 3 / 8 % Senior Subordinated Notes due 2021	 	 	400,000	 	 	 	-	 	
 		
Other Subordinated Notes, including premium of $39 and $41, respectively	 	 	3,845	 	 	 	3,848	 	
 		
NEJD financing	 	 	166,452	 	 	 	167,331	 	
 		
Free State financing	 	 	80,979	 	 	 	81,188	 	
 		
Capital lease obligations	 	 	6,217	 	 	 	6,806	 	

Total	 	 	2,353,227	 	 	 	2,424,156	 	
 		
Less current obligations	 	 	8,446	 	 	 	7,948	 	

Long-term debt and capital lease obligations	 	 $	2,344,781	 	 	 $	2,416,208	 	

 	 	 	
(1)	 	These notes were repurchased on April 1, 2011.	
Bank Credit Agreement
     On March 9, 2010, we entered into a $1.6 billion revolving credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and 23 other lenders as party thereto (the “Bank Credit Agreement”) with a maturity date of March 2014. Availability under the Bank Credit Agreement is subject to a borrowing base (currently $1.6 billion) which is re-determined semi-annually on or prior to May 1 and November 1 and upon requested special redeterminations. We expect our semi-annual redetermination to be finalized in mid-May 2011. We currently do not anticipate any reduction in our borrowing base as a result of this redetermination.
     The borrowing base is adjusted at the banks’ discretion and is based in part upon external factors over which we have no control. If the borrowing base were to be less than outstanding borrowings under the Bank Credit Agreement, we would be required to repay the deficit over a period of four months. We incur a commitment fee of 0.5% on the unused portion of the credit facility or if less, the borrowing base. Loans under the Bank Credit Agreement mature in March 2014. We had no borrowings outstanding on the Bank Credit Agreement as of March 31, 2011.
6 3 / 8 % Senior Subordinated Notes due 2021
     In February 2011, we issued $400 million of 6 3 / 8 % Senior Subordinated Notes due 2021 (“2021 Notes”). The 2021 Notes, which carry a coupon rate of 6.375%, were sold at par. The net proceeds of approximately $393 million were used to repurchase a portion of our outstanding 2013 Notes and 2015 Notes (see Redemption of our 2013 and 2015 Notes below).
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
     The 2021 Notes mature on August 15, 2021, and interest is payable on February 15 and August 15 of each year, beginning August 15, 2011. We may redeem the 2021 Notes in whole or in part at our option beginning August 15, 2016, at the following redemption prices: 103.188% after August 15, 2016; 102.125% after August 15, 2017; 101.062% after August 15, 2018; and 100% after August 15, 2019. Prior to August 15, 2014, we may, at our option, redeem up to an aggregate of 35% of the principal amount of the 2021 Notes at a price of 106.375% with the proceeds of certain equity offerings. In addition, at any time prior to August 15, 2016, we may redeem 100% of the principal amount of the 2021 Notes at a price equal to 100% of the principal amount plus a “make-whole” premium and accrued and unpaid interest. The indenture contains certain restrictions on our ability to incur additional debt, pay dividends on our common stock, make investments, create liens on our assets, engage in transactions with our affiliates, transfer or sell assets, consolidate or merge, or sell substantially all of our assets. The 2021 Notes are not subject to any sinking fund requirements. All of our subsidiaries, other than minor subsidiaries, fully and unconditionally guarantee this debt jointly and severally.
Redemption of our 2013 and 2015 Notes
     On February 3, 2011, we commenced cash tender offers to purchase $225 million principal amount of our 2013 Notes and $300 million principal amount of our 2015 Notes. By March 3, 2011, upon expiration of the tender offers, we accepted for purchase $169.6 million in principal of the 2013 Notes at 100.625% of par, and $220.9 million in principal of the 2015 Notes for 104.125% of par. We called the remaining 2013 and 2015 Notes, repurchasing all of the remaining outstanding 2015 Notes ($79.1 million) at 103.75% of par on March 21, 2011 and repurchasing all of the remaining outstanding 2013 Notes ($55.4 million) at par on April 1, 2011. During the first quarter of 2011, we recognized a $15.8 million loss associated with the first quarter of 2011 debt repurchases, which is included in our income statement under the caption “Loss on early extinguishment of debt”.
Note 4. Derivative Instruments and Hedging Activities
Oil and Natural Gas Derivative Contracts
     We do not apply hedge accounting treatment to our oil and natural gas derivative contracts and 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 cash settlements of expired contracts are shown under “Derivatives expense (income)” in our Unaudited Condensed Consolidated Statements of Operations.
     From time to time, we enter 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. We do not hold or issue derivative financial instruments for trading purposes. These contracts have consisted of price floors, collars and fixed price swaps. The production that we hedge has varied from year to year depending on our levels of debt and financial strength and expectation of future commodity prices. We currently employ a strategy to hedge a portion of our forecasted production for a period generally ranging from approximately 12 to 18 months in advance, as we believe it is important to protect our future cash flow to provide a level of assurance for our capital spending in those future periods in light of current worldwide economic uncertainties.
     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. All of our commodity derivative contracts are with parties that are lenders under our Bank Credit Agreement.
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
     The following is a summary of “Derivatives expense (income)” included in the accompanying Unaudited Condensed Consolidated Statements of Operations for the periods indicated:
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	
 		
 	 	March 31,	
  In thousands	 	2011	 	2010	
Oil	 	 	 	 	 	 	 	 	
Payment on settlements of derivative contracts	 	$	5,028	 	 	$	63,550	 	
Fair value adjustments to derivative contracts - expense (income)	 	 	167,064	 	 	 	(61,821	)	
 	 	 	 	 	 	 	
Total derivative expense - oil	 	 	172,092	 	 	 	1,729	 	
Natural Gas	 	 	 	 	 	 	 	 	
Receipt on settlements of derivative contracts	 	 	(6,616	)	 	 	(3,749	)	
Fair value adjustments to derivative contracts - expense (income)	 	 	5,274	 	 	 	(39,018	)	
 	 	 	 	 	 	 	
Total derivative income - natural gas	 	 	(1,342	)	 	 	(42,767	)	
Ineffectiveness on interest rate swaps	 	 	-	 	 	 	(187	)	
 	 	 	 	 	 	 	
Derivative expense (income)	 	$	170,750	 	 	$	(41,225	)	
 	 	 	 	 	 	 	
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Fair Value of Commodity Derivative Contracts Not Classified as Hedging Instruments
     The following tables present the fair value of our commodity derivative contracts:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Estimated Fair Value	
 	 	 		
 	 	 	 	 	 	 	 	 	 	NYMEX Contract Prices Per Bbl	 	Asset (Liability)	
 	 	 		
 	 	 	 	Type of	 	 	 	 	 	Weighted Average Price	 	March 31,	 	December 31,	
 	 	 		
Year	 	Months	 	Contract	 	Bbls/d	 	Swap	 	Floor	 	Ceiling	 	2011	 	2010	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(In thousands)	
Oil Contracts:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2011	 	Jan - Mar	 	Swap	 	 	625	 	 	$	79.18	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	(737	)	
 	 	 	 	Collar	 	 	43,500	 	 	 	-	 	 	 	67.25	 	 	 	95.80	 	 	 	-	 	 	 	(3,656	)	
 	 	 	 	Put	 	 	6,625	 	 	 	-	 	 	 	69.53	 	 	 	-	 	 	 	-	 	 	 	79	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Total Jan - Mar 2011	 	 	50,750	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	-	 	 	 	(4,314	)	

 	 	Apr - June	 	Swap	 	 	625	 	 	 	79.18	 	 	 	-	 	 	 	-	 	 	 	(1,593	)	 	 	(827	)	
 	 	 	 	Collar	 	 	43,500	 	 	 	-	 	 	 	70.34	 	 	 	100.20	 	 	 	(34,918	)	 	 	(12,113	)	
 	 	 	 	Put	 	 	6,625	 	 	 	-	 	 	 	69.53	 	 	 	-	 	 	 	16	 	 	 	499	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Total Apr - June 2011	 	 	50,750	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(36,495	)	 	 	(12,441	)	

 	 	July - Sept	 	Swap	 	 	625	 	 	 	79.18	 	 	 	-	 	 	 	-	 	 	 	(1,656	)	 	 	(865	)	
 	 	 	 	Collar	 	 	42,500	 	 	 	-	 	 	 	70.35	 	 	 	100.09	 	 	 	(48,434	)	 	 	(17,308	)	
 	 	 	 	Put	 	 	6,625	 	 	 	-	 	 	 	69.53	 	 	 	-	 	 	 	170	 	 	 	1,026	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Total July - Sept 2011	 	 	49,750	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(49,920	)	 	 	(17,147	)	

 	 	Oct - Dec	 	Swap	 	 	625	 	 	 	79.18	 	 	 	-	 	 	 	-	 	 	 	(1,658	)	 	 	(871	)	
 	 	 	 	Collar	 	 	45,500	 	 	 	-	 	 	 	70.33	 	 	 	101.74	 	 	 	(53,941	)	 	 	(18,878	)	
 	 	 	 	Put	 	 	6,625	 	 	 	-	 	 	 	69.53	 	 	 	-	 	 	 	477	 	 	 	1,445	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Total Oct - Dec 2011	 	 	52,750	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(55,122	)	 	 	(18,304	)	

2012	 	Jan - Mar	 	Swap	 	 	625	 	 	 	81.04	 	 	 	-	 	 	 	-	 	 	 	(1,502	)	 	 	(741	)	
 	 	 	 	Collar	 	 	52,000	 	 	 	-	 	 	 	70.00	 	 	 	106.86	 	 	 	(55,070	)	 	 	(19,065	)	
 	 	 	 	Put	 	 	625	 	 	 	-	 	 	 	65.00	 	 	 	-	 	 	 	51	 	 	 	123	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Total Jan - Mar 2012	 	 	53,250	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(56,521	)	 	 	(19,683	)	

 	 	Apr-June	 	Swap	 	 	625	 	 	 	81.04	 	 	 	-	 	 	 	-	 	 	 	(1,450	)	 	 	(726	)	
 	 	 	 	Collar	 	 	53,000	 	 	 	-	 	 	 	70.00	 	 	 	119.44	 	 	 	(29,230	)	 	 	(3,288	)	
 	 	 	 	Put	 	 	625	 	 	 	-	 	 	 	65.00	 	 	 	-	 	 	 	78	 	 	 	151	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Total Apr - June 2012	 	 	54,250	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(30,602	)	 	 	(3,863	)	

 	 	July-Sept	 	Swap	 	 	625	 	 	 	81.04	 	 	 	-	 	 	 	-	 	 	 	(1,402	)	 	 	(719	)	
 	 	 	 	Collar	 	 	48,000	 	 	 	-	 	 	 	80.00	 	 	 	127.70	 	 	 	(6,663	)	 	 	-	 	
 	 	 	 	Put	 	 	625	 	 	 	-	 	 	 	65.00	 	 	 	-	 	 	 	103	 	 	 	178	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Total July - Sept 2012	 	 	49,250	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(7,962	)	 	 	(541	)	

 	 	Oct - Dec	 	Swap	 	 	625	 	 	 	81.04	 	 	 	-	 	 	 	-	 	 	 	(1,356	)	 	 	(709	)	
 	 	 	 	Collar	 	 	48,000	 	 	 	-	 	 	 	80.00	 	 	 	127.70	 	 	 	(6,014	)	 	 	-	 	
 	 	 	 	Put	 	 	625	 	 	 	-	 	 	 	65.00	 	 	 	-	 	 	 	117	 	 	 	191	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Oct - Dec 2012	 	 	49,250	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(7,253	)	 	 	(518	)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Oil Contracts	 	$	(243,875	)	 	$	(76,811	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Estimated Fair Value	
 	 	 		
 	 	 	 	 	 	 	 	 	 	Contract Prices Per MMBtu	 	Asset (Liability)	
 	 	 		
 	 	 	 	Type of	 	 	 	 	 	Weighted Average Price	 	March 31,	 	December 31,	
 	 	 		
Year	 	Months	 	Contract	 	MMBtu/d	 	Swap	 	Floor	 	Ceiling	 	2011	 	2010	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(In thousands)	
Natural Gas Contracts:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2011	 	Jan - Mar	 	Swap	 	 	33,500	 	 	$	6.27	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	5,846	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Jan-Mar 2011	 	 	33,500	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	-	 	 	 	5,846	 	

 	 	Apr-Jun	 	Swap	 	 	33,500	 	 	 	6.27	 	 	 	-	 	 	 	-	 	 	 	5,841	 	 	 	5,637	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Apr-June 2011	 	 	33,500	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,841	 	 	 	5,637	 	

 	 	July - Sept	 	Swap	 	 	33,500	 	 	 	6.27	 	 	 	-	 	 	 	-	 	 	 	5,327	 	 	 	5,300	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total July-Sept 2011	 	 	33,500	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,327	 	 	 	5,300	 	

 	 	Oct - Dec	 	Swap	 	 	33,500	 	 	 	6.27	 	 	 	-	 	 	 	-	 	 	 	4,615	 	 	 	4,409	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Oct - Dec 2011	 	 	33,500	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4,615	 	 	 	4,409	 	

2012	 	Jan - Dec	 	Swap	 	 	20,000	 	 	 	6.53	 	 	 	-	 	 	 	-	 	 	 	11,753	 	 	 	11,618	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Jan - Dec 2012	 	 	20,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	11,753	 	 	 	11,618	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Natural Gas Contracts	 	 	27,536	 	 	 	32,810	 	

Total Commodity Derivative Contracts	 	$	(216,339	)	 	$	(44,001	)	

     As of March 31, 2011 and December 31, 2010, we had $21.2 million and $26.7 million, respectively, of deferred premiums payable, which relate to various oil and natural gas floor contracts and are payable on a monthly basis from April 2011 to January 2013. These premiums are excluded from the above tables.
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Additional Disclosures about Derivative Instruments
     At March 31, 2011 and December 31, 2010, we had derivative financial instruments recorded in our Unaudited Condensed Consolidated Balance Sheets as follows:
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Estimated Fair Value		
 	 	 	 	Asset (Liability)		
 	 	 	 	March 31,	December 31,	 	
Type of Contract	 	Balance Sheet Location	 	2011	2010	 	
 	 	 	 	(In thousands)	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	 	 	 	 	
Derivative asset:	 	 	 	 	 	 	 	 	 	 	
Oil contracts	 	Derivative assets - current	 	$	714 	 	$	 	3,050 	 	
Natural gas contracts	 	Derivative assets - current	 	 	18,631 	 	 	 	21,192 	 	
Oil contracts	 	Derivative assets - long-term	 	 	298 	 	 	 	1,301 	 	
Natural gas contracts	 	Derivative assets - long-term	 	 	8,905 	 	 	 	11,618 	 	
 	 	 	 	 	 	 	 	 	 	 	
Derivative liability:	 	 	 	 	 	 	 	 	 	 	
Oil contracts	 	Derivative liabilities - current	 	 	(198,772)		 	 	(55,256)		
Deferred premiums	 	Derivative liabilities - current	 	 	(19,569)		 	 	(22,928)		
Oil contracts	 	Derivative liabilities - long-term	 	 	(46,115)		 	 	(25,906)		
Deferred premiums	 	Derivative liabilities - long-term	 	 	(1,630)		 	 	(3,781)		
 	 	 	 	 	 	 	 	 	
Total derivatives not designated as hedging instruments	 	 	 	$	(237,538)		$	 	(70,710)		
 	 	 	 	 	 	 	 	 	
Note 5. Fair Value Measurements
Fair Value Hierarchy
     Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We are able to classify fair value balances based on the observability of those inputs. The FASC establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

 	•	 	Level 1 - Quoted prices in active markets for identical assets or liabilities as of the reporting date.	
 		
 	•	 	Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded oil and natural gas derivatives that are based on NYMEX pricing.	
 		
 	•	 	Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Instruments in this category include non-exchange-traded natural gas derivatives swaps that are based on regional pricing other than NYMEX (i.e., Houston Ship Channel).	
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
     We adjust the valuations from the valuation model for nonperformance risk, using our estimate of the counterparty’s credit quality for asset positions and Denbury’s credit quality for liability positions. Denbury uses multiple sources of third-party credit data in determining counterparty nonperformance risk, including credit default swaps.
     The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of the periods indicated:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Fair Value Measurements Using:	 	
  	 	 	 	 	 	Significant	 	 	 	 	 	 	 	
 	 	Quoted Prices	 	 	Other	 	 	Significant	 	 	 	 	
 	 	in Active	 	 	Observable	 	 	Unobservable	 	 	 	 	
 	 	Markets	 	 	Inputs	 	 	Inputs	 	 	 	 	
In thousands	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	 	Total	 	
March 31, 2011	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Short-term investments	 	$	99,733 	 	 	$	- 	 	 	$	- 	 	 	$	99,733 	 	
Oil and natural gas derivative contracts	 	 	- 	 	 	 	13,202 	 	 	 	15,346 	 	 	 	28,548 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil and natural gas derivative contracts	 	 	- 	 	 	 	(244,887)		 	 	- 	 	 	 	(244,887)		
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	99,733 	 	 	$	(231,685)		 	$	15,346 	 	 	$	(116,606)		

December 31, 2010	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Short-term investments	 	$	93,020 	 	 	$	- 	 	 	$	- 	 	 	$	93,020 	 	
Oil derivative contracts	 	 	- 	 	 	 	20,683 	 	 	 	16,478 	 	 	 	37,161 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil and natural gas derivative contracts	 	 	- 	 	 	 	(81,162)		 	 	- 	 	 	 	(81,162)		
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	93,020 	 	 	$	(60,479)		 	$	16,478 	 	 	$	49,019 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
     The following table summarizes the changes in the fair value of our Level 3 assets and liabilities for the three months ended March 31, 2011 and 2010:
 	 	 	 	 	 	 	 	 	
 	 	Fair Value Measurements Using Significant	 	
 	 	 		
 	 	Unobservable Inputs (Level 3)	 	
 		
 	 	Three Months Ended	 	 	Three Months Ended	 	
 	 	 		
In thousands	 	March 31, 2011	 	 	March 31, 2010	 	
Balance, beginning of period	 	$	16,478 	 	 	$	- 	 	
Unrealized gains on commodity derivative contracts included in earnings	 	 	310 	 	 	 	14,773 	 	
Commodity derivative contracts acquired from Encore	 	 	- 	 	 	 	38,093 	 	
Receipts on settlement of commodity derivative contracts	 	 	(1,442)		 	 	(2,348)		
 	 	 	 	 	 	 	
