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Rating Action:

Moody's changes Denbury's outlook to stable from negative

Global Credit Research - 03 Feb 2011

Approximately $2.0 billion of debt securities affected

New York, February 03, 2011 -- Moody's Investors Service changed Denbury Resources, Inc.'s (Denbury) outlook to stable from negative. Moody's affirmed Denbury's Ba3 Corporate Family Rating (CFR), its Ba3 Probability of Default Rating (PDR), and the B1 rating on the existing senior subordinated notes (although the LGD point estimate is changing to 70% from 73%). Moody's also assigned a B1 (LGD 5, 70%) rating to the company's proposed $350 million senior subordinated notes offering.

Proceeds from the proposed offering along with cash on hand will be used to fund the tender of the company's $225 million senior subordinated notes due 2013 and the $300 million senior subordinated notes due 2015.

"The move to a stable outlook reflects Denbury's progress in reducing debt and leverage on its proven developed reserves, which had been elevated after completing its acquisition of Encore in 2010," said Ken Austin, Moody's Vice President. "Although leverage is still a bit high for the rating, the company has made meaningful strides in reducing its debt over the past 12 months and we anticipate this trend will continue through 2011."

RATINGS RATIONALE

Due to asset sales throughout 2010 and pro forma for the recent sale of its interest in Encore Energy Partners, Denbury reduced its balance sheet debt by approximately $1.3 billion. Along with an additional $175 million of debt repayment concurrent with the new notes offering, leverage on its PD reserves is expected to be just over $11.00/boe. While this is still higher than the $10.00/boe target Moody's set for a stable outlook in 2010, this leverage is lower than the approximate $13.00/boe the company had at the time it closed the acquisition of Encore Acquisition Corp. in 2010. Further, Moody's anticipates this leverage will continue to improve and be at or below the $10.00/boe level by year-end 2011.

Leverage on pro forma production is approximately $39,000/boe, which is higher than the average for the Ba-rated peer group and for the stable outlook. However, Moody's anticipates that Denbury will reduce this leverage by year-end to around the $35,000/boe target established for a stable outlook. This improvement will be driven by a more development focused capital program that will translate into continued positive production trends in 2011 and will be funded within cash and cash flow for the year, resulting in a flat to slightly lower debt balance.

Denbury's scale, positive organic production trends, and focus on high margin oil production support the Ba3 CFR. Despite the higher unit costs, significant upfront capital investment for its enhanced oil recovery (EOR) operations, and the long lead-time for production response from its EOR properties, its long-lived production profile and the margins associated with oil act as counter-balancing items.

An upgrade would be considered if Denbury reduces its leverage on PD reserves to less than $8.00/boe on a sustainable basis and debt/average daily production is less than $30,000/boe while maintaining its positive production trends and good margins.

Conversely, the ratings could be pressured in Denbury's leverage on PD reserves trends back toward $13.00/boe and debt/average daily trends towards $40,000/boe.

The last rating action for Denbury was on February 2, 2010 when we confirmed the ratings with a negative outlook.

The principal methodology used in this rating was Moody's Global Exploration and Production (E&P) rating methodology published December 2008 and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Denbury Resources, Inc. is headquartered in Plano, Texas.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Kenneth Austin
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Denbury's outlook to stable from negative
No Related Data.
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