TEXT-Moody's rates Denbury's new notes; existing rtngs affirmed

(The following statement was released by the rating agency)

Feb 10 - Moody's Investors Service rated Denbury Resources, Inc.'s (DNR.N) (Denbury) proposed notes senior subordinated notes B1 (LGD 4, 69%). Simultaneously, Moody's affirmed Denbury's Ba3 Corporate Family Rating (CFR), the Ba3 Probability of Default Rating, and B1 (LGD 4) rating on the existing notes (though the point estimate is changing to 69% from 67%). The outlook remains stable.

The affirmation of the CFR reflects the company's success to date of the execution of its strategy to become a predominantly tertiary recovery oil producer. While its overall scale and production metrics are on the lower end of the Ba3 rated peer group, Denbury has demonstrated steady and consistent reserves and production growth. The Ba3 CFR also reflects the company's ability to maintain a good margins and returns despite pursuing an inherently higher operating cost productive base.

However, the Ba3 also reflects Moody's expectation that the company's margins and returns will come under some pressure as the higher cost CO2 flooding operations will take a little time to re-balance in response to the fall in commodity prices. Although the company's is hedged on about 80% of its oil production for 2009, the lag in oilfield services cost reductions across the sector will result in a period of lower margins on the company's unhedged production. The Ba3 is also tempered by the long lead times and heavy upfront capital needed to build out some infrastructure to support newer tertiary production growth as well as the response time from when initial CO2 flooding commences to when first production and cash flows begin. The stable outlook assumes that company's leverage profile will improve from its current levels over $9.00/boe on the proven developed reserves (pro forma for the Hastings acquisition). This leverage also includes our broader sense of the company's capital structure as it includes the debt of Genesis Energy, LP (GEL.A), a 12% owned Master Limited Partnership (MLP). In Moody's view, Genesis' ownership of the company's main CO2 pipelines out of Jackson Dome and therefore, carry implicit (though non-recourse) support from Denbury.

In order to maintain the stable outlook, Moody's expects the company will maintain its spending within cash flows and asset sales/monetizations in order to keep debt levels essentially flat through 2009. Over time, as its reserves and production grow, Moody's expects that leverage will decline to within $8.00/boe by year-end 2009. In the event leverage remains at the higher levels, a negative outlook would be considered. The company's liquidity profile is solid as Moody's expects the company will have adequate cover of its planned capex (currently at $700-$800 million excluding the Hastings acquisition), interest expense, and working capital needs. Even if the company does not complete the long anticipated sale/monetization of its Barnett Shale properties, we expect Denbury will have sufficient availability under its secured revolving credit facility. Currently, the facility size $750 million and Denbury estimates its borrowing base is about $1.0 billion, which leaves cushion for any potential re-determination. This availability combined with internal cash flow, should be more than adequate to cover its liquidity needs for 2009. Moody's last rating action for Denbury dates from March 29, 2007, at which time we assigned ratings to its new notes offering and affirmed existing ratings. The principal methodology used in rating Denbury was the Global Exploration and Production (E&P) rating methodology which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating Denbury can also be found in the Credit Policy & Methodologies directory.

Denbury Resources, Inc. is headquartered in Plano, Texas and is engaged in the exploration, production, acquisition, and exploitation of oil and natural gas.