Balance, end of period	 	$	15,346 	 	 	$	50,518 	 	
 	 	 	 	 	 	 	
     Since we do not use hedge accounting for our commodity derivative contracts, any gains and losses on our assets and liabilities are included in “Derivatives expense (income)” in the accompanying Unaudited Condensed Consolidated Statements of Operations.
     The following table sets forth the fair value of financial instruments that are not recorded at fair value in our Unaudited Condensed Consolidated Financial Statements:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  	 	March 31, 2011	 	 	December 31, 2010	 	
 	 	Carrying	 	 	Estimated	 	 	Carrying	 	 	Estimated	 	
In thousands, except percentages	 	Amount	 	 	Fair Value	 	 	Amount	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
7 1 / 2 % Senior Subordinated Notes due 2013 (1)	 	$	55,352	 	 	$	55,448	 	 	$	224,563	 	 	$	228,375	 	
7 1 / 2 % Senior Subordinated Notes due 2015	 	 	-	 	 	 	-	 	 	 	300,427	 	 	 	310,500	 	
9 1 / 2 % Senior Subordinated Notes due 2016	 	 	238,826	 	 	 	253,597	 	 	 	239,509	 	 	 	249,661	 	
9 3 / 4 % Senior Subordinated Notes due 2016	 	 	405,283	 	 	 	480,710	 	 	 	404,211	 	 	 	475,380	 	
8 1 / 4 % Senior Subordinated Notes due 2020	 	 	996,273	 	 	 	1,113,335	 	 	 	996,273	 	 	 	1,080,956	 	
6 3 / 8 % Senior Subordinated Notes due 2021	 	 	400,000	 	 	 	410,000	 	 	 	-	 	 	 	-	 	

 	 	 		
(1) These notes were repurchased on April 1, 2011.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     The fair values of our senior subordinated notes are based on quoted market prices. We have other financial instruments consisting primarily of cash, cash equivalents, short-term receivables and payables that approximate fair value due to the nature of the instrument and the relatively short maturities.
Note 6. Supplemental Information
Accounts Payable and Accrued Liabilities
     The following table summarizes our accounts payable and accrued liabilities as of the periods indicated:
 	 	 	 	 	 	 	 	 	
 	 	March 31,	 	 	December 31,	 	
In thousands	 	2011	 	 	2010	 	
Accounts payable	 	$	53,754 	 	 	$	47,660 	 	
Accrued exploration and development costs	 	 	75,967 	 	 	 	101,758 	 	
Accrued compensation	 	 	17,820 	 	 	 	39,757 	 	
Accrued interest	 	 	31,405 	 	 	 	57,077 	 	
Taxes payable	 	 	7,198 	 	 	 	34,371 	 	
Other	 	 	60,001 	 	 	 	65,375 	 	
 	 	 	 	 	 	 	
Total	 	$	246,145 	 	 	$	345,998 	 	
 	 	 	 	 	 	 	
Supplemental Cash Flow Information
     The following table sets forth supplemental cash flow information for the periods indicated:
 	 	 	 	 	 	 	 	 	
 	 	As of	 	
 	 	March 31,	 	
In thousands	 	2011	 	 	2010	 	
Cash paid for interest, net of amounts capitalized	 	$	66,172 	 	 	$	21,962 	 	
Interest capitalized	 	 	10,957 	 	 	 	21,312 	 	
Cash paid for income taxes	 	 	19,933 	 	 	 	8,030 	 	
Cash received for income tax refunds	 	 	222 	 	 	 	12,625 	 	
Increase (decrease) in accrued liabilities for capital expenditures	 	 	(12,503)		 	 	32,399 	 	
Issuance of Denbury common stock in connection with the Encore Merger	 	 	- 	 	 	 	2,085,681 	 	
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 7. Commitments and Contingencies
     In March 2011, we entered into three long-term supply contracts to purchase CO 2 from future anthropogenic sources in the Gulf Coast and Rocky Mountain regions. Denbury will purchase 100% of the CO 2 captured from the DKRW Advanced Fuels LLC’s Medicine Bow Fuel and Power LLC (“MBFP”) project in Medicine Bow, Wyoming, purchase 70% of the CO 2 captured from Mississippi Power Company’s Kemper County Integrated Gasification Combined Cycle (“IGCC”) project in Mississippi, and purchase 100% of the CO 2 captured from an undisclosed source in the Gulf Coast region. These contracts each have an initial term of 15 to 16 years and include options to extend the term. We estimate that these sources will supply approximately 365 MMcf/d of CO 2 for our enhanced oil recovery operations, although under certain circumstances, we may be obligated to purchase up to 460 MMcf/d, a portion of which would be at a reduced price per Mcf. We expect to begin taking delivery of approximately 200 MMCF/d of CO 2 from the MBFP project in late 2014 or early 2015, 115 MMcf/d of CO 2 from the IGCC project by 2014 and 50 MMcf/d of CO 2 from a Gulf Coast region source in late 2012. Our aggregate maximum purchase obligation for CO 2 purchased under these three contracts would be approximately $110 million per year (assuming purchases of 460 MMcf/d), plus transportation, assuming a $100 per barrel NYMEX oil price. The purchase price of CO 2 will fluctuate based on the changes in the price of oil. These CO 2 purchase agreements are contingent on completion or modification of the respective plants by their operators.
     In the third quarter of 2008, we obtained approval from the National Office of the Internal Revenue Service (“IRS”) to change our method of tax accounting for certain assets used in our tertiary oilfield recovery operations. As a result of the approved change in method of tax accounting, beginning with the 2007 tax year we began to deduct, rather than capitalize, such costs for tax purposes, and applied for tax refunds associated with such change for our 2004 and 2006 tax years. Notwithstanding its consent to our change in tax accounting in 2008, the IRS subsequently exercised its prerogative to challenge the tax accounting method we used. In late January 2011, we received a Technical Advice Memorandum (“TAM”) issued by the IRS National Office disapproving our method of accounting and revoking its consent to our change, on a prospective basis only, commencing January 1, 2011. As a result of the prospective nature of the IRS’s determination, there should be no change in our position with respect to the deductibility of these costs for 2007, 2008, 2009 and 2010. However, refund claims of $10.6 million for tax years through 2006 are pending and are subject to review by the Joint Committee on Taxation of the U.S. Congress. We are unable to assess the outcome of any such review, nor how that outcome may affect the other years covered by the TAM.
     We are subject to audits for sales and use taxes and severance taxes in the various states in which we operate, and from time to time receive assessments for potential taxes that we may owe. We have received a $15.0 million assessment from the Mississippi taxing authority for use tax, penalties and interest covering the 2004-2007 period. We believe this assessment is significantly in excess of any amounts owed and we are appealing the assessment. We do not believe the outcome of this matter will have a material adverse impact on the Company.
     We are involved in various lawsuits, claims and other regulatory proceedings incidental to our businesses. While we currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations or cash flows, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our net income in the period in which the ruling occurs. We provide accruals for litigation and claims if we determine that a loss is probable and the amount can be reasonably estimated.
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 8. Condensed Consolidating Financial Information
     Denbury’s subordinated debt is fully and unconditionally guaranteed jointly and severally by certain of its subsidiaries, except that with respect to Denbury’s $55 million of 7½% Senior Subordinated Notes due 2013 that remained outstanding at March 31, 2011, Denbury Resources Inc. and Denbury Onshore, LLC were co-obligors at March 31, 2011. These 7½% Notes have since been redeemed and are no longer outstanding. Except as noted in the first sentence of this paragraph, Denbury Resources Inc. is the sole issuer and Denbury Onshore, LLC is a subsidiary guarantor. In the case of the 6¼% Notes, the 6% Notes, the 7¼% Notes and the 9½% Notes previously issued by Encore, Denbury is the sole issuer by virtue of the fact that it is the successor in interest to Encore with respect to all such notes. Each subsidiary guarantor and the subsidiary that was a co-obligor are wholly-owned, directly or indirectly, by Denbury Resources Inc.
     All intercompany investments in, loans due to/from, subsidiary equity, revenues, and expenses between Denbury Resources Inc., Denbury Onshore, LLC, guarantor subsidiaries, and non-guarantor subsidiaries are shown prior to consolidation with Denbury Resources Inc. and then eliminated to arrive at consolidated totals per the accompanying Unaudited Condensed Consolidated Financial Statements.
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DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidating Balance Sheets
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	March 31, 2011	 	
 	 	Denbury	 	 	Denbury	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
 	 	Resources Inc.	 	 	Onshore, LLC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
 	 	(Parent and	 	 	(Issuer and	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	 	Consolidated	 	
 		
In thousands	 	Co-Obligor)	 	 	Co-Obligor)	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Eliminations	 	 	Total	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 $	3,947 	 	 	 $	119,569 	 	 	 $	3,630 	 	 	 $	711 	 	 	 $	- 	 	 	 $	127,857 	 	
Other current assets	 	 	476,986 	 	 	 	559,354 	 	 	 	461,605 	 	 	 	- 	 	 	 	(904,139)	  	 	 	593,806 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total current assets	 	 	480,933 	 	 	 	678,923 	 	 	 	465,235 	 	 	 	711 	 	 	 	(904,139)	  	 	 	721,663 	 	

Property and equipment:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil and natural gas properties (using full cost accounting):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	- 	 	
Proved	 	 	- 	 	 	 	6,238,629 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	6,238,629 	 	
Unevaluated	 	 	- 	 	 	 	912,267 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	912,267 	 	
CO 2 and other non-hydrocarbon gases - properties and pipelines	 	 	- 	 	 	 	707,008 	 	 	 	1,223,900 	 	 	 	9,484 	 	 	 	- 	 	 	 	1,940,392 	 	
Other property and equipment	 	 	- 	 	 	 	128,421 	 	 	 	4,271 	 	 	 	- 	 	 	 	- 	 	 	 	132,692 	 	
Less accumulated depletion, depreciation, amortization, and impairment	 	 	- 	 	 	 	(2,267,862)	  	 	 	(28,090)	  	 	 	- 	 	 	 	- 	 	 	 	(2,295,952)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net property and equipment	 	 	- 	 	 	 	5,718,463 	 	 	 	1,200,081 	 	 	 	9,484 	 	 	 	- 	 	 	 	6,928,028 	 	

Derivative assets	 	 	- 	 	 	 	9,203 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	9,203 	 	
Goodwill	 	 	1,061,123 	 	 	 	171,295 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	1,232,418 	 	
Other assets	 	 	549,334 	 	 	 	144,456 	 	 	 	7 	 	 	 	33 	 	 	 	(473,723)	  	 	 	220,107 	 	
Investment in subsidiaries (equity method)	 	 	4,354,965 	 	 	 	2,666 	 	 	 	4,369,801 	 	 	 	- 	 	 	 	(8,727,432)	  	 	 	- 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	 $	6,446,355 	 	 	 $	6,725,006 	 	 	 $	6,035,124 	 	 	 $	10,228 	 	 	$	(10,105,294)	  	 	 $	9,111,419 	 	

LIABILITIES AND EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities	 	 $	20,764 	 	 	 $	901,331 	 	 	 $	609,794 	 	 	 $	10,723 	 	 	$	(904,139)	  	 	 $	638,473 	 	
Long-term debt, net of current portion	 	 	2,044,226 	 	 	 	726,905 	 	 	 	- 	 	 	 	- 	 	 	 	(426,350)	  	 	 	2,344,781 	 	
Asset retirement obligations	 	 	- 	 	 	 	83,576 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	83,576 	 	
Derivative liabilities	 	 	- 	 	 	 	47,745 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	47,745 	 	
Deferred taxes	 	 	- 	 	 	 	569,597 	 	 	 	1,067,688 	 	 	 	- 	 	 	 	(47,373)	  	 	 	1,589,912 	 	
Other liabilities	 	 	- 	 	 	 	22,890 	 	 	 	2,677 	 	 	 	- 	 	 	 	- 	 	 	 	25,567 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	2,064,990 	 	 	 	2,352,044 	 	 	 	1,680,159 	 	 	 	10,723 	 	 	 	(1,377,862)	  	 	 	4,730,054 	 	
Total equity	 	 	4,381,365 	 	 	 	4,372,962 	 	 	 	4,354,965 	 	 	 	(495)	  	 	 	(8,727,432)	  	 	 	4,381,365 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and equity	 	 $	6,446,355 	 	 	 $	6,725,006 	 	 	 $	6,035,124 	 	 	 $	10,228 	 	 	$	(10,105,294)	  	 	 $	9,111,419 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2010	 	
 	 	Denbury	 	 	Denbury	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
 	 	Resources Inc.	 	 	Onshore, LLC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
 	 	(Parent and	 	 	(Issuer and	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	 	Consolidated	 	
 		
In thousands	 	Co-Obligor)	 	 	Co-Obligor)	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Eliminations	 	 	Total	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 $	457 	 	 	 $	380,273 	 	 	 $	1,139 	 	 	 $	- 	 	 	 $	- 	 	 	 $	381,869 	 	
Other current assets	 	 	144,247 	 	 	 	487,942 	 	 	 	449,871 	 	 	 	- 	 	 	 	(599,611)	  	 	 	482,449 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total current assets	 	 	144,704 	 	 	 	868,215 	 	 	 	451,010 	 	 	 	- 	 	 	 	(599,611)	  	 	 	864,318 	 	

Property and equipment:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil and natural gas properties (using full cost accounting):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	- 	 	
Proved	 	 	- 	 	 	 	6,042,442 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	6,042,442 	 	
Unevaluated	 	 	- 	 	 	 	870,130 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	870,130 	 	
CO 2 and other non-hydrocarbon gases - properties and pipelines	 	 	- 	 	 	 	681,963 	 	 	 	1,216,841 	 	 	 	2,858 	 	 	 	- 	 	 	 	1,901,662 	 	
Other property and equipment	 	 	- 	 	 	 	116,370 	 	 	 	4,271 	 	 	 	- 	 	 	 	- 	 	 	 	120,641 	 	
Less accumulated depletion, depreciation, amortization and impairment	 	 	- 	 	 	 	(2,177,040)	  	 	 	(20,477)	  	 	 	- 	 	 	 	- 	 	 	 	(2,197,517)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net property and equipment	 	 	- 	 	 	 	5,533,865 	 	 	 	1,200,635 	 	 	 	2,858 	 	 	 	- 	 	 	 	6,737,358 	 	

Derivative assets	 	 	- 	 	 	 	12,919 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	12,919 	 	
Goodwill	 	 	1,061,123 	 	 	 	171,295 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	1,232,418 	 	
Other assets	 	 	830,454 	 	 	 	144,333 	 	 	 	7 	 	 	 	- 	 	 	 	(756,744)	  	 	 	218,050 	 	
Investment in subsidiaries (equity method)	 	 	4,332,347 	 	 	 	2,666 	 	 	 	4,357,128 	 	 	 	- 	 	 	 	(8,692,141)	  	 	 	- 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	 $	6,368,628 	 	 	 $	6,733,293 	 	 	 $	6,008,780 	 	 	 $	2,858 	 	 	 $	(10,048,496)	  	 	 $	9,065,063 	 	

LIABILITIES AND EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities	 	 $	43,654 	 	 	 	517,686 	 	 	 	614,388 	 	 	 	3,228 	 	 	 	(599,611)	  	 	 	579,345 	 	
Long-term debt, net of current portion	 	 	1,944,267 	 	 	 	1,198,291 	 	 	 	- 	 	 	 	- 	 	 	 	(726,350)	  	 	 	2,416,208 	 	
Asset retirement obligations	 	 	- 	 	 	 	81,290 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	81,290 	 	
Derivative liabilities	 	 	- 	 	 	 	29,687 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	29,687 	 	
Deferred taxes	 	 	- 	 	 	 	516,319 	 	 	 	1,062,045 	 	 	 	22 	 	 	 	(30,394)	  	 	 	1,547,992 	 	
Other liabilities	 	 	- 	 	 	 	29,834 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	29,834 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	1,987,921 	 	 	 	2,373,107 	 	 	 	1,676,433 	 	 	 	3,250 	 	 	 	(1,356,355)	  	 	 	4,684,356 	 	
Total equity	 	 	4,380,707 	 	 	 	4,360,186 	 	 	 	4,332,347 	 	 	 	(392)	  	 	 	(8,692,141)	  	 	 	4,380,707 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and equity	 	 $	6,368,628 	 	 	 $	6,733,293 	 	 	 $	6,008,780 	 	 	 $	2,858 	 	 	 $	(10,048,496)	  	 	 $	9,065,063 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 20 

Table of Contents
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidating Statements of Operations
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31, 2011	 	
 	 	Denbury	 	 	Denbury	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		
 	 	Resources Inc.	 	 	Onshore, LLC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		
 	 	(Parent and	 	 	(Issuer and	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	 	Consolidated	 	
 	 	 		
In thousands	 	Co-Obligor)	 	 	Co-Obligor)	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Eliminations	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues and other income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil, natural gas, and related product sales	 	 $	- 	 	 	 $	506,192 	 	 	 $	- 	 	 	 $	- 	 	 	 $	- 	 	 	 $	506,192 	 	
CO 2 sales and transportation fees	 	 	- 	 	 	 	3,733 	 	 	 	22,217 	 	 	 	- 	 	 	 	(21,026)	  	 	 	4,924 	 	
Interest income and other	 	 	32,433 	 	 	 	3,047 	 	 	 	8,594 	 	 	 	- 	 	 	 	(41,025)	  	 	 	3,049 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	 	 	32,433 	 	 	 	512,972 	 	 	 	30,811 	 	 	 	- 	 	 	 	(62,051)	  	 	 	514,165 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Lease operating expenses	 	 	- 	 	 	 	145,846 	 	 	 	- 	 	 	 	- 	 	 	 	(18,749)	  	 	 	127,097 	 	
Production taxes and marketing expenses	 	 	- 	 	 	 	32,751 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	32,751 	 	
CO 2 discovery and operating expenses	 	 	- 	 	 	 	1,809 	 	 	 	2,622 	 	 	 	- 	 	 	 	(2,277)	  	 	 	2,154 	 	
General and administrative	 	 	191 	 	 	 	42,553 	 	 	 	945 	 	 	 	157 	 	 	 	- 	 	 	 	43,846 	 	
Interest, net of amounts capitalized	 	 	50,321 	 	 	 	12,647 	 	 	 	(301)	  	 	 	- 	 	 	 	(13,890)	  	 	 	48,777 	 	
Depletion, depreciation, and amortization	 	 	- 	 	 	 	92,212 	 	 	 	1,382 	 	 	 	- 	 	 	 	- 	 	 	 	93,594 	 	
Derivatives expense	 	 	- 	 	 	 	170,750 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	170,750 	 	
Loaa on early extinguishment of debt	 	 	13,670 	 	 	 	2,113 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	15,783 	 	
Transaction costs and other related to the Encore Merger	 	 	- 	 	 	 	123 	 	 	 	2,236 	 	 	 	- 	 	 	 	- 	 	 	 	2,359 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	64,182 	 	 	 	500,804 	 	 	 	6,884 	 	 	 	157 	 	 	 	(34,916)	  	 	 	537,111 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	(31,749)	  	 	 	12,168 	 	 	 	23,927 	 	 	 	(157)	  	 	 	(27,135)	  	 	 	(22,946)	 	
Income tax provision (benefit)	 	 	(17,661)	  	 	 	3,574 	 	 	 	5,386 	 	 	 	(55)	  	 	 	- 	 	 	 	(8,756)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated net income (loss)	 	$	(14,088)	  	 	$	8,594 	 	 	$	18,541 	 	 	$	(102)	  	 	$	(27,135)	  	 	$	(14,190)	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31, 2010	 	
 	 	Denbury	 	 	Denbury	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		
 	 	Resources Inc.	 	 	Onshore, LLC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		
 	 	(Parent and	 	 	(Issuer and	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	 	Consolidated	 	
 	 	 		
In thousands	 	Co-Obligor)	 	 	Co-Obligor)	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Eliminations	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues and other income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil, natural gas, and related product sales	 	 $	- 	 	 	 $	270,571 	 	 	 $	47,881 	 	 	 $	12,434 	 	 	 $	- 	 	 	 $	330,886 	 	
CO 2 sales and transportation fees	 	 	- 	 	 	 	4,497 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	4,497 	 	
Gain on sale of interests in Genesis	 	 	- 	 	 	 	(160)	  	 	 	101,728 	 	 	 	 	 	 	 	- 	 	 	 	101,568 	 	
Interest income and other	 	 	127,106 	 	 	 	827 	 	 	 	(7,446)	  	 	 	4 	 	 	 	(118,621)	  	 	 	1,870 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	 	 	127,106 	 	 	 	275,735 	 	 	 	142,163 	 	 	 	12,438 	 	 	 	(118,621)	  	 	 	438,821 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Lease operating expenses	 	 	- 	 	 	 	85,884 	 	 	 	7,552 	 	 	 	2,784 	 	 	 	- 	 	 	 	96,220 	 	
Production taxes and marketing expenses	 	 	- 	 	 	 	12,277 	 	 	 	5,653 	 	 	 	1,387 	 	 	 	- 	 	 	 	19,317 	 	
CO 2 discovery and operating expenses	 	 	- 	 	 	 	1,360 	 	 	 	8 	 	 	 	- 	 	 	 	- 	 	 	 	1,368 	 	
General and administrative	 	 	118 	 	 	 	26,683 	 	 	 	5,227 	 	 	 	681 	 	 	 	- 	 	 	 	32,709 	 	
Interest, net of amounts capitalized	 	 	33,828 	 	 	 	13,944 	 	 	 	(6,418)	  	 	 	1,079 	 	 	 	(16,017)	  	 	 	26,416 	 	
Depletion, depreciation, and amortization	 	 	- 	 	 	 	65,025 	 	 	 	13,748 	 	 	 	3,099 	 	 	 	- 	 	 	 	81,872 	 	
Derivatives income	 	 	- 	 	 	 	(31,638)	  	 	 	(5,817)	  	 	 	(3,770)	  	 	 	- 	 	 	 	(41,225)	 	
Transaction costs and other related to the Encore Merger	 	 	 	 	 	 	43,809 	 	 	 	252 	 	 	 	938 	 	 	 	- 	 	 	 	44,999 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	33,946 	 	 	 	217,344 	 	 	 	20,205 	 	 	 	6,198 	 	 	 	(16,017)	  	 	 	261,676 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	93,160 	 	 	 	58,391 	 	 	 	121,958 	 	 	 	6,240 	 	 	 	(102,604)	  	 	 	177,145 	 	
Income tax provision (benefit)	 	 	(7,044)	  	 	 	66,871 	 	 	 	17,101 	 	 	 	13 	 	 	 	- 	 	 	 	76,941 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated net income (loss)	 	 	100,204 	 	 	 	(8,480)	  	 	 	104,857 	 	 	 	6,227 	 	 	 	(102,604)	  	 	 	100,204 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: net income attributable to noncontrolling interest	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	(3,316)	  	 	 	- 	 	 	 	(3,316)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated net income (loss) attributable to Denbury stockholders	 	$	100,204 	 	 	$	(8,480)	  	 	$	104,857 	 	 	$	2,911 	 	 	$	(102,604)	  	 	$	96,888 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 21 

Table of Contents
DENBURY RESOURCES INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidating Statements of Cash Flows
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31, 2011	 	
 	 	Denbury	 	 	Denbury	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		
 	 	Resources Inc.	 	 	Onshore, LLC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		
 	 	(Parent and	 	 	(Issuer and	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	 	Consolidated	 	
 	 	 		
In thousands	 	Co-Obligor)	 	 	Co-Obligor)	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Eliminations	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flow from operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used for) operating activities	 	$	(74,995)	  	 	 $	476,567 	 	 	 $	30,785 	 	 	 $	5,549 	 	 	$	(313,074)	  	 	 $	124,832 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flow used for investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil and natural gas capital expenditures	 	 	- 	 	 	 	(190,296)	  	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	(190,296)	 	
Acquisitions of oil and natural gas properties	 	 	- 	 	 	 	(29,801)	  	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	(29,801)	 	
CO 2 and other non-hydrocarbon gases - capital expenditures, including pipelines	 	 	- 	 	 	 	(33,025)	  	 	 	(28,294)	  	 	 	(4,838)	  	 	 	- 	 	 	 	(66,157)	 	
Other	 	 	- 	 	 	 	1,211 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	1,211 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used for investing activities	 	 	- 	 	 	 	(251,911)	  	 	 	(28,294)	  	 	 	(4,838)	  	 	 	- 	 	 	 	(285,043)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flow from financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bank repayments	 	 	(130,000)	  	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	(130,000)	 	
Bank borrowings	 	 	130,000 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	130,000 	 	
Repayment of senior subordinated notes	 	 	(300,000)	  	 	 	(469,552)	  	 	 	- 	 	 	 	- 	 	 	 	300,000 	 	 	 	(469,552)	 	
Premium paid on repayment of senior subordinated notes	 	 	(12,078)	  	 	 	(13,137)	  	 	 	- 	 	 	 	- 	 	 	 	12,078 	 	 	 	(13,137)	 	
Net proceeds from issuance of senior subordinated debt	 	 	400,000 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	400,000 	 	
Costs of debt financing	 	 	(8,441)	  	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	(8,441)	 	
Other	 	 	(996)	  	 	 	(2,671)	  	 	 	- 	 	 	 	- 	 	 	 	996 	 	 	 	(2,671)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used for) financing activities	 	 	78,485 	 	 	 	(485,360)	  	 	 	- 	 	 	 	- 	 	 	 	313,074 	 	 	 	(93,801)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	 	3,490 	 	 	 	(260,704)	  	 	 	2,491 	 	 	 	711 	 	 	 	- 	 	 	 	(254,012)	 	
Cash and cash equivalents at beginning of period	 	 	457 	 	 	 	380,273 	 	 	 	1,139 	 	 	 	- 	 	 	 	- 	 	 	 	381,869 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	 $	3,947 	 	 	 $	119,569 	 	 	 $	3,630 	 	 	 $	711 	 	 	 $	- 	 	 	 $	127,857 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31, 2010	 	
 	 	Denbury	 	 	Denbury	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		
 	 	Resources Inc.	 	 	Onshore, LLC	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 		
 	 	(Parent and	 	 	(Issuer and	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	 	Consolidated	 	
 	 	 		
In thousands	 	Co-Obligor)	 	 	Co-Obligor)	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Eliminations	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flow from operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 $	3,173 	 	 	 $	219,573 	 	 	 $	190,852 	 	 	 $	6,882 	 	 	$	(307,312)	  	 	 $	113,168 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flow used for investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Oil and natural gas capital expenditures	 	 	- 	 	 	 	(70,061)	  	 	 	(22,262)	  	 	 	(324)	  	 	 	- 	 	 	 	(92,647)	 	
Acquisitions of oil and natural gas properties	 	 	- 	 	 	 	(503)	  	 	 	455 	 	 	 	(292)	  	 	 	- 	 	 	 	(340)	 	
Cash paid in Encore Merger, net of cash acquired	 	 	(830,310)	  	 	 	- 	 	 	 	15,705 	 	 	 	13,116 	 	 	 	- 	 	 	 	(801,489)	 	
CO 2 and other non-hydrocarbon gases - capital expenditures, including pipelines	 	 	- 	 	 	 	(37,011)	  	 	 	(35,636)	  	 	 	- 	 	 	 	- 	 	 	 	(72,647)	 	
Deposit received on divesture of Southern Assets	 	 	45,000 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	45,000 	 	
Net proceeds from sales of oil and gas properties and equipment	 	 	- 	 	 	 	23,537 	 	 	 	139,085 	 	 	 	- 	 	 	 	- 	 	 	 	162,622 	 	
Investments in subsidiaries (equity method)	 	 	(305,646)	  	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	305,646 	 	 	 	- 	 	
Other	 	 	- 	 	 	 	(4,799)	  	 	 	(27)	  	 	 	- 	 	 	 	- 	 	 	 	(4,826)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used for) investing activities	 	 	(1,090,956)	  	 	 	(88,837)	  	 	 	97,320 	 	 	 	12,500 	 	 	 	305,646 	 	 	 	(764,327)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flow from financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bank repayments	 	 	- 	 	 	 	(350,000)	  	 	 	(265,000)	  	 	 	(10,000)	  	 	 	- 	 	 	 	(625,000)	 	
Bank borrowings	 	 	800,000 	 	 	 	225,000 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	1,025,000 	 	
Repayment of senior subordinated notes	 	 	(508,182)	  	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	(508,182)	 	
Premium paid on repayment of senior subordinated notes	 	 	(6,257)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(6,257)	 	
Net proceeds from issuance of senior subordinated debt	 	 	1,000,000 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	1,000,000 	 	
Escrowed Funds for senior subordinated notes redemption	 	 	(65,566)	  	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	(65,566)	 	
Costs of debt financing	 	 	(76,129)	  	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	- 	 	 	 	(76,129)	 	
Other	 	 	(1,666)	  	 	 	(2,139)	  	 	 	(1,974)	  	 	 	- 	 	 	 	1,666 	 	 	 	(4,113)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used for) financing activities	 	 	1,142,200 	 	 	 	(127,139)	  	 	 	(266,974)	  	 	 	(10,000)	  	 	 	1,666 	 	 	 	739,753 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase in cash and cash equivalents	 	 	54,417 	 	 	 	3,597 	 	 	 	21,198 	 	 	 	9,382 	 	 	 	- 	 	 	 	88,594 	 	
Cash and cash equivalents at beginning of period	 	 	24 	 	 	 	20,281 	 	 	 	286 	 	 	 	- 	 	 	 	- 	 	 	 	20,591 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	 $	54,441 	 	 	 $	23,878 	 	 	 $	21,484 	 	 	 $	9,382 	 	 	 $	- 	 	 	 $	109,185 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Note 9. Subsequent Events
Redemption of our 2013 Notes
     On February 3, 2011, we commenced cash tender offers to purchase $225 million principal amount of our 2013 Notes. By March 3, 2011, upon expiration of the tender offers, we accepted for purchase $169.6 million in principal amount of the 2013 Notes at 100.625% of par. On April 1, 2011, we repurchased all $55.4 million of our 2013 Notes remaining outstanding at par in accordance with the terms of our indenture. See Note 3, Long-Term Debt , to the Unaudited Condensed Consolidated Financial Statements for more information.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto contained herein and in our Annual Report on Form 10-K for the year ended December 31, 2010, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in such Form 10-K. Any terms used but not defined in the following discussion have the same meaning given to them in the Form 10-K. Our discussion and analysis includes forward-looking information that involves risks and uncertainties and should be read in conjunction with Risk Factors under Item 1A of this report, along with Forward-Looking Information at the end of this section for information about the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements.
Overview
     We are a growing independent oil and natural gas company. We are the largest oil and natural gas producer in both Mississippi and Montana, own the largest CO 2 reserves used for tertiary oil recovery east of the Mississippi River, and hold significant operating acreage in the Rocky Mountain and Gulf Coast regions. Our goal is to increase the value of acquired properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis on our CO 2 tertiary recovery operations.
      Operating Highlights. The acquisition of Encore Acquisition Company (the “Encore Merger”) on March 9, 2010, has had a significant impact on nearly every aspect of our business, including oil and natural gas production, revenues and operating expenses. Accordingly, the Encore Merger impacts the comparability of our first quarter 2010 financial results to those in the first quarter of 2011, which is more fully discussed throughout the following discussion and analysis. Our first quarter 2010 financial results include the results of operations for Encore from the date of the acquisition on March 9, 2010 through March 31, 2010. Additionally, throughout 2010 we disposed of non-strategic Encore properties and our ownership interests in Encore Energy Partners LP (“ENP”).
     We recognized a net loss of $14.2 million, or $0.04 per basic common share, during the first quarter of 2011 as compared to net income of $96.9 million, or $0.33 per basic common share, during the first quarter of 2010. This decrease between the two periods is primarily attributable to (1) non-cash fair value losses for our commodity derivatives of $172.3 million in the first quarter of 2011 compared to gains of $100.8 million in 2010, resulting in a $273.1 million negative change between the comparable quarters ($169.3 million after tax), (2) a $101.6 million gain on the sale of Genesis in the first quarter of 2010 ($63.0 million after tax), and (3) a $15.8 million loss in the first quarter of 2011 associated with repurchases of senior subordinated notes ($9.8 million after tax). Partially offsetting these decreases was an increase in oil and gas revenues of $175.3 million due to increased volumes attributable to a full quarter of production from the properties retained from the Encore Merger (versus 22 days of production in the first quarter of 2010), increased tertiary production, and higher oil prices. In-line with higher production volumes, our operating expenses increased across the board. Interest expense also increased significantly due to our additional debt incurred in conjunction with the Encore Merger.
     During the first quarter of 2011, our oil and natural gas production averaged 63,604 BOE/d compared to 53,125 BOE/d produced during the first quarter of 2010. This 10,479 BOE/d of additional production is primarily attributable to (1) incremental average production of 14,400 BOE/d from Rocky Mountain region properties acquired in the Encore Merger, and (2) increased tertiary production between the two quarters, offset by (3) a decrease of 6,750 BOE/d due to the sales of non-strategic Encore assets and our interests in ENP after the first quarter of 2010. See Results of Operations — Operating Results — Production for more information.
     Tertiary oil production averaged 30,825 Bbls/d during the first quarter of 2011, representing a 14% increase over our average tertiary oil production of 27,023 Bbls/d during the first quarter of 2010. However, tertiary oil production was down slightly from the 31,139 Bbls/d produced during the fourth quarter of 2010. See Results of Operations — CO 2 Operations for more information.
     Oil prices during the first quarter of 2011 were considerably higher than prices during the first quarter of 2010. Our average oil and natural gas price received per BOE, excluding the impact of commodity derivative contracts, was $88.42 per BOE during the first quarter of 2011, compared to $69.21 per BOE during the first quarter of 2010, a 28% increase between the two periods. Including the impact of cash settlements on our commodity derivative contracts, our average oil and natural gas price per BOE was $88.70 per BOE during the first quarter of 2011 compared to $56.70 per BOE during the first quarter of 2010.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
      Debt Refinancing. In February 2011, we issued, at par, $400 million of 6 3 / 8 % Senior Subordinated Notes due 2021. The net proceeds, together with cash on hand, were used to repurchase $525 million in principal amount of our outstanding 2013 Notes and 2015 Notes. Also, in February, we commenced cash tender offers to purchase $225 million principal amount of our 2013 Notes and $300 million principal amount of our 2015 Notes. Upon expiration of the tender offers in March 2011, we accepted for purchase $169.6 million in principal of the 2013 Notes at 100.625% of par and $220.9 million in principal of the 2015 Notes at 104.125% of par. We called the remaining 2013 and 2015 Notes, repurchased all of the remaining outstanding 2015 Notes at 103.75% of par on March 21, 2011 and repurchased all of the remaining outstanding 2013 Notes at par on April 1, 2011. During the first quarter of 2011, we recognized a $15.8 million loss associated with the debt repurchases, included in our income statement under the caption “Loss on early extinguishment of debt”.
      CO 2 Purchase Contracts. In March 2011, we entered into three long-term supply contracts to purchase CO 2 from future anthropogenic sources in the Gulf Coast and Rocky Mountain regions. Denbury will purchase 100% of the CO 2 captured from the DKRW Advanced Fuels LLC’s Medicine Bow Fuel and Power LLC (“MBFP”) project in Medicine Bow, Wyoming, purchase 70% of the CO 2 captured from Mississippi Power Company’s Kemper County Integrated Gasification Combined Cycle (“IGCC”) project in Mississippi, and purchase 100% of the CO 2 captured from an undisclosed source in the Gulf Coast region. We estimate that these sources will supply approximately 365 MMcf/d of CO 2 for our enhanced oil recovery operations, although under certain circumstances, we may be obligated to purchase up to 460 MMcf/d, a portion of which would be at a reduced price per Mcf. We expect to begin taking delivery of approximately 200 MMCF/d of CO 2 from the MBFP project in late 2014 or early 2015, 115 MMcf/d of CO 2 from the IGCC project by 2014, and 50 MMcf/d of CO 2 from a Gulf Coast region source in late 2012. Our aggregate maximum purchase obligation for CO 2 purchased under these three contracts would be approximately $110 million per year (assuming purchases of 460 MMcf/d), plus transportation, assuming a $100 per barrel NYMEX oil price. The purchase price of CO 2 will fluctuate based on the changes in the price of oil. These CO 2 purchase agreements are contingent on completion or modification of the respective plants by their operators.
Capital Resources and Liquidity
     In March 2011, commensurate with higher oil prices, our Board of Directors approved an increase in our 2011 capital spending budget, from $1.1 billion to $1.3 billion, excluding capitalized interest, tertiary start-up costs, acquisitions and divestitures, and net of equipment leases. Our current 2011 capital budget includes the following:

 	•	 	$450 million allocated for tertiary oil field expenditures;	
 		
 	•	 	$350 million in the Bakken area of North Dakota;	
 		
 	•	 	$250 million to be spent on our CO 2 pipelines;	
 		
 	•	 	$150 million to be spent on CO 2 sources in the Jackson Dome and Riley Ridge areas; and	
 		
 	•	 	$100 million on drilling, completion and other development activities in our other areas.	
     This estimate also assumes that we fund approximately $60 million of budgeted equipment purchases with operating leases, which is dependent upon securing acceptable financing. Our net capital expenditures would increase by the amount of any shortfall in operating leases for this purchased equipment, and we anticipate funding any such additional capital expenditures under our Bank Credit Agreement.
     Based on oil and natural gas commodity futures prices in early May 2011 and our current production forecasts, excluding acquisition costs, our 2011 capital budget, including capitalized interest and tertiary start-up costs, is $100 million to $200 million greater than our anticipated cash flow from operations. These expenditures will be funded with our excess cash on hand or, if necessary, borrowings under our $1.6 billion Bank Credit Agreement which currently has no outstanding borrowings.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     We continually monitor our capital spending and anticipated cash flows and believe that we can adjust our capital spending up or down depending on cash flows; however, any such reduction in capital spending could reduce our anticipated production levels in future years. For 2011, we have contracted for certain capital expenditures, including construction of the Greencore pipeline, processing facilities at Riley Ridge, and several drilling rigs, and therefore we cannot eliminate all of our capital commitments without penalties (refer to Management’s Discussion and Analysis – Capital Resources and Liquidity - Off-Balance Sheet Arrangements — Commitments and Obligations in our Annual Report on Form 10-K for the year ended December 31, 2010 for further information regarding these commitments). See CO 2 Purchase Contracts above and Off-Balance Sheet Arrangements below for further information regarding additional commitments entered into in 2011. We believe that our $1.6 billion Bank Credit Agreement and oil derivative contracts, which provide a $70 floor price through mid-2012 and an $80 floor price for the second half of 2012 on approximately 80%-85% of our currently anticipated proved oil production, provide us with adequate liquidity and flexibility to meet our near-term capital spending plans if oil prices were to decrease significantly.
      Capital Expenditure Summary. The following table of capital expenditures includes accrued capital for the three month periods of 2011 and 2010.
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
In thousands	 	2011	 	 	2010	 	
Oil and natural gas exploration and development:	 	 	 	 	 	 	 	 	
Drilling	 	 $	91,732 	 	 	 $	48,261 	 	
Geological, geophysical, and acreage	 	 	6,666 	 	 	 	6,994 	 	
Facilities	 	 	51,814 	 	 	 	37,710 	 	
Recompletions	 	 	47,402 	 	 	 	28,536 	 	
Capitalized interest	 	 	7,700 	 	 	 	5,743 	 	
 	 	 	 	 	 	 	
Total oil and natural gas exploration and development expenditures	 	 	205,314 	 	 	 	127,244 	 	
CO 2 and other non-hydrocarbon gases - capital expenditures:	 	 	 	 	 	 	 	 	
Pipelines and facilities	 	 	24,737 	 	 	 	42,973 	 	
Acreage, geological and drilling	 	 	10,615 	 	 	 	11,907 	 	
Capitalized interest	 	 	3,257 	 	 	 	15,569 	 	
 	 	 	 	 	 	 	
Total CO 2 and other non-hydrocarbon gases capital expenditures	 	 	38,609 	 	 	 	70,449 	 	
 	 	 	 	 	 	 	
Total capital expenditures excluding acquisitions	 	 	243,923 	 	 	 	197,693 	 	
 	 	 	 	 	 	 	
Oil and natural gas property acquisitions	 	 	29,801 	 	 	 	340 	 	
Consideration for Encore Merger (1)	 	 	- 	 	 	 	2,952,515 	 	
 	 	 	 	 	 	 	
Total	 	 $	273,724 	 	 	 $	3,150,548 	 	

(1)	 	Consideration given in Encore Merger includes $2.09 billion for the fair value of Denbury common stock issued.	
     Our capital expenditures for the first three months of 2011 were funded with $124.8 million of cash flow from operations and the remainder with cash on hand at the beginning of the period. Our capital expenditures for the first three months of 2010, excluding the Encore Merger, were funded with $113.2 million of cash flow from operations and proceeds from the sale of our interests in Genesis.
      Off-Balance Sheet Arrangements. Our obligations that are not currently recorded on our balance sheet consist of our operating leases and various obligations for development and exploratory expenditures arising from purchase agreements, our capital expenditure program, or other transactions common to our industry. In addition, in order to recover our proved undeveloped reserves, we must also fund the associated future development costs as forecasted in our proved reserve reports. Our derivative contracts, which are recorded at fair value in our balance sheets, are discussed in Notes 4 and 5 to the Unaudited Condensed Consolidated Financial Statements.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     In April 2011, we entered into three long-term drilling contracts. Our total commitment under these contracts is approximately $55.8 million, with $5.2 million expected to be paid in 2011, $18.6 million in both 2012 and 2013, and $13.4 million in 2014.
     Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and the section entitled Off-Balance Sheet Arrangements – Commitments and Obligations contained in our Annual Report on Form 10-K for the year ended December 31, 2010 for further information regarding our commitments and obligations. Also see Overview – CO 2 Purchase Contracts for discussion of additional purchase contracts we entered into during the first quarter of 2011.
Results of Operations
CO 2 Operations
     Our focus on CO 2 operations is the primary strategy of our business and operations. We believe that there are significant additional oil reserves and production that can be obtained through the use of CO 2 , and we have outlined certain of this potential in our Annual Report on Form 10-K for the year ended December 31, 2010 and other public disclosures. In addition to its long-term effect, our focus on these types of operations impacts certain trends in our current and near-term operating results. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and the section entitled CO 2 Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2010 for further information regarding these matters.
     During the first quarter of 2011, our CO 2 production at Jackson Dome averaged 1,021 MMcf/d as compared to an average of 802 MMcf/d produced during the first quarter of 2010 and 974 MMcf/d produced during the fourth quarter of 2010. We used 91% of this production, or 926 MMcf/d, in our tertiary operations during the first quarter of 2011, and sold the balance to our industrial customers, or to Genesis pursuant to our volumetric production payments. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity – Off-Balance Sheet Arrangements – Commitments and Obligations in our Annual Report on Form 10-K for the year ended December 31, 2010 for further discussion on our CO 2 delivery obligations.
     We spent approximately $0.25 per Mcf in operating expenses to produce our CO 2 during the first three months of 2011, which is up significantly from our $0.20 per Mcf cost during the first three months of 2010, due primarily to increased CO 2 royalty expense as a result of higher oil prices (to which CO 2 royalties are tied).
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following table summarizes our tertiary oil production and tertiary lease operating expense per Bbl for each quarter in 2010 and the first quarter of 2011:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Average Daily Production (Bbls/d)	
 	 	First	 	 	Second	 	 	Third	 	 	Fourth	 	 	 	First	 	
 	 	Quarter	 	 	Quarter	 	 	Quarter	 	 	Quarter	 	 	 	Quarter	 	
Tertiary Oil Field	 	2010	 	 	2010	 	 	2010	 	 	2010	 	 	 	2011	 	
 	 	 	 	 	 	
Phase 1:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Brookhaven	 	 	3,416	 	 	 	3,277	 	 	 	3,323	 	 	 	3,699	 	 	 	 	3,664	 	
McComb area	 	 	2,289	 	 	 	2,160	 	 	 	2,484	 	 	 	2,433	 	 	 	 	2,161	 	
Mallalieu area	 	 	3,443	 	 	 	3,628	 	 	 	3,279	 	 	 	3,164	 	 	 	 	2,925	 	
Other	 	 	2,817	 	 	 	3,282	 	 	 	3,343	 	 	 	3,361	 	 	 	 	3,290	 	
Phase 2:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Heidelberg	 	 	1,708	 	 	 	1,857	 	 	 	2,806	 	 	 	3,422	 	 	 	 	3,374	 	
Eucutta	 	 	3,792	 	 	 	3,625	 	 	 	3,284	 	 	 	3,286	 	 	 	 	3,247	 	
Soso	 	 	3,213	 	 	 	3,207	 	 	 	3,016	 	 	 	2,828	 	 	 	 	2,582	 	
Martinville	 	 	927	 	 	 	764	 	 	 	606	 	 	 	586	 	 	 	 	500	 	
Phase 3:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tinsley	 	 	4,419	 	 	 	5,248	 	 	 	6,024	 	 	 	6,614	 	 	 	 	6,567	 	
Phase 4:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cranfield	 	 	936	 	 	 	811	 	 	 	855	 	 	 	1,043	 	 	 	 	991	 	
Phase 5:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Delhi	 	 	63	 	 	 	648	 	 	 	511	 	 	 	703	 	 	 	 	1,524	 	
 	 	 	 	 	 	
Total tertiary oil production	 	 	27,023	 	 	 	28,507	 	 	 	29,531	 	 	 	31,139	 	 	 	 	30,825	 	

Tertiary operating expense per Bbl	 	  $	22.67	 	 	  $	21.37	 	 	  $	22.54	 	 	  $	22.26	 	 	 	  $	25.40	 	
 	 	 	 	 	 	
     Oil production from our tertiary operations increased to an average of 30,825 Bbls/d during the first quarter of 2011, a 14% increase over our first quarter of 2010 tertiary production level of 27,023 Bbls/d, primarily due to production growth in response to continued expansion of the tertiary floods in the Tinsley, Heidelberg and Delhi Fields. Offsetting these production gains were declines in our Mallalieu, Soso, and Eucutta Fields, production from which has most likely peaked and will likely continue to decline in the future.
     The production growth rate at a tertiary flood varies from quarter to quarter as a tertiary field’s production may increase rapidly when wells respond to the CO 2 , plateau temporarily, and then resume its growth as additional areas of the field are developed. During a tertiary flood life cycle, facility capacity is increased from time to time, which occasionally requires temporary shutdowns during installation, thereby causing temporary declines in production. We also find it difficult to precisely predict when any given well will respond to the injected CO 2 as the CO 2 seldom travels through the rock consistently due to lack of heterogeneity in the oil bearing formations. We find all these fluctuations to be normal, and generally expect oil production at a tertiary field to increase over time until the entire field is developed, albeit sometimes in inconsistent patterns. These types of fluctuations were most noticeable at Tinsley and Heidelberg Fields in the first quarter of 2011, two of our fields which have exhibited strong production growth in recent periods. We expect our tertiary production to resume its growth later this year, as these temporary fluctuations have not changed our overall outlook for these fields.
     With the Green Pipeline complete, we initiated CO 2 injections at Oyster Bayou and Hastings Fields during June 2010 and December 2010, respectively. We currently anticipate tertiary production responses at Hastings Field in late 2011 or early 2012, depending on the date of completion of our CO 2 recycle facilities at this field. We anticipate first production at Oyster Bayou Field late in the first quarter of 2012, also dependant on the completion of CO 2 recycle facilities. We received the regulatory approvals required to commence construction of the CO 2 recycling facilities at Hastings and Oyster Bayou Fields in the fourth quarter of 2010, after extensive unforeseen regulatory delays, and began construction of these facilities in the first quarter of 2011.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     During the first quarter of 2011, operating costs for our tertiary properties averaged $25.40 per Bbl, compared to our first quarter of 2010 average cost of $22.67 per Bbl and a fourth quarter of 2010 average of $22.26 per Bbl. The per Bbl increase quarter to quarter was primarily due to increases in utilities, CO 2 costs (which are variable and partially tied to oil prices), and workover expenses. On a per Bbl basis, our cost of CO 2 increased by $0.69 per Bbl, from $4.89 per Bbl during the first quarter of 2010 to $5.58 per Bbl during the first quarter of 2011 and increased $0.03 from $5.55 per Bbl during the fourth quarter of 2010 due to slightly lower CO 2 injection levels at our tertiary producing fields. First quarter of 2011 workover expenses increased $1.32 per Bbl over the first quarter of 2010 levels and $1.39 per Bbl over fourth quarter of 2010 levels as we accelerated planned mechanical integrity test repairs at Brookhaven Field rather than performing the work throughout the year as originally planned. For any specific field, we expect our tertiary lease operating expense per Bbl to be high initially and then decrease as production increases, ultimately leveling off until production begins to decline in the latter life of the field, when lease operating expense per Bbl will again increase.
Operating Results
     Certain of our operating results and statistics for the first three months of 2011 and 2010 are included in the following table:
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	
 	 	March 31,	
In thousands, except per share and unit data	 	2011	 	2010 (1)	
 	 	 	 	 	
Operating results:	 	 	 	 	 	 	 	 	
Net income (loss) attributable to Denbury stockholders	 	$	(14,190	)	 	  $	96,888	 	
Net income (loss) per common share - basic	 	 	(0.04	)	 	 	0.33	 	
Net income (loss) per common share - diluted	 	 	(0.04	)	 	 	0.32	 	
Cash flow from operations	 	 	124,832	 	 	 	113,168	 	
Average daily production volumes:	 	 	 	 	 	 	 	 	
Bbls/d	 	 	58,460	 	 	 	44,309	 	
Mcf/d	 	 	30,866	 	 	 	52,892	 	
BOE/d	 	 	63,604	 	 	 	53,125	 	
Operating revenues:	 	 	 	 	 	 	 	 	
Oil sales	 	$	492,838	 	 	$	305,204	 	
Natural gas sales	 	 	13,354	 	 	 	25,682	 	
 	 	 	 	 	
Total oil and natural gas sales	 	$	506,192	 	 	$	330,886	 	
 	 	 	 	 	
Commodity derivative contracts: (2)	 	 	 	 	 	 	 	 	
Net cash receipts (payments) on settlement of commodity derivative contracts	 	$	1,588	 	 	$	(59,801	)	
Non-cash fair value adjustment income (expense)	 	 	(172,338	)	 	 	100,839	 	
 	 	 	 	 	
Total income (expense) from commodity derivative contracts	 	$	(170,750	)	 	$	41,038	 	
 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	
Lease operating	 	$	127,097	 	 	$	96,220	 	
Production taxes and marketing	 	 	32,751	 	 	 	19,317	 	
 	 	 	 	 	
Total production expenses	 	$	159,848	 	 	$	115,537	 	
 	 	 	 	 	
Unit prices - including impact of derivative settlements: (2)	 	 	 	 	 	 	 	 	
Oil price per Bbl	 	$	92.72	 	 	$	60.60	 	
Natural gas price per Mcf	 	 	7.19	 	 	 	6.18	 	
Unit prices - excluding impact of derivative settlements: (2)	 	 	 	 	 	 	 	 	
Oil price per Bbl	 	$	93.67	 	 	$	76.53	 	
Natural gas price per Mcf	 	 	4.81	 	 	 	5.40	 	
Oil and natural gas operating revenues and expenses per BOE:	 	 	 	 	 	 	 	 	
Oil and natural gas revenues	 	$	88.42	 	 	$	69.21	 	

Oil and natural gas lease operating expenses	 	$	22.20	 	 	$	20.12	 	
Oil and natural gas production taxes and marketing expense	 	 	5.72	 	 	 	4.04	 	
 	 	 	 	 	
Total oil and natural gas production expenses	 	$	27.92	 	 	$	24.16	 	

			
(1)	 	Includes the results of operations of Encore properties and ENP from March 9, 2010 through March 31, 2010.	
 		
(2)	 	See Item 3, Qualitative and Quantitative Disclosures about Market Risk, for additional information concerning our commodity derivative contracts.	
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
      Production. Average daily production by area for each of the four quarters of 2010 and for the first quarter of 2011 are shown below:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Average Daily Production (BOE/d)	
 	 	First	 	 	Pro Forma	 	 	Second	 	 	Third	 	 	Fourth	 	 	 	First	 	
 	 	Quarter	 	 	First Quarter	 	 	Quarter	 	 	Quarter	 	 	Quarter	 	 	 	Quarter	 	
Operating Area	 	2010 (1)	 	 	2010 (2)	 	 	2010	 	 	2010	 	 	2010	 	 	 	2011	 	
 	 	 	 	 	 	
Gulf Coast Region:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tertiary oil fields	 	 	27,023	 	 	 	27,023	 	 	 	28,507	 	 	 	29,531	 	 	 	31,139	 	 	 	 	30,825	 	
Non-tertiary fields:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mississippi	 	 	7,829	 	 	 	7,829	 	 	 	8,967	 	 	 	7,965	 	 	 	7,293	 	 	 	 	7,586	 	
Texas	 	 	5,235	 	 	 	5,235	 	 	 	5,148	 	 	 	4,824	 	 	 	4,564	 	 	 	 	4,371	 	
Louisiana	 	 	662	 	 	 	662	 	 	 	775	 	 	 	714	 	 	 	687	 	 	 	 	767	 	
Alabama and other	 	 	997	 	 	 	997	 	 	 	1,078	 	 	 	1,091	 	 	 	1,026	 	 	 	 	1,026	 	
 	 	 	 	 	 	
Total Gulf Coast Region	 	 	41,746	 	 	 	41,746	 	 	 	44,475	 	 	 	44,125	 	 	 	44,709	 	 	 	 	44,575	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rocky Mountain Region:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cedar Creek Anticline	 	 	2,537	 	 	 	9,830	 	 	 	9,967	 	 	 	9,791	 	 	 	9,328	 	 	 	 	9,163	 	
Bakken	 	 	890	 	 	 	3,549	 	 	 	4,500	 	 	 	4,657	 	 	 	5,193	 	 	 	 	5,728	 	
Bell Creek	 	 	252	 	 	 	966	 	 	 	997	 	 	 	994	 	 	 	957	 	 	 	 	890	 	
Paradox	 	 	173	 	 	 	675	 	 	 	702	 	 	 	738	 	 	 	716	 	 	 	 	635	 	
Other	 	 	777	 	 	 	2,925	 	 	 	2,944	 	 	 	2,889	 	 	 	2,809	 	 	 	 	2,613	 	
 	 	 	 	 	 	
Total Rocky Mountain Region	 	 	4,629	 	 	 	17,945	 	 	 	19,110	 	 	 	19,069	 	 	 	19,003	 	 	 	 	19,029	 	

Total Continuing Production	 	 	46,375	 	 	 	59,691	 	 	 	63,585	 	 	 	63,194	 	 	 	63,712	 	 	 	 	63,604	 	

Disposed Properties:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legacy Encore properties	 	 	4,479	 	 	 	17,853	 	 	 	11,684	 	 	 	5,906	 	 	 	4,156	 	 	 	 	-	 	
ENP	 	 	2,271	 	 	 	9,034	 	 	 	8,842	 	 	 	8,630	 	 	 	8,567	 	 	 	 	-	 	
 	 	 	 	 	 	
Total Production	 	 	53,125	 	 	 	86,578	 	 	 	84,111	 	 	 	77,730	 	 	 	76,435	 	 	 	 	63,604	 	

 	 	 	 	 	 	
 	(1)	 	Includes production of Encore and ENP from March 9, 2010 through March 31, 2010.	
 		
 	(2)	 	Represents pro forma production assuming we had reported the production from the Encore Merger beginning January 1, 2010.	
     As outlined in the above table, continuing production during the three months ended March 31, 2011 increased 7% over first quarter 2010 pro forma production levels. These increases were primarily due to the additional production from a 14% increase in our tertiary production and a 61% increase in production from the Bakken, partially offset by normal declines in most of our other properties or declines resulting from a conversion of a portion of the field to a tertiary flood. Additionally, our production from the Cedar Creek Anticline generally declines in periods of increasing prices due to a net profits interest associated with this production.
     Production from our Bakken properties averaged 5,728 BOE/d in the first quarter, a 61% increase from first quarter 2010 pro forma production levels and an increase of over 10% as compared to fourth quarter 2010 production levels. The production increases in the Bakken are due to a gradual acceleration of our drilling activities in the area, as we have increased our operated drilling rigs from two, at the time of the Encore acquisition in March 2010, to five operated rigs. We anticipate adding a sixth rig in the third quarter of 2011 to test our acreage in the Almond area, and will likely add a seventh rig by the end of 2011. Our first quarter 2011 Bakken production was negatively impacted by severe winter weather which caused delays in well completions.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     Our production during the three months ended March 31, 2011 was 92% oil as compared to 83% during the three months ended March 31, 2010. This increase is due to the sales of the non-strategic Encore properties and ENP properties in the second half of 2010, which had a higher percentage of natural gas production.
      Oil and Natural Gas Revenues. Due to the significant increase in oil prices between the first three months of 2010 and 2011, our oil and natural gas revenues increased sharply during the first quarter of 2011 as compared to revenues in the first quarter of 2010. These changes in oil and natural gas revenues, excluding any impact of our commodity derivative contracts, are reflected in the following table:
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31,	
 	 	2011 vs. 2010	
 	 	 	 	 	 	Percentage	
 	 	Increase in	 	Increase in	
In thousands	 	Revenues	 	Revenues	
 	 	 	 	 	
Change in oil and natural gas revenues due to:	 	 	 	 	 	 	 	 	
Increase in commodity prices	 	$	110,042	 	 	 	33	%	
Increase in production	 	 	65,264	 	 	 	20	%	
 	 	 	 	 	
Total increase in oil and natural gas revenues	 	$	175,306	 	 	 	53	%	
 	 	 	 	 	
     Excluding any impact of our commodity derivative contracts, our net realized commodity prices and NYMEX differentials were as follows during the first three month period of 2011 and 2010:
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,		
 	 	2011	 	2010	
 	 	 	 	 	
Net Realized Prices:	 	 	 	 	 	 	 	 	
Oil price per Bbl	 	$	93.67	 	 	$	76.53	 	
Natural gas price per Mcf	 	 	4.81	 	 	 	5.40	 	
Price per BOE	 	 	88.42	 	 	 	69.21	 	
 	 	 	 	 	 	 	 	 	
NYMEX Differentials:	 	 	 	 	 	 	 	 	
Oil per Bbl	 	$	(0.59	)	 	$	(2.08	)	
Natural gas per Mcf	 	 	0.61	 	 	 	0.37	 	
     Our oil NYMEX differential improved during the three months ended March 31, 2011 as compared to our differential in the comparable period of 2010, primarily due to the favorable differential for crude oil sold under Light Louisiana Sweet (“LLS”) index prices, which are the sales prices for approximately 40% of our oil production. During the latter part of the first quarter, the LLS index price increased significantly more than increases in the NYMEX West Texas Intermediate crude oil price, trading as high as $20 over NYMEX. For the first quarter of 2011 this LLS-to-NYMEX differential averaged a positive $9.52 per barrel on a trade-month basis, as compared to a $4.07 differential in the fourth quarter of 2010 and a more typical $2.06 in the first quarter of 2010. While this differential is a significant portion of the pricing formula for approximately 40% of our oil production, other factors may prevent us from realizing the full differential. It is uncertain how long this LLS-to-NYMEX differential will remain at this level. Our oil price differential in the first quarter of 2010 was $2.08 per Bbl below NYMEX, which reflected only a partial period for the acquired Encore properties, which typically receive lower oil prices than our legacy production.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
      Commodity Derivative Contracts. The following tables summarize the impact that our commodity derivative contracts had on our operating results for the three months ended March 31, 2011 and 2010:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31,	
 	 	2011	 	2010	 	2011	 	2010	 	2011	 	2010	
 	 	Oil	 	Natural Gas	 	Total Commodity	
In thousands	 	Derivative Contracts	 	Derivative Contracts	 	Derivative Contracts	
 	 	 	 	 	 	 	
Non-cash fair value gain (loss)	 	$	(167,064	)	 	$	61,821	 	 	$	(5,274	)	 	$	39,018	 	 	$	(172,338	)	 	$	100,839	 	
Cash settlement receipts (payments)	 	 	(5,028	)	 	 	(63,550	)	 	 	6,616	 	 	 	3,749	 	 	 	1,588	 	 	 	(59,801	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	(172,092	)	 	$	(1,729	)	 	$	1,342	 	 	$	42,767	 	 	$	(170,750	)	 	$	41,038	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Changes in commodity prices and the expiration of contracts cause fluctuations in the estimated fair value of our commodity derivative contracts. Because we do not utilize hedge accounting for our commodity derivative contracts, the changes in fair value of these contracts, as outlined above, are recognized currently in the income statement. See Notes 4 and 5 to the Unaudited Condensed Consolidated Financial Statements for additional information regarding our commodity derivative contracts.
      Production Expenses. Our lease operating expenses increased approximately 32% between the three months ended March 31, 2011 and 2010 primarily as a result of:

 	•	 	the completion of the Encore Merger on March 9, 2010;	
 		
 	•	 	our increasing emphasis on tertiary operations and additional tertiary fields moving into the productive phase (see discussion of those expenses under CO 2 Operations );	
 		
 	•	 	higher CO 2 costs, primarily due to increasing oil prices (see discussion of those expenses under CO 2 Operations );	
 		
 	•	 	increasing personnel and related costs resulting primarily from the Encore Merger; and	
 		
 	•	 	increased workover costs primarily in our CO 2 operations (see discussion of those expenses under CO 2 Operations ).	
     Lease operating expense per BOE averaged $22.20 per BOE for the three months ended March 31, 2011, as compared to $20.12 per BOE for the same period in 2010. Our tertiary operating costs, which have historically been higher than our company-wide operating costs, averaged $25.40 per BOE during the three months ended March 31, 2011, compared to $22.67 per BOE for the same period in 2010. See CO 2 Operations for a more detailed discussion.
     Production taxes and marketing expenses generally change in proportion to commodity prices and production volumes, and as such, increased 70% during the three months ended March 31, 2011, as compared to the same period in 2010. This compares to an increase in oil and natural gas revenues of 53% during the three months ended March 31, 2011. The addition of properties in other operating areas acquired in the Encore Merger also affected these costs. Transportation and plant processing fees increased approximately $1.4 million during the three months ended March 31, 2011 and 2010, primarily due to the addition of properties in other operating areas acquired in the Encore Merger.
General and Administrative Expenses
     General and administrative (“G&A”) expenses increased on both a gross and per BOE basis between the three months ended March 31, 2011 and 2010 as set forth below:
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	
 	 	March 31,	
In thousands, except per BOE data and employees	 	2011	 	2010	
 	 	 	 	 	
Gross cash G&A expense	 	$	67,697	 	 	$	48,274	 	
Gross stock-based compensation	 	 	11,337	 	 	 	9,939	 	
State franchise taxes	 	 	1,159	 	 	 	1,070	 	
Operator labor and overhead recovery charges	 	 	(29,716	)	 	 	(22,045	)	
Capitalized exploration and development costs	 	 	(6,631	)	 	 	(4,529	)	
 	 	 	 	 	
Net G&A expense	 	$	43,846	 	 	$	32,709	 	
 	 	 	 	 	
G&A per BOE:	 	 	 	 	 	 	 	 	
Net cash G&A expense	 	$	5.86	 	 	$	4.84	 	
Net stock-based compensation	 	 	1.60	 	 	 	1.78	 	
State franchise taxes	 	 	0.20	 	 	 	0.22	 	
 	 	 	 	 	
Net G&A expense	 	$	7.66	 	 	$	6.84	 	
 	 	 	 	 	
Employees as of March 31	 	 	1,182	 	 	 	1,251	 	
 	 	 	 	 	
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     Gross cash G&A expenses increased $19.4 million (40%) during the three months ended March 31, 2011, as compared to the same period of 2010, primarily due to the Encore Merger which closed March 9, 2010. The number of employees at March 31, 2011 compared to March 31, 2010 decreased by 6%, as many Encore employees who did not accept permanent positions with Denbury completed their pre-defined transition period in early 2011. However, compensation and personnel costs were less for the three months ended March 31, 2010, as the compensation and personnel costs for Encore employees were included in our G&A expenses beginning March 9, 2010, the date of the Encore Merger. Prior to the Encore Merger on March 9, 2010, our headcount was 856 employees. The largest increases were related to personnel costs, including salaries, payroll taxes and our 401(k) match. Wage increases also contributed to the increase in G&A, as we consider this necessary in order to remain competitive in our industry.
     Additional expense attributable to the legacy Encore office leases and the new Denbury headquarters lease, together with related moving costs, contributed to the higher cash G&A expense during the first quarter of 2011. Additionally, stock-based compensation expense increased $1.4 million when compared to levels in the same period of 2010, due primarily to the effect of Encore’s employees being included for a full quarter in 2011 versus only 22 days during the first quarter of 2010.
     The increase in gross G&A expense during the three months ended March 31, 2011, as compared to those costs in the same period of 2010, was offset in part by an increase in operator overhead recovery charges. Our well operating agreements allow us, when we are the operator, to charge a well with a specified overhead rate during the drilling phase and also to charge a monthly fixed overhead rate for each producing well. As a result of additional operated wells from acquisitions, additional tertiary operations, drilling activity during the past year, and increased compensation expense, the amount we recovered as operator labor and overhead charges increased by 35% during the three months ended March 31, 2011, as compared to the same period in 2010. Capitalized exploration and development costs also increased between the periods, primarily due to increased compensation costs.
     The net effect of these changes resulted in a 34% increase (a 12% increase on a per BOE basis) in G&A expense between the comparable first quarters of 2011 and 2010.
Interest and Financing Expenses
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	
 	 	March 31,	
In thousands, except per BOE data and interest rates	 	2011	 	2010	
 	 	 	 	 	
Cash interest expense	 	$	54,206	 	 	$	44,974	 	
Non-cash interest expense	 	 	5,528	 	 	 	2,754	 	
Less: capitalized interest	 	 	(10,957	)	 	 	(21,312	)	
 	 	 	 	 	
Interest expense	 	$	48,777	 	 	$	26,416	 	
 	 	 	 	 	
Interest income and other	 	$	(3,049	)	 	$	1,870	 	
Net cash interest expense and other income per BOE (1)	 	$	7.10	 	 	$	4.67	 	
Average debt outstanding	 	$	2,514,621	 	 	$	2,225,700	 	
Average interest rate (2)	 	 	8.3	%	 	 	8.1	%	

(1)	Cash interest expense less capitalized interest less interest income and other income on a per BOE basis.	
 		
(2)	Includes commitment fees but excludes debt issue costs and amortization of discount and premium.	
     Interest expense increased $22.4 million during the three months ended March 31, 2011, as compared to the same period in 2010, primarily due to the increase in our average debt outstanding to finance the Encore Merger which closed in March 2010, a portion of which was repaid during 2010 with proceeds from the sale of non-strategic legacy Encore assets and our ENP ownership interest. The increase in interest expense between the comparative three month periods was also attributable to a 49% decrease in our capitalized interest relating primarily to the Green Pipeline, which was completed and placed into service during the second half of 2010.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 	 	 	 	 	 	 	 	 	
Depletion, Depreciation, and Amortization	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
In thousands, except per BOE data	 	2011	 	 	2010	 	
Depletion, depreciation, and amortization (“DD&A”) of oil and natural gas properties	 	$	82,086	 	 	$	71,197	 	
Depletion and depreciation of CO 2 assets	 	 	4,590	 	 	 	5,300	 	
Asset retirement obligations	 	 	1,563	 	 	 	1,107	 	
Depreciation of other fixed assets	 	 	5,355	 	 	 	4,268	 	
 	 	 	 	 	 	 	
Total DD&A	 	$	93,594	 	 	$	81,872	 	

DD&A per BOE:	 	 	 	 	 	 	 	 	
Oil and natural gas properties	 	$	14.61	 	 	$	15.12	 	
CO 2 assets and other fixed assets	 	 	1.74	 	 	 	2.00	 	
 	 	 	 	 	 	 	
Total DD&A cost per BOE	 	$	16.35	 	 	$	17.12	 	
 	 	 	 	 	 	 	
     Depletion of oil and natural gas properties increased on an absolute dollars basis during the three months ended March 31, 2011 as compared to the same period of 2010, primarily due to the Encore Merger. However, on a per BOE basis, our DD&A expense decreased from quarter-to-quarter due to incremental production attributable to the properties acquired from Encore, the acquisition of Riley Ridge, and higher tertiary production in the first quarter of 2011.
     We continually evaluate the performance of our tertiary projects, and if performance indicates that we are reasonably certain of recovering additional reserves from these floods, we recognize those incremental reserves in that quarter. Since we adjust our DD&A rate each quarter based on any changes in our estimates of oil and natural gas reserves and costs, our DD&A rate could change significantly in the future.
     Our DD&A expense for our CO 2 assets decreased on an absolute basis for the three months ended March 31, 2011 compared to the prior periods due to proved CO 2 reserve increases at Jackson Dome and Riley Ridge at the end of 2010. On a per BOE basis, DD&A expense for our CO 2 assets and other fixed assets decreased for the three months ended March 31, 2011 compared to those in the prior year quarter due to increased oil and natural gas production volumes as a result of the Encore Merger, which closed in March 2010, and as a result of proved CO 2 reserve additions noted above.
     Under full cost accounting rules, we are required each quarter to perform a ceiling test calculation. We did not have a ceiling test write-down at March 31, 2011. However, if oil and natural gas prices were to decrease significantly in subsequent periods, we may be required to record write-downs under the full cost pool ceiling test in the future. The possibility and amount of any future write-down is difficult to predict, and will depend upon oil and natural gas prices, the incremental proved reserves that may be added each period, revisions to previous reserve estimates and future capital expenditures, and additional capital spent.
Encore Transaction and Other Costs
     FASC Business Combinations topic requires that all transaction-related costs (advisory, legal, accounting, due diligence, integration, etc.) be expensed as incurred. We recognized transaction and other costs of $2.4 million and $45.0 million for the three months ended March 31, 2011 and 2010, respectively, associated with the Encore Merger, including $1.8 million and $1.2 million, respectively, related to severance costs. We anticipate that these severance costs will decline in the remainder of 2011 as the integration winds down and fewer former Encore transition employees remain.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 	 	 	 	 	 	 	 	 	
Income Taxes	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
In thousands, except per BOE amounts and tax rates	 	2011	 	 	2010	 	
Current income tax provision (benefit)	 	$	(848)	 	 	$	669	 	
Deferred income tax provision (benefit)	 	 	(7,908)	 	 	 	76,272	 	
 	 	 	 	 	 	 	
Total income tax provision (benefit)	 	$	(8,756)	 	 	$	76,941	 	
 	 	 	 	 	 	 	
Average income tax provision per BOE	 	$	(1.53)	 	 	$	16.09	 	
Effective tax rate	 	 	38.2%	 	 	 	43.4%	 	
     Our income taxes are based on an estimated statutory rate of approximately 38%. Our effective tax rate for the first quarter of 2011 was slightly higher compared to our statutory rate, primarily due to nondeductible compensation. Our effective tax rate for the comparative quarter was higher than the historical statutory rate due to the remeasurement of our deferred tax liabilities as a result of the Encore Merger in the first quarter of 2010 that resulted in an additional income tax provision of approximately $10 million. During the three months ended March 31, 2010, the current income tax expense represented our state income taxes, primarily related to the sale of our interest in Genesis.
     As of March 31, 2011, we had an estimated $39.8 million of enhanced oil recovery credits to carry forward related to our tertiary operations, and $34.5 million of alternative minimum tax credits that can be utilized to reduce our current income taxes during 2011 or future years. The enhanced oil recovery credits do not begin to expire until 2024. Since the ability to earn additional enhanced oil recovery credits is based upon the level of oil prices, we would not currently expect to earn additional enhanced oil recovery credits unless oil prices were to significantly deteriorate.
     In the third quarter of 2008, we obtained approval from the National Office of the Internal Revenue Service (“IRS”) to change our method of tax accounting for certain assets used in our tertiary oilfield recovery operations. As a result of the approved change in method of tax accounting, beginning with the 2007 tax year we began to deduct, rather than capitalize, such costs for tax purposes, and applied for tax refunds associated with such change for our 2004 and 2006 tax years. Notwithstanding its consent to our change in tax accounting in 2008, the IRS subsequently exercised its prerogative to challenge the tax accounting method we used. In late January 2011, we received a Technical Advice Memorandum (“TAM”) issued by the IRS National Office disapproving our method of accounting and revoking its consent to our change, on a prospective basis only, commencing January 1, 2011. Henceforth, beginning with the 2011 tax year, we are returning to capitalizing and depreciating the costs of these assets for tax purposes. As a result of the prospective nature of the IRS’s determination, there should be no change in our position with respect to the deductibility of these costs for 2007, 2008, 2009 and 2010. However, refund claims of $10.6 million for tax years through 2006 are pending and are subject to review by the Joint Committee on Taxation of the U.S. Congress. We are unable to assess the outcome of any such review, nor how that outcome may affect the other years covered by the TAM.
     The current administration in Washington D.C. is attempting to remove many tax incentives for the oil and gas industry. Those items that would have the most significant impact on us would include the loss of the domestic manufacturing deduction as well as the repeal of the immediate expensing of intangible drilling costs and tertiary injectant costs. It is uncertain whether or not the current administration will be successful in changing the laws, but if they were successful, it would likely increase the amount of cash taxes that we pay. Should cash taxes increase significantly, it could impact our forecasted 2011 capital expenditure budget.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Per BOE Data
     The following table summarizes our cash flow, DD&A, and results of operations on a per BOE basis for the comparative periods. Each of the individual components is discussed above.
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	
Per BOE data	 	2011	 	2010	
Oil and natural gas revenues	 	$	88.42	 	 	$	69.21	 	
Gain (loss) on settlements of derivative contracts	 	 	0.28	 	 	 	(12.51	)	
Lease operating expenses	 	 	(22.20	)	 	 	(20.12	)	
Production taxes and marketing expenses	 	 	(5.72	)	 	 	(4.04	)	
 	 	 	 	 	
Production netback	 	 	60.78	 	 	 	32.54	 	
Non-tertiary CO 2 operating margin	 	 	0.48	 	 	 	0.65	 	
General and administrative expenses	 	 	(7.66	)	 	 	(6.84	)	
Transaction and other costs related to the Encore Merger	 	 	(0.41	)	 	 	(9.41	)	
Net cash interest expense and other income	 	 	(7.10	)	 	 	(4.67	)	
Current income taxes and other	 	 	1.29	 	 	 	1.53	 	
Changes in assets and liabilities relating to operations	 	 	(25.57	)	 	 	9.87	 	
 	 	 	 	 	
Cash flow from operations	 	 	21.81	 	 	 	23.67	 	
DD&A	 	 	(16.35	)	 	 	(17.12	)	
Deferred income taxes	 	 	1.38	 	 	 	(15.95	)	
Gain on sale of interests in Genesis	 	 	-	 	 	 	21.24	 	
Loss on early extinguishment of debt	 	 	(2.76	)	 	 	-	 	
Non-cash fair value derivative adjustments	 	 	(30.11	)	 	 	21.13	 	
Net income attributable to noncontrolling interest	 	 	-	 	 	 	(0.69	)	
Changes in assets and liabilities and other non-cash items	 	 	23.55	 	 	 	(12.02	)	
 	 	 	 	 	
Net income (loss) attributable to Denbury stockholders	 	$	(2.48	)	 	$	20.26	 	
 	 	 	 	 	
Critical Accounting Policies
     For additional discussion of our critical accounting policies, which remain unchanged, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2010.
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DENBURY RESOURCES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
     The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, but not limited to, statements found in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements, as that term is defined in Section 21E of the Securities and Exchange Act of 1934, as amended, that involve a number of risks and uncertainties. Such forward-looking statements may be or may concern, among other things, forecasted capital expenditures, dates of pipeline construction commencement and completion, drilling activity or methods, acquisition plans and proposals and dispositions, development activities, timing of CO 2 injections in tertiary flooding projects, cost savings, capital budgets, production rates and volumes or forecasts thereof, hydrocarbon reserve quantities and values, CO 2 reserves, potential reserves from tertiary operations, hydrocarbon prices, pricing or cost assumptions based on current and projected oil and natural gas prices, liquidity, cash flows, availability of capital, borrowing capacity, regulatory matters, mark-to-market values, competition, long-term forecasts of production, finding costs, rates of return, estimated costs, or changes in costs, future capital expenditures and overall economics and other variables surrounding our operations and future plans. Such forward-looking statements generally are accompanied by words such as “plan,” “estimate,” “expect,” “predict,” “anticipate,” “projected,” “should,” “assume,” “believe,” “target,” or other words that convey the uncertainty of future events or outcomes. Such forward-looking information is based upon management’s current plans, expectations, estimates, and assumptions and is subject to a number of risks and uncertainties that could significantly affect current plans, anticipated actions, the timing of such actions and our financial condition and results of operations. As a consequence, actual results may differ materially from expectations, estimates or assumptions expressed in or implied by any forward-looking statements made by us or on our behalf. Among the factors that could cause actual results to differ materially are: fluctuations of the prices received or demand for our oil and natural gas; unexpected difficulties in integrating the operations of Denbury and Encore; effects of our indebtedness; success of our risk management techniques; inaccurate cost estimates; availability of and fluctuations in the prices of goods and services; the uncertainty of drilling results and reserve estimates; operating hazards; disruption of operations and damages from hurricanes or tropical storms; acquisition risks; requirements for capital or its availability; conditions in the financial and credit markets; general economic conditions; competition and government regulations; and unexpected delays, as well as the risks and uncertainties inherent in oil and natural gas drilling and production activities or which are otherwise discussed in this quarterly report, including, without limitation, the portions referenced above, and the uncertainties set forth from time to time in our other public reports, filings and public statements.
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DENBURY RESOURCES INC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Long-Term Debt and Interest Rate Sensitivity
     We finance some of our acquisitions and other expenditures with fixed and variable rate debt. These debt agreements expose us to market risk related to changes in interest rates. None of our existing debt has any triggers or covenants regarding our debt ratings with rating agencies. The fair value of the subordinated debt is based on quoted market prices. The following table presents the carrying and fair values of our debt, along with average interest rates at March 31, 2011:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Expected Maturity Dates	 	 	Carrying	 	 	Fair	 	
In thousands, except percentages	 	2013	 	 	2014	 	 	2015	 	 	2016	 	 	2017	 	 	2020	 	 	2021	 	 	Value	 	 	Value	 	
Variable rate debt:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bank Credit Agreement	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	
Fixed rate debt:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
7.5% Senior Subordinated Notes due 2013 (1)	 	 	55,448	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	55,352	 	 	 	55,448	 	
9.5% Senior Subordinated Notes due 2016	 	 	-	 	 	 	-	 	 	 	-	 	 	 	224,920	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	238,826	 	 	 	253,597	 	
9.75% Senior Subordinated Notes due 2016	 	 	-	 	 	 	-	 	 	 	-	 	 	 	426,350	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	405,283	 	 	 	480,710	 	
8.25% Senior Subordinated Notes due 2020	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	996,273	 	 	 	-	 	 	 	996,273	 	 	 	1,113,335	 	
6.375% Senior Subordinated Notes due 2021	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	400,000	 	 	 	400,000	 	 	 	410,000	 	
Other Subordinated Notes	 	 	-	 	 	 	1,072	 	 	 	485	 	 	 	-	 	 	 	2,250	 	 	 	-	 	 	 	-	 	 	 	3,845	 	 	 	3,807	 	

(1) These notes were repurchased on April 1, 2011. See Note 3, Long-Term Debt , to the Unaudited Condensed Consolidated Financial Statements, for further information.	
Commodity Derivative Contracts and Commodity Price Sensitivity
     From time to time, we enter 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. We do not hold or issue derivative financial instruments for trading purposes. These contracts have consisted of price floors, collars and fixed price swaps. The production that we hedge has varied from year to year depending on our levels of debt and financial strength and expectation of future commodity prices. We currently employ a strategy to hedge a portion of our forecasted production for a period generally ranging from approximately 12 to 18 months in advance (although we will hedge farther in advance if deemed prudent), as we believe it is important to protect our future cash flow for a short period of time in order to give us time to adjust to commodity price fluctuations, particularly since many of our expenditures have long lead times. See Note 4, Derivative Instruments and Hedging Activities, to the Consolidated Financial Statements for additional information regarding our commodity derivative contracts.
     All of the mark-to-market valuations used for our oil and natural gas derivatives are provided by external sources. 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. All of our commodity derivative contracts are with parties that are lenders under our bank credit agreement. We have included an estimate of nonperformance risk in the fair value measurement of our oil and natural gas derivative contracts, which we have measured for nonperformance risk based upon credit default swaps or credit spreads.
     For accounting purposes, we do not apply hedge accounting to our commodity derivative contracts. This means that any changes in the fair value of these derivative contracts will be charged to earnings on a quarterly basis instead of charging the effective portion to other comprehensive income and the ineffective portion to earnings.
     At March 31, 2011, our commodity derivative contracts were recorded at their fair value, which was a net liability of approximately $216.3 million (excluding $21.2 million of deferred premiums that Denbury is obligated to pay for its derivative contracts, which payments are not subject to changes in commodity prices), a significant change from the $44.0 million fair value liability recorded at December 31, 2010. This change is primarily related to the oil futures prices as of March 31, 2011 in relation to the commodity derivative contracts for 2011 through 2012.
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DENBURY RESOURCES INC.
     Based on NYMEX crude oil and natural gas futures prices as of March 31, 2011, and assuming both a 10% increase and decrease thereon, we would expect to make or receive payments on our crude oil and natural gas derivative contracts as seen in the following table:
 	 	 	 	 	 	 	 	 	
 	 	Crude Oil	 	Natural Gas	
 	 	Derivative	 	Derivative	
 	 	Contracts	 	Contracts	
   In thousands	 	(Payment)	 	Receipt	
	 	 	 	 	
  Based on:	 	 	 	 	 	 	 	 	
NYMEX futures prices as of March 31, 2011	 	$	(120,867	)	 	$	30,033	 	
10% increase in prices	 	 	(308,210	)	 	 	21,692	 	
10% decrease in prices	 	 	(11,555	)	 	 	38,358	 	
Equity Price Sensitivity
     Our investment in Vanguard common units is considered an investment in available-for-sale securities, which are recorded at fair value with any unrealized gains or losses included in accumulated other comprehensive income. This investment is thus subject to equity price sensitivity, as fair value is determined by quoted market prices. We estimate that a hypothetical 10% increase or decrease in quoted market prices for Vanguard common units would result in a $10.0 million unrealized gain or loss, respectively, as of March 31, 2011.
Item 4. Controls and Procedures
      Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and our Chief Financial Officer. Based on that evaluation, the Company’s Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2011 to ensure: that information required to be disclosed in the reports it files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and that information that is required to be disclosed under the Exchange Act is accumulated and communicated to the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
      Evaluation of Changes in Internal Control Over Financial Reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have determined that, during the first quarter of fiscal 2011, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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DENBURY RESOURCES INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
     Information with respect to this item is incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 1A. Risk Factors
     Information with respect to the risk factors has been incorporated by reference from Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes to the risk factors since the filing of such Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
     The following table summarizes purchases of our common stock during the first quarter of 2011, consisting entirely of delivery by our employees of shares to us to satisfy their tax withholding requirements related to the vesting of restricted shares and the exercise of stock appreciation rights:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Total Number of	 	 	Approximate Dollar	 	
 	 	Total	 	 	 	 	 	 	Shares Purchased	 	 	Value of Shares	 	
 	 	Number of	 	 	Average	 	 	as Part of Publicly	 	 	that May Yet Be	 	
 	 	Shares	 	 	Price Paid	 	 	Announced Plans or	 	 	Purchased Under the	 	
Month	 	Purchased	 	 	per Share	 	 	Programs	 	 	Plans or Programs	 	
January 2011	 	 	84,250	 	 	$	19.76	 	 	 	-	 	 	$	-	 	
February 2011	 	 	36,513	 	 	 	22.46	 	 	 	-	 	 	 	-	 	
March 2011	 	 	208,893	 	 	 	24.31	 	 	 	-	 	 	 	-	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	329,656	 	 	 	22.94	 	 	 	-	 	 	$	-	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Item 6. Exhibits
 	 	 	
Exhibit	 	Description	
10(a)* **	 	Form of 2011 Performance Share Award under the 2004 Omnibus Stock and Incentive Plan for Denbury Resources Inc.	
10(b)* **	 	Form of 2011 Performance Cash Award under the 2004 Omnibus Stock and Incentive Plan for Denbury Resources Inc.	
31.1*	 	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
31.2*	 	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
32*	 	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
101*	 	Interactive Data Files.	

*     Filed herewith.	
 		
**   Compensation arrangements.	
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DENBURY RESOURCES INC.
SIGNATURES
      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 	 	 	 	 	
 	DENBURY RESOURCES INC.

 	By:  	/s/ Mark C. Allen  	 	
 	 	Mark C. Allen 	 	
 	 	Senior Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary 	 	

 	By:  	/s/ Alan Rhoades  	 	
 	 	Alan Rhoades 	 	
 	 	Vice President and Chief Accounting Officer 	 	
 	
Date: May 10, 2011
 40 

Exhibit 10(a)

                                          Maximum Performance Shares	 	Date of Grant : January 7, 2011	
2011 PERFORMANCE STOCK AWARD
2004 OMNIBUS STOCK AND INCENTIVE PLAN
FOR DENBURY RESOURCES INC.
      PERFORMANCE STOCK AWARD (“ Award ”) made effective January 7, 2011 (“ Date of Grant ”) between Denbury Resources Inc. (the “ Company ”) and                                           (“ Holder ”).
      WHEREAS, Section 17 of the 2004 Omnibus Stock and Incentive Plan For Denbury Resources Inc. (“ Plan ”) authorizes the Committee to grant Performance based Awards;
      WHEREAS , the Committee desires to grant to Holder an Award under which Holder can earn a maximum of                                           Performance Shares based on the performance based factors set forth in this Award, and subject to all of the provisions, including without limitation the Vesting provisions, of the Plan and this Award;
      WHEREAS , no Performance Shares will be issued or outstanding until they are delivered to Holder or become Retained Earned Shares; and
      WHEREAS , the Company and Holder understand and agree that this Award is in all respects subject to the terms, definitions and provisions of the Plan, and all of which are incorporated herein by reference, except to the extent otherwise expressly provided in this Award.
      NOW THEREFORE , in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows:
1. Performance Share Grant . The Company hereby grants Holder the right to earn, Vest in, and receive delivery of, on the Delivery Date up to                                           Reserved Shares (“ Performance Shares ”) subject to the terms and conditions set forth in the Plan and in this Award.
2. Definitions . All words capitalized herein that are defined in the Plan shall have the meaning assigned them in the Plan; other capitalized words shall have the following meaning, or shall be defined elsewhere in this Award:
      (a)  “ BOE ” means Barrels of Oil Equivalent, and for all purposes hereof, will be calculated using the ratio of one barrel of crude oil, condensate or natural gas liquids to 6 Mcf of natural gas.
      (b)  “ Committee Percentage Point Reduction ” means the number (if any) of Performance Percentage Points (not in excess of the Committee Percentage Point Reduction Limitation) by which the Committee reduces Holder’s Performance Percentage Points in accordance with Section 7 hereof.
      (c)  “ Committee Percentage Point Reduction Limitation ” means the lesser of (i) forty (40) Performance Percentage Points, and (ii) the product of (x) Holder’s Performance Percentage Points earned during the Performance Period as determined prior to the application of the Committee Percentage Point Reduction, multiplied by (y) twenty-five percent (25%).

 

      (d)  “ Delivery Date ” means the date on which Vested Earned Shares (other than Retained Earned Shares and Performance Shares delivered under 8(b)) are delivered to Holder, which shall be any date selected by the Committee which is not later than 30 days after the Vesting Date or such later date as may be caused by unusual circumstances beyond the reasonable control of the Committee.
      (e)  “ Disability ” means, without limitation, the same as it does in the Plan.
      (f)  “ Earned Performance Shares ” means the number of Performance Shares which are earned during the Performance Period as described and calculated in Section 8 .
      (g)  “ Fiscal Year ” means the 12 month period adopted by the Company for financial reporting purposes.
      (h)  “ Performance Measure ” means, collectively, changes in amounts of oil and gas reserves, changes in production rates, and operating cost reductions, as determined based upon the (i) the Tertiary Oil Production Measure, (ii) the Corporate Production Measure, (iii) LOE per BOE Measure, and (iv) the Reserve Replacement Measure; provided, further, that when reference to a specific Performance Measure is intended, reference will be made to such specific Performance Measure.
      (i)  “ Performance Period ” means the period beginning on January 1, 2011, and ending on December 31, 2011.
      (j)  “ Performance Percentage” means the excess of (i) Holder’s aggregate Performance Percentage Points, over (ii) the Committee Percentage Points Reduction, if any, determined as of the last day of the Performance Period.
      (k)  “ Performance Percentage Points ” means, collectively, the points, designated as Performance Percentage Points, earned with respect to each Performance Measure during Performance Period.
      (l)  “ Performance Shares ” means the number of Reserved Shares subject to this Award, as shown on the first page of this Award.
      (m)  “ Post Separation Change in Control ” means a Change in Control which follows Holder’s Separation, but results from the Commencement of a Change in Control that occurs prior to Holder’s Separation. For all purposes of this Award, the term “Commencement of a Change in Control” shall mean the date on which any material action, including without limitation through a written offer, open-market bid, corporate action, proxy solicitation or otherwise, is taken by a “person” (as defined in Section 13(d) or Section 14(d)(2) of the 1934 Act), or a “group” (as defined in Section 13(d)(3) of the 1934 Act), or their affiliates, to commence efforts that, within 12 months after the date of such material action, leads to a Change in Control as defined in Section  2(h)(2) , (3) or (4) of the Plan involving such person, group, or their affiliates.
      (n)  “ Target Performance Shares ” means of the Performance Shares, which is the number of Performance Shares which will be Earned Performance Shares if Holder’s Performance Percentage is 100%.
      (o) “ Vesting Date ” means March 31, 2012.
3. Performance Percentage Points Earned With Respect To The Tertiary Oil Production Measure .
      (a)  Tertiary Production Based Performance Percentage Points . The Performance Percentage Points which will be credited to Holder with respect to the Tertiary Oil Production Measure are set forth in the following Chart based on the Average Annual Tertiary Production Percentage. The “ Average Annual Tertiary Production Percentage ” means the quotient (rounded to 3 decimal places and then expressed as a percentage) of (x) the Adjusted Tertiary Oil Production for such Fiscal Year, divided by (y) the Tertiary Oil Production Forecast for such Fiscal Year.
 	 	 	 	 	
 	 	 	 	Performance	
 	 	Average Annual Tertiary	 	Percentage	
 	 	Production Percentage	 	Points	
A.	 	106.2% or more	 	70	
B.	 	103.1% to 106.1%	 	56	
C.	 	100% to 103.0%	 	42	
D.	 	96.9% to 99.9%	 	28	
E.	 	Less than 96.9%	 	0	
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      (b)  Adjusted Tertiary Oil Production. For purposes of this Award, the “ Adjusted Tertiary Oil Production” shall be equal to (i) the actual tertiary oil production of the Company for such Fiscal Year as reported in the Company’s Form 10-K, or if not specifically reported, then as determined by the Committee from the underlying documents, minus (ii) the tertiary oil production related to an oil property acquired during such Fiscal Year, such amount to be the lesser of (a) the actual tertiary oil production for such Fiscal Year from the acquired property or incremental property interest (if a material partial interest) or (b) the forecasted oil production related thereto for such Fiscal Year for the property before any improvements made by the Company following the acquisition of the property, plus (iii) that portion of the Tertiary Oil Production Forecast, as defined below which is related to any oil property disposed or sold during such Fiscal Year for the period during which the Company did not own the oil property.
      (c)  Tertiary Oil Production Forecast. For purposes of this Award, “ Tertiary Oil Production Forecast ” means for 2011, 32,500 barrels of oil per day.
4. Performance Percentage Points Earned With Respect To The Corporate Production Measure . (
      (a)  Corporate Production Based Performance Percentage Points . The Performance Percentage Points which will be credited to Holder with respect to the Corporate Production Measure are set forth in the following Chart based on the Average Annual Corporate Production Percentage. The “ Average Annual Corporate Production Percentage ” means for such Fiscal Year, the quotient (rounded to 3 decimal places and then expressed as a percentage) of (x) the Adjusted Corporate Production of the Company for such Fiscal Year, divided by (y) the Corporate Production Forecast for such Fiscal Year.
 	 	 	 	 	
 	 	Average Annual	 	 	
 	 	Corporate Production	 	Performance	
 	 	Percentage	 	Percentage Points	
A.	 	105.9% or more	 	40	
B.	 	103.0% to 105.8%	 	32	
C.	 	100% to 102.9%	 	24	
D.	 	97.0% to 99.9%	 	16	
E.	 	Less than 97.0%	 	0	
      (b)  Adjusted Corporate Production . For purposes of this Award, “ Adjusted Corporate Production ” means (i) the actual production of oil and natural gas (in BOEs) for the Fiscal Year as reported in the Company’s Form 10-K (“ Corporate Production ”), minus (ii) the oil and natural gas production (in BOEs) related to properties acquired during such Fiscal Year, such amount to be the lesser of (a) the actual oil and natural gas production (in BOEs) for such Fiscal Year from the acquired property or incremental property interest (if a partial interest) or (b) the forecasted oil and natural gas production (in BOEs) related thereto for such Fiscal Year for the property before any improvements made by the Company following the acquisition of the property, plus (iii) that portion of the Corporate Production Forecast, as defined below, which is related to any oil or natural gas property disposed or sold during such Fiscal Year for the period during which the Company did not own the property.
      (c)  Corporate Production Forecast . For purposes of this Award, “ Corporate Production Forecast ” means for 2011, 67,400 BOE per day.
5. Performance Percentage Points Earned With Respect To Lease Operating Expense (“LOE”) Per BOE Measure .
      (a)  “Actual-to-Budget” LOE Per BOE Measure Performance Percentage Points . The Performance Percentage Points which will be credited to Holder with respect to “Actual-to-Budget” LOE Per BOE Measure are set forth in the following Chart as compared to the various budgeted levels of LOE per BOE set forth in such Chart.
      (b)  “ Actual LOE Per BOE ” for such Fiscal Year means (x) the actual LOE for the Fiscal Year as reported in the Company’s Form 10-K for 2011 (less the cost for CO2 as per the Company’s detailed LOE analysis) minus total LOE (including cost for CO2) related to properties acquired during such Fiscal Year, plus for properties sold during such Fiscal Year, the originally budgeted LOE for that portion of such Fiscal Year during which the results of operations of such properties are not included in the Company’s financial results, divided by (y) the actual oil and natural gas production (in BOEs) for such Fiscal Year as reported in the Company’s Form 10-K for 2011, minus the actual oil and natural gas production (in BOEs) for such Fiscal Year from properties or incremental property interests (if a partial interest) acquired during such Fiscal Year, plus for properties sold during such Fiscal Year, the originally budgeted production for that portion of such Fiscal Year during which the results of operations of such properties are not included in the Company’s financial results.
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      (c)  Performance Percentage Points . The Performance Percentage Points which will be awarded Holder for the Performance Period with respect to the LOE per BOE Measure will be calculated as of the last day of the Performance Period, and will be based the levels of Actual LOE per BOE during the Fiscal Year as compared to the levels shown in the following Chart:
 	 	 	 	 	
 	 	 	 	Performance	
 	 	Actual LOE Per	 	Percentage	
 	 	BOE	 	Points	
A.	 	Less than $16.88	 	50	
B.	 	$16.88 to $17.37	 	40	
C.	 	$17.38 to $17.89	 	30	
D.	 	$17.90 to $18.43	 	20	
E.	 	Greater than $18.43	 	0	
6. Performance Percentage Points Earned With Respect To The Reserve Replacement Measure .
     The Performance Percentage Points Holder will earn with respect to the Reserve Replacement Measure will be based on the Company’s Reserve Replacement Percentage for the entire Performance Period. “ Reserve Replacement Percentage ” means the quotient (rounded up to 3 decimal places and then expressed as a percentage) of (i) the Final Reserves less the Initial Reserves, divided by (ii) Total Production for the Company.
      (a)  Performance Percentage Points . The Performance Percentage Points which will be awarded Holder for the Performance Period with respect to the Reserve Replacement Measure are set forth in the following Chart:
 	 	 	 	 	
 	 	 	 	Performance	
 	 	Reserve Replacement	 	Percentage	
 	 	Percentage	 	Points	
A.	 	300% or more	 	40	
B.	 	200% to 299%	 	32	
C.	 	150% to 199%	 	24	
D.	 	100% to 149%	 	16	
E.	 	Less than 100%	 	0	
      (b)  Initial Reserves . For purpose of this Award, “ Initial Reserves ” means the total Company proved reserve quantities as of December 31, 2010 expressed in BOEs as estimated by DeGolyer and MacNaughton, independent petroleum engineers and disclosed in the Company’s Form 10-K Report for 2010.
      (c)  Final Reserves . For purposes of this Award, “ Final Reserves ” means the sum of (i) the total Company proved reserve quantities on the last day of the Performance Period expressed in BOEs as estimated by DeGolyer and MacNaughton or the Company’s then current independent petroleum engineer, determined using the same price deck as was used by the Company in calculating the Initial Reserves, plus (ii) the Uneconomic Reserves, plus (iii) the Disposed Reserves, plus (iv) Total Production. The “ Uneconomic Reserves ” are those proved undeveloped reserves expressed in BOEs which were included in the Initial Reserves, but are not considered proved undeveloped reserves on the last day of the Performance Period solely because the price deck used to price oil and natural gas products and/or the prices used to estimate the capital costs required to develop the proved undeveloped reserves as of the last day of the Performance Period have changed from those used in the Initial Reserve report such that the extraction of such otherwise proved reserves is uneconomic (i.e. Uneconomic Reserves cannot be reserves excluded from the Final Reserves because drilling activity during the period changed the status or evaluation of the undeveloped reserves, or because the Company no longer holds the acreage or interest, or because factors other than commodity prices or changes in the estimated capital costs have made the project uneconomic). The “ Disposed Reserves ” are those proved reserves quantities expressed in BOEs which were sold during the Performance Period as reported as such in the Company’s Form 10-K SFAS 69 disclosures.
7. Committee’s Reduction of Performance Percentage Points .
     Notwithstanding any provision hereof to the contrary, the Committee, in its sole discretion, by written notice to Holder prior to the Vesting Date, may reduce Holder’s otherwise earned Performance Percentage Points by applying a Committee Percentage Point Reduction.
      (a)  Performance Percentage Points Reduction . The Committee will make its determination of the Committee Percentage Point Reduction amount (if any) based on the Committee’s subjective evaluation of Company performance with respect to each of the four Additional Committee Evaluation Factors listed in (b) below, which evaluation will determine the amount of the Performance Percentage Points reduction for each such Additional Committee Evaluation Factor based on the Chart below, and the sum of those reductions, but not in excess of the Committee Percentage Point Reduction Limitation, will be Committee Percentage Point Reduction for the Performance Period:
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 	 	Committee’s Determination of	 	Reduction in	
 	 	the Level of Performance With	 	Performance	
 	 	Respect to each Committee	 	Percentage	
 	 	Evaluation Factor	 	Points	
A.	 	Above Average	 	0	
B.	 	Average	 	5	
C.	 	Below Average	 	10	
      (b)  For purposes of this Award, the “ Additional Committee Evaluation Factors ” (each of which may cause a reduction of up to 10 Performance Percentage Points) are:
      (i) the Company’s compliance with such corporate governance factors as the ability to obtain an unqualified auditors’ opinion on the Company’s financial statements contained in its Form 10-K for 2011, and avoid any financial restatements,
      (ii) the Company’s maintenance of a reasonable debt-to-capital and/or debt-to-cash flow ratio,
      (iii) the Company’s record as to health, safety and environmental compliance and results, and
      (iv) the increase in the net asset value per share of Company stock, determined after excluding the effects, to the extent reasonably practical, caused by fluctuations in commodity prices and capital and operating costs or other factors which are generally not controllable by the Company.
8. Earning Performance Shares .
      (a)  Earned Performance Shares . The number of Earned Performance Shares shall be equal to the product of (i) the Target Performance Shares, multiplied by (ii) the Performance Percentage. The Committee will determine, and the Administrator will advise Holder, of Holder’s Performance Percentage as soon as reasonably possible after the last day of the Performance Period.
      (b)  Change in Control . Notwithstanding the foregoing and any other provision hereof to the contrary, if a Change in Control occurs during the Performance Period then, regardless of the Performance Percentage at the date of the Change in Control, Holder will be entitled to receive delivery of all of the Target Performance Shares (notwithstanding any provision hereof to the contrary, none of which Target Performance Shares will be retained by the Company other than as payment for withholding) as soon as reasonably possible following such Change in Control, but in no event later than the 15th day of the third month after the end of the calendar year in which such Change in Control occurs, and Holder permanently shall forfeit the right to receive any other Performance Shares.
9. Vesting (and Forfeiture) of Earned Performance Shares .
      (a)  No Separation Prior to the Vesting Date . If Holder does not Separate prior to the Vesting Date, Holder will be 100% Vested in the Earned Shares.
      (b)  Forfeiture . Except to the extent expressly provided in (i), (ii), (iii), or (iv) below, Holder permanently will forfeit all rights with respect to all Performance Shares upon the date of his Separation, if such Separation occurs prior to the Vesting Date.
      (i) Death . If Holder Separates by reason of death prior to the Vesting Date, Holder’s Beneficiary will be entitled to receive Performance Shares in an amount equal to the number of Target Performance Shares (and does not have any right to receive any other Performance Shares) as soon as reasonably possible, but in no event more than 90 days after Holder’s death.
      (ii) Disability . If Holder Separates by reason of a Disability prior to the Vesting Date, Holder will be entitled to receive Performance Shares in an amount equal to the number of Target Performance Shares (and does not have any right to receive any additional Performance Shares) as soon as reasonably possible, but in no event later than the 15th day of the third month after the end of the calendar year following the Date on which the Committee determines that Holder is Disabled.
      (iii) Post Separation Change in Control . If there is a Post Separation Change in Control, Holder will be entitled to receive Performance Shares in an amount equal to the number of Target Performance Shares (and does not have any right to receive any additional Performance Shares) as soon as reasonably possible after the date of the Change in Control, but in no event later than the 15th day of the third month after the end of the calendar year in which such Change in Control occurs.
 5 

 

      (iv) Retirement . If Holder Separates after reaching Holder’s Retirement Vesting Date and prior to the Vesting Date, Holder will be entitled to receive only that percentage (if any) of the Performance Shares as shall be determined by the Committee in writing (and does not have any right to receive any additional Performance Shares). In making its determination, the Committee will take into account the percentage of the Performance Period completed by the date of Holder’s Separation, and its best estimate of the Performance Percentage Points Holder has earned by the date of Holder’s Separation and is expected to earn during the portion of the Performance Period occurring after the date of Holder’s Separation. The Committee will make its determination, and Holder will receive the Performance Shares (if any) as determined by the Committee, within a reasonable time, but in no event later than the 15th day of the third month after the end of the calendar year following Holder’s Separation.
10. Withholding . On the Vesting Date, the minimum federal income tax withholding required to be made by the Company shall be paid by Holder (or Holder’s Beneficiary) to the Administrator in cash, by delivery of Shares, or by authorizing the Company to retain Earned Shares, or a combination thereof; provided, further, that where Shares or Earned Shares are delivered or retained, the satisfaction of Holder’s obligation hereunder will be based on the Fair Market Value on the Vesting Date of such delivered or retained Shares.
11. Issuance of Shares . Without limitation, Holder shall not have any of the rights and privileges of an owner of any of the Performance Shares (including voting rights) until the Vesting Date. The Administrator shall deliver the Vested Shares (reduced by the number of Vested Shares delivered to the Administrator to pay required withholding under section 10 above) to the Holder as soon as reasonably possible following vesting. The Holder agrees to hold and retain the required number of Vested Shares as specified in the Company’s stock ownership guidelines, as potentially modified from time to time.
12. Administration . Without limiting the generality of the Committee’s rights, duties and obligations under the Plan, the Committee shall have the following specific rights, duties and obligations with respect to this Award. Without limitation, the Committee shall interpret conclusively the provisions of the Award, adopt such rules and regulations for carrying out the Award as it may deem advisable, decide conclusively all questions of fact arising in the application of the Award, certify the extent to which Performance Measures have been satisfied and the number of Performance Percentage Points earned, exercise its right to reduce Performance Percentage Points, and make all other determinations and take all other actions necessary or desirable for the administration of the Award. The Committee is authorized to change any of the terms or conditions of the Award in order to take into account any material unanticipated change in the Company’s operations, corporate structure, assets, or similar change, but only to the extent such action carries out the original purpose, intent and objectives of the Award. All decisions and acts of the Committee shall be final and binding upon Holder and all other affected parties.
13. Beneficiary . Holder’s rights hereunder shall be exercisable during Holder’s lifetime only by Holder or Holder’s legal representative. Holder may file with the Administrator a written designation of beneficiary (such person(s) being his “Beneficiary”), on such form as may be prescribed by the Administrator. Holder may, from time to time, amend or revoke a designation of Beneficiary. If no designated Beneficiary survives Holder, the Holder’s estate shall be deemed to be Holder’s Beneficiary.
14. Holder’s Access to Information. As soon as reasonably possible after the close of the preceding Fiscal Year, the Committee (and the Administrator to the extent it shall have been directed by the Committee) shall make all relevant annually determined calculations and determinations hereunder, and shall communicate such information to the Administrator. The Administrator will furnish all such relevant information to Holder as soon as reasonably possible following the date on which all, or a substantial majority, of the information is available.
15. No Transfers Permitted. The rights under this Award are not transferable by the Holder otherwise than by will or the laws of descent and distribution, and so long as Holder lives, only Holder or his or her guardian or legal representative shall have the right to receive and retain Vested Earned Shares.
16. No Right To Continued Employment. Neither the Plan nor this Award shall confer upon Holder any right to continue to serve in the employ of the Company nor interfere in any way with Holder’s right to resign.
17. Governing Law . Without limitation, this Award shall be construed and enforced in accordance with and governed by the laws of Delaware.
18. Binding Effect . This Award shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.
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19. Waivers . Any waiver of any right granted pursuant to this Award shall not be valid unless it is in writing and signed by the party waiving the right. Any such waiver shall not be deemed to be a waiver of any other rights.
20. Severability . If any provision of this Award is declared or found to be illegal, unenforceable or void, in whole or in part, the remainder of this Award will not be affected by such declaration or finding and each such provision not so affected will be enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF , the Company has caused this Award to be executed on its behalf by its duly authorized representative and Holder has hereunto set his or her hand, all on the day and year first above written.
Dated as of this 7th day of January, 2011.

 	 	DENBURY RESOURCES INC.	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	 	 	
 	 	 
Phil Rykhoek	 	 	 	 
Mark C. Allen	 	 	
 	 	CEO	 	 	 	Senior VP, CFO & Asst. Secretary	 	 	
 7 

 

ACKNOWLEDGMENT
     The undersigned hereby acknowledges (i) my receipt of this Award, (ii) my opportunity to review the Plan, (iii) my opportunity to discuss this Award with a representative of the Company, and my personal advisors, to the extent I deem necessary or appropriate, (iv) my understanding of the terms and provisions of the Award and the Plan, and (v) my understanding that, by my signature below, I am agreeing to be bound by all of the terms and provisions of this Award and the Plan.
     Without limitation, I agree to accept as binding, conclusive and final all decisions, factual determinations, and/or interpretations (including, without limitation, all interpretations of the meaning of provisions of the Plan, or Award, or both) of the Committee upon any questions arising under the Plan, or this Award, or both.
Dated as of this                                           day of                                           , 2011.

 	 	

Officer Name	 	 	
 8 

Exhibit 10(b)

$ _________ Maximum Performance Cash	 	Date of Grant : January 7, 2011	
2011 PERFORMANCE CASH AWARD
2004 OMNIBUS STOCK AND INCENTIVE PLAN
FOR DENBURY RESOURCES INC.
      PERFORMANCE CASH AWARD (“ Award ”) made effective January 7, 2011 (“ Date of Grant ”) between Denbury Resources Inc. (the “ Company ”) and «Officer_Name» (“ Holder ”).
      WHEREAS, Section 17 of the 2004 Omnibus Stock and Incentive Plan For Denbury Resources Inc. (“ Plan ”) authorizes the Committee to grant Performance based Awards;
      WHEREAS , the Committee desires to grant to Holder an Award under which Holder can earn a maximum of $__________ based on the performance based factors set forth in this Award, and subject to all of the provisions, including without limitation the Vesting provisions, of the Plan and this Award; and
      WHEREAS , the Company and Holder understand and agree that this Award is in all respects subject to the terms, definitions and provisions of the Plan, all of which are incorporated herein by reference, except to the extent otherwise expressly provided in this Award.
      NOW THEREFORE , in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows:
1. Performance Share Grant . The Company hereby grants Holder the right to earn, Vest in and be paid on the Payment Date, up to $________ (“ Performance Cash ”) subject to the terms and conditions set forth in the Plan and in this Award.
2. Definitions . All words capitalized herein that are defined in the Plan shall have the meaning assigned them in the Plan; other capitalized words shall have the following meaning, or shall be defined elsewhere in this Award:
      (a)  “ BOE ” means Barrels of Oil Equivalent, and for all purposes hereof, will be calculated using the ratio of one barrel of crude oil, condensate or natural gas liquids to 6 Mcf of natural gas.
      (b)  “ Committee Percentage Point Reduction ” means the number (if any) of Performance Percentage Points (not in excess of the Committee Percentage Point Reduction Limitation) by which the Committee reduces Holder’s Performance Percentage Points in accordance with Section 7 hereof.
      (c)  “ Committee Percentage Point Reduction Limitation ” means the lesser of (i) forty (40) Performance Percentage Points, and (ii) the product of (x) Holder’s Performance Percentage Points earned during the Performance Period as determined prior to the application of the Committee Percentage Point Reduction, multiplied by (y) twenty-five percent (25%).
      (d)  “ Disability ” means, without limitation, the same as it does in the Plan.
      (e)  “ Earned Performance Cash ” means the amount of Performance Cash earned during the Performance Period as described and calculated in Section 8 .
      (f)  “ Fiscal Year ” means the 12 month period adopted by the Company for financial reporting purposes.
 A-1 

 

      (g)  “ Payment Date ” means the date on which Performance Cash Vested and earned under this Award is paid to Holder, which shall be any date selected by the Committee which is not later than 30 days after the Vesting Date or such later date as may be caused by unusual circumstances beyond the reasonable control of the Committee.
      (h)  “ Performance Measure ” means, collectively, changes in amounts of oil and gas reserves, changes in production rates, and operating cost reductions, as determined based upon the (i) the Tertiary Oil Production Measure, (ii) the Corporate Production Measure, (iii) LOE per BOE Measure, and (iv) the Reserve Replacement Measure; provided, further, that when reference to a specific Performance Measure is intended, reference will be made to such specific Performance Measure.
      (i)  “ Performance Period ” means the period beginning on January 1, 2011, and ending on December 31, 2011.
      (j)  “ Performance Percentage” means the excess of (i) Holder’s aggregate Performance Percentage Points, over (ii) the Committee Percentage Points Reduction, if any, determined as of the last day of the Performance Period.
      (k)  “ Performance Percentage Points ” means, collectively, the points, designated as Performance Percentage Points, earned with respect to each Performance Measure during Performance Period.
      (l)  “ Performance Cash ” means the amount of cash subject to this Award, as shown on the first page of this Award.
      (m)  “ Post Separation Change in Control ” means a Change in Control which follows Holder’s Separation, but results from the Commencement of a Change in Control that occurs prior to Holder’s Separation. For all purposes of this Award, the term “Commencement of a Change in Control” shall mean the date on which any material action, including without limitation through a written offer, open-market bid, corporate action, proxy solicitation or otherwise, is taken by a “person” (as defined in Section 13(d) or Section 14(d)(2) of the 1934 Act), or a “group” (as defined in Section 13(d)(3) of the 1934 Act), or their affiliates, to commence efforts that, within 12 months after the date of such material action, leads to a Change in Control as defined in Section  2(h)(2) , (3) or (4) of the Plan involving such person, group, or their affiliates.
      (n)  “ Target Performance Cash ” means $_______ of Performance Cash, which is the amount of Performance Cash which will be Earned if Holder’s Performance Percentage is 100%.
      (o)  “ Vesting Date ” means March 31, 2012.
3. Performance Percentage Points Earned With Respect To The Tertiary Oil Production Measure .
      (a)  Tertiary Production Based Performance Percentage Points . The Performance Percentage Points which will be credited to Holder with respect to the Tertiary Oil Production Measure are set forth in the following Chart based on the Average Annual Tertiary Production Percentage. The “ Average Annual Tertiary Production Percentage ” means the quotient (rounded to 3 decimal places and then expressed as a percentage) of (x) the Adjusted Tertiary Oil Production for such Fiscal Year, divided by (y) the Tertiary Oil Production Forecast for such Fiscal Year.
 A-2 

 

 	 	 	 	 	 	 	
 	 	 	 	Performance	 	
 	 	Average Annual Tertiary	 	Percentage	 	
 	 	Production Percentage	 	Points	 	
A.	 	106.2% or more	 	 	70	 	
B.	 	103.1% to 106.1%	 	 	56	 	
C.	 	100% to 103.0%	 	 	42	 	
D.	 	96.9% to 99.9%	 	 	28	 	
E.	 	Less than 96.9%	 	 	0	 	
      (b)  Adjusted Tertiary Oil Production. For purposes of this Award, the “ Adjusted Tertiary Oil Production ” shall be equal to (i) the actual tertiary oil production of the Company for such Fiscal Year as reported in the Company’s Form 10-K, or if not specifically reported, then as determined by the Committee from the underlying documents, minus (ii) the tertiary oil production related to an oil property acquired during such Fiscal Year, such amount to be the lesser of (a) the actual tertiary oil production for such Fiscal Year from the acquired property or incremental property interest (if a material partial interest) or (b) the forecasted oil production related thereto for such Fiscal Year for the property before any improvements made by the Company following the acquisition of the property, plus (iii) that portion of the Tertiary Oil Production Forecast, as defined below which is related to any oil property disposed or sold during such Fiscal Year for the period during which the Company did not own the oil property.
4. Tertiary Oil Production Forecast. For purposes of this Award, for 2011 “ Tertiary Oil Production Forecast ” means 32,500 barrels of oil per day.
5. Performance Percentage Points Earned With Respect To The Corporate Production Measure .
      (a)  Corporate Production Based Performance Percentage Points . The Performance Percentage Points which will be credited to Holder with respect to the Corporate Production Measure are set forth in the following Chart based on the Average Annual Corporate Production Percentage. The “ Average Annual Corporate Production Percentage ” means for such Fiscal Year, the quotient (rounded to 3 decimal places and then expressed as a percentage) of (x) the Adjusted Corporate Production of the Company for such Fiscal Year, divided by (y) the Corporate Production Forecast for such Fiscal Year.
 A-3 

 

 	 	 	 	 	 	 	
 	 	Average Annual Corporate	 	Performance	 	
 	 	Production Percentage	 	Percentage Points	 	
A.	 	105.9% or more	 	 	40	 	
B.	 	103.0% to 105.8%	 	 	32	 	
C.	 	100% to 102.9%	 	 	24	 	
D.	 	97.0% to 99.9%	 	 	16	 	
E.	 	Less than 97.0%	 	 	0	 	
      (b)  Adjusted Corporate Production . For purposes of this Award, “ Adjusted Corporate Production ” means (i) the actual production of oil and natural gas (in BOEs) for the Fiscal Year as reported in the Company’s Form 10-K (“ Corporate Production ”), minus (ii) the oil and natural gas production (in BOEs) related to properties acquired during such Fiscal Year, such amount to be the lesser of (a) the actual oil and natural gas production (in BOEs) for such Fiscal Year from the acquired property or incremental property interest (if a partial interest) or (b) the forecasted oil and natural gas production (in BOEs) related thereto for such Fiscal Year for the property before any improvements made by the Company following the acquisition of the property, plus (iii) that portion of the Corporate Production Forecast, as defined below, which is related to any oil or natural gas property disposed or sold during such Fiscal Year for the period during which the Company did not own the property.
      (c)  Corporate Production Forecast . For purposes of this Award, for 2011 “ Corporate Production Forecast ” means 67,400 BOE per day.
6. Performance Percentage Points Earned With Respect To Lease Operating Expense (“LOE”) Per BOE Measure .
      (a)  “Actual-to-Budget” LOE Per BOE Measure Performance Percentage Points . The Performance Percentage Points which will be credited to Holder with respect to “Actual-to-Budget” LOE Per BOE Measure are set forth in the following Chart as compared to the various budgeted levels of LOE per BOE set forth in such Chart.
      (b)  “ Actual LOE Per BOE ” for such Fiscal Year means (x) the actual LOE for the Fiscal Year as reported in the Company’s Form 10-K for 2011 (less the cost for CO2 as per the Company’s detailed LOE analysis) minus total LOE (including cost for CO2) related to properties acquired during such Fiscal Year, plus for properties sold during such Fiscal Year, the originally budgeted LOE for that portion of such Fiscal Year during which the results of operations of such properties are not included in the Company’s financial results, divided by (y) the actual oil and natural gas production (in BOEs) for such Fiscal Year as reported in the Company’s Form 10-K for 2011, minus the actual oil and natural gas production (in BOEs) for such Fiscal Year from properties or incremental property interests (if a partial interest) acquired during such Fiscal Year, plus for properties sold during such Fiscal Year, the originally budgeted production for that portion of such Fiscal Year during which the results of operations of such properties are not included in the Company’s financial results.
      (c)  Performance Percentage Points . The Performance Percentage Points which will be awarded Holder for the Performance Period with respect to the LOE per BOE Measure will be calculated as of the last day of the Performance Period, and will be based the levels of Actual LOE per BOE during the Fiscal Year as compared to the levels shown in the following Chart:
 A-4 

 

 	 	 	 	 	 	 	
 	 	 	 	Performance	 	
 	 	 	 	Percentage	 	
 	 	Actual LOE Per BOE	 	Points	 	
A.	 	Less than $16.88	 	 	50	 	
B.	 	$16.88 to $17.37	 	 	40	 	
C.	 	$17.38 to $17.89	 	 	30	 	
D.	 	$17.90 to $18.43	 	 	20	 	
E.	 	Greater than $18.43	 	 	0	 	
7. Performance Percentage Points Earned With Respect To The Reserve Replacement Measure .
     The Performance Percentage Points Holder will earn with respect to the Reserve Replacement Measure will be based on the Company’s Reserve Replacement Percentage for the entire Performance Period. “ Reserve Replacement Percentage ” means the quotient (rounded up to 3 decimal places and then expressed as a percentage) of (i) the Final Reserves less the Initial Reserves, divided by (ii) Total Production for the Company.
      (a)  Performance Percentage Points . The Performance Percentage Points which will be awarded Holder for the Performance Period with respect to the Reserve Replacement Measure are set forth in the following Chart:
 A-5 

 

 	 	 	 	 	 	 	
 	 	 	 	Performance	 	
 	 	 	 	Percentage	 	
 	 	Reserve Replacement Percentage	 	Points	 	
A.	 	300% or more	 	 	40	 	
B.	 	200% to 299%	 	 	32	 	
C.	 	150% to 199%	 	 	24	 	
D.	 	100% to 149%	 	 	16	 	
E.	 	Less than 100%	 	 	0	 	
      (b)  Initial Reserves . For purpose of this Award, “ Initial Reserves ” means the total Company proved reserve quantities as of December 31, 2010 expressed in BOEs as estimated by DeGolyer and MacNaughton, independent petroleum engineers and disclosed in the Company’s Form 10-K Report for 2010.
      (c)  Final Reserves . For purposes of this Award, “ Final Reserves ” means the sum of (i) the total Company proved reserve quantities on the last day of the Performance Period expressed in BOEs as estimated by DeGolyer and MacNaughton or the Company’s then current independent petroleum engineer, determined using the same price deck as was used by the Company in calculating the Initial Reserves, plus (ii) the Uneconomic Reserves, plus (iii) the Disposed Reserves, plus (iv) Total Production. The “ Uneconomic Reserves ” are those proved undeveloped reserves expressed in BOEs which were included in the Initial Reserves, but are not considered proved undeveloped reserves on the last day of the Performance Period solely because the price deck used to price oil and natural gas products and/or the prices used to estimate the capital costs required to develop the proved undeveloped reserves as of the last day of the Performance Period have changed from those used in the Initial Reserve report such that the extraction of such otherwise proved reserves is uneconomic (i.e. Uneconomic Reserves cannot be reserves excluded from the Final Reserves because drilling activity during the period changed the status or evaluation of the undeveloped reserves, or because the Company no longer holds the acreage or interest, or because factors other than commodity prices or changes in the estimated capital costs have made the project uneconomic). The “ Disposed Reserves ” are those proved reserves quantities expressed in BOEs which were sold during the Performance Period as reported as such in the Company’s Form 10-K SFAS 69 disclosures.
8. Committee’s Reduction of Performance Percentage Points .
     Notwithstanding any provision hereof to the contrary, the Committee, in its sole discretion, by written notice to Holder prior to the Vesting Date, may reduce Holder’s otherwise earned Performance Percentage Points by applying a Committee Percentage Point Reduction.
      (a)  Performance Percentage Points Reduction . The Committee will make its determination of the Committee Percentage Point Reduction amount (if any) based on the Committee’s subjective evaluation of Company performance with respect to each of the four Additional Committee Evaluation Factors listed in (b) below, which evaluation will determine the amount of the Performance Percentage Points reduction for each such Additional Committee Evaluation Factor based on the Chart below, and the sum of those reductions, but not in excess of the Committee Percentage Point Reduction Limitation, will be Committee Percentage Point Reduction for the Performance Period:
 A-6 

 

 	 	 	 	 	 	 	
  	 	 	 	Reduction in	 	
 	 	Committee’s Determination of the	 	Performance	 	
 	 	Level of Performance With Respect	 	Percentage	 	
 	 	to each Committee Evaluation Factor	 	Points	 	
A.	 	Above Average	 	 	0	 	
B.	 	Average	 	 	5	 	
C.	 	Below Average	 	 	10	 	
      (b)  For purposes of this Award, the “ Additional Committee Evaluation Factors ” (each of which may cause a reduction of up to 10 Performance Percentage Points) are:
      (i) the Company’s compliance with such corporate governance factors as the ability to obtain an unqualified auditors’ opinion on the Company’s financial statements contained in its Form 10-K for 2011, and avoid any financial restatements,
      (ii) the Company’s maintenance of a reasonable debt-to-capital and/or debt-to-cash flow ratio,
      (iii) the Company’s record as to health, safety and environmental compliance and results, and
      (iv) the increase in the net asset value per share of Company stock, determined after excluding the effects, to the extent reasonably practical, caused by fluctuations in commodity prices and capital and operating costs or other factors which are generally not controllable by the Company.
9. Earning Performance Cash .
      (a)  Earned Performance Cash . The amount of Earned Performance Cash shall be equal to the product of (i) the Target Performance Cash, multiplied by (ii) the Performance Percentage. The Committee will determine, and the Administrator will advise Holder, of Holder’s Performance Percentage as soon as reasonably possible after the last day of the Performance Period.
      (b)  Change in Control . Notwithstanding the foregoing and any other provision hereof to the contrary, if a Change in Control occurs during the Performance Period then, regardless of the Performance Percentage at the date of the Change in Control, Holder will be entitled to receive delivery of all of the Target Performance Cash (notwithstanding any provision hereof to the contrary, none of which Target Performance Cash will be retained by the Company other than as payment for withholding) as soon as reasonably possible following such Change in Control, but in no event later than the 15th day of the third month after the end of the calendar year in which such Change in Control occurs, and Holder permanently shall forfeit the right to receive any other amounts of Performance Cash.
10. Vesting (and Forfeiture) of Earned Performance Cash .
      (a)  No Separation Prior to the Vesting Date . If Holder does not Separate prior to the Vesting Date, Holder will be 100% Vested in the Earned Cash.
      (b)  Forfeiture . Except to the extent expressly provided in (i), (ii), (iii), or (iv) below, Holder permanently will forfeit all rights with respect to any Performance Cash upon the date of his Separation, if such Separation occurs prior to the Vesting Date.
 A-7 

 

      (i) Death . If Holder Separates by reason of death prior to the Vesting Date, Holder’s Beneficiary will be entitled to receive Performance Cash in an amount equal to the Target Performance Cash (and does not have any right to receive any other amounts of Performance Cash) as soon as reasonably possible but in no event more than 90 days after Holder’s death.
      (ii) Disability . If Holder Separates by reason of a Disability prior to the Vesting Date, Holder will be entitled to receive Performance Cash in an amount equal to the Target Performance Cash (and does not have any right to receive any additional amounts of Performance Cash) as soon as reasonably possible but in no event later than the 15th day of the third month after the end of the calendar year following the Date on which the Committee determines that Holder is Disabled.
      (iii) Post Separation Change in Control . If there is a Post Separation Change in Control, Holder will be entitled to receive Performance Cash in an amount equal to the Target Performance Cash (and does not have any right to receive any additional Performance Cash) as soon as reasonably possible after the date of the Change in Control but in no event later than the 15th day of the third month after the end of the calendar year in which such Change in Control occurs.
      (iv) Retirement . If Holder Separates after reaching Holder’s Retirement Vesting Date and prior to the Vesting Date, Holder will be entitled to receive only that percentage (if any) of the Performance Cash as shall be determined by the Committee in writing (and does not have any right to receive any additional amounts of Performance Cash). In making its determination, the Committee will take into account the percentage of the Performance Period completed by the date of Holder’s Separation, and its best estimate of the Performance Percentage Points Holder has earned by the date of Holder’s Separation and is expected to earn during the portion of the Performance Period occurring after the date of Holder’s Separation. The Committee will make its determination, and Holder will receive the Performance Cash (if any) as determined by the Committee, within a reasonable time but in no event later than the 15th day of the third month after the end of the calendar year following Holder’s Separation.
11. Withholding . On the Vesting Date, the minimum federal income tax withholding required to be made by the Company shall be paid by Holder (or Holder’s Beneficiary) to the Administrator in cash, or by authorizing the Company to retain an amount of Performance Cash.
12. Administration . Without limiting the generality of the Committee’s rights, duties and obligations under the Plan, the Committee shall have the following specific rights, duties and obligations with respect to this Award. Without limitation, the Committee shall interpret conclusively the provisions of the Award, adopt such rules and regulations for carrying out the Award as it may deem advisable, decide conclusively all questions of fact arising in the application of the Award, certify the extent to which Performance Measures have been satisfied and the number of Performance Percentage Points earned, exercise its right to reduce Performance Percentage Points, and make all other determinations and take all other actions necessary or desirable for the administration of the Award. The Committee is authorized to change any of the terms or conditions of the Award in order to take into account any material unanticipated change in the Company’s operations, corporate structure, assets, or similar change, but only to the extent such action carries out the original purpose, intent and objectives of the Award. All decisions and acts of the Committee shall be final and binding upon Holder and all other affected parties.
13. Beneficiary . Holder’s rights hereunder shall be exercisable during Holder’s lifetime only by Holder or Holder’s legal representative. Holder may file with the Administrator a written designation of beneficiary (such person(s) being his “Beneficiary”), on such form as may be prescribed by the Administrator. Holder may, from time to time, amend or revoke a designation of Beneficiary. If no designated Beneficiary survives Holder, the Holder’s estate shall be deemed to be Holder’s Beneficiary.
14. Holder’s Access to Information. As soon as reasonably possible after the close of the preceding Fiscal Year, the Committee (and the Administrator to the extent it shall have been directed by the
 A-8 

 

Committee) shall make all relevant annually determined calculations and determinations hereunder, and shall communicate such information to the Administrator. The Administrator will furnish all such relevant information to Holder as soon as reasonably possible following the date on which all, or a substantial majority, of the information is available.
15. No Transfers Permitted. The rights under this Award are not transferable by the Holder otherwise than by will or the laws of descent and distribution, and so long as Holder lives, only Holder or his or her guardian or legal representative shall have the right to receive and retain Vested Earned Shares.
16. No Right To Continued Employment. Neither the Plan nor this Award shall confer upon Holder any right to continue to serve in the employ of the Company nor interfere in any way with Holder’s right to resign.
17. Governing Law . Without limitation, this Award shall be construed and enforced in accordance with and governed by the laws of Delaware.
18. Binding Effect . This Award shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.
19. Waivers . Any waiver of any right granted pursuant to this Award shall not be valid unless it is in writing and signed by the party waiving the right. Any such waiver shall not be deemed to be a waiver of any other rights.
20. Severability . If any provision of this Award is declared or found to be illegal, unenforceable or void, in whole or in part, the remainder of this Award will not be affected by such declaration or finding and each such provision not so affected will be enforced to the fullest extent permitted by law.
      IN WITNESS WHEREOF , the Company has caused this Award to be executed on its behalf by its duly authorized representative and Holder has hereunto set his or her hand, all on the day and year first above written.
      Dated as of this 7th day of January, 2011.

 	 	DENBURY RESOURCES INC.	 	 	 	 	

By:	 	 	 	 	 	 	
 	 	 
Phil Rykhoek	 	 
Mark C. Allen	 	 	
 	 	CEO	 	Senior VP, CFO & Asst. Secretary	 	 	
 A-9 

 

ACKNOWLEDGMENT
     The undersigned hereby acknowledges (i) my receipt of this Award, (ii) my opportunity to review the Plan, (iii) my opportunity to discuss this Award with a representative of the Company, and my personal advisors, to the extent I deem necessary or appropriate, (iv) my understanding of the terms and provisions of the Award and the Plan, and (v) my understanding that, by my signature below, I am agreeing to be bound by all of the terms and provisions of this Award and the Plan.
     Without limitation, I agree to accept as binding, conclusive and final all decisions, factual determinations, and/or interpretations (including, without limitation, all interpretations of the meaning of provisions of the Plan, or Award, or both) of the Committee upon any questions arising under the Plan, or this Award, or both.
      Dated as of this ________ day of ______________, 2011.

 	 	

Officer Name	 	 	
 A-10 

Exhibit 31.1
CERTIFICATION UNDER SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Phil Rykhoek, certify that:

1.	 	I have reviewed this quarterly report on Form 10-Q of Denbury Resources Inc. (the “registrant”);	
 		
2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 		
3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 		
4.	 	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	(a)	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 		
 	(b)	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 		
 	(c)	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 		
 	(d)	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions)	

 	(a)	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 		
 	(b)	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

May 10, 2011 	/s/ Phil Rykhoek  	 	
 	Phil Rykhoek 	 	
 	Chief Executive Officer 	 	

Exhibit 31.2
CERTIFICATION UNDER SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Mark C. Allen, certify that:

1.	 	I have reviewed this quarterly report on Form 10-Q of Denbury Resources Inc. (the “registrant”);	
 		
2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 		
3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 		
4.	 	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	(a)	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 		
 	(b)	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 		
 	(c)	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 		
 	(d)	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	(a)	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 		
 	(b)	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

May 10, 2011 	/s/ Mark C. Allen  	 	
 	Mark C. Allen 	 	
 	Senior Vice President, Chief Financial Officer,
Treasurer, and Assistant Secretary 	 	

Exhibit 32
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     In connection with the accompanying Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (the “Report”) of Denbury Resources Inc. (“Denbury”) as filed with the Securities and Exchange Commission on May 10, 2011, each of the undersigned, in his capacity as an officer of Denbury, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

 	1.	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;	

 	 	and	

 	2.	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Denbury.	

Dated: May 10, 2011 	/s/ Phil Rykhoek  	 	
 	Phil Rykhoek 	 	
 	Chief Executive Officer 	 	

Dated: May 10, 2011 	/s/ Mark C. Allen  	 	
 	Mark C. Allen 	 	
 	Senior Vice President, Chief Financial Officer,
Treasurer, and Assistant Secretary