Higher Oil Prices Help Denbury Earnings

Feb.24.10 | About: Denbury Resources (DNR)

Denbury Resources Inc. (NYSE:DNR) reported better-than-expected fourth quarter results, driven primarily by higher oil prices (see conference call transcript here). Earnings per share, excluding non-cash items, came in at 18 cents, a penny above the Zacks Consensus Estimate. Before adjusting one-time items, Denbury posted a profit of one cent per share.

On a year-over-year basis, the company’s adjusted earnings per share increased approximately 29%, while revenue was up 20% to $270.8 million.

Estimate Revisions Trend

We see a mixed response in estimate revisions. For the last 30 days, 2 of the 15 analysts covering the stock raised their estimates for fiscal 2010 while three analysts moved in the opposite direction. But no up and downside movements were noticed in the last 7 days.

Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is 65 cents per share, which is below the full fiscal 2009 earnings of 70 cents.

The company’s earnings surprise for the preceding four quarters varies between negative 5.9% and positive 28.6%, with the average being positive 11.4%.

Operational Performance

Production during the quarter averaged 45.0 thousand oil-equivalent barrels per day (MBOE/d), a decrease of 7% year over year. However, after adjusting for the 2009 divestment of the company’s Barnett Shale natural gas assets, Denbury’s volumes rose approximately 11% from the fourth quarter of 2008.

Of the total quarterly production, approximately 83% was oil. Tertiary production for the quarter averaged 26.3 thousand barrels per day (MBbl/d), up 20% from the year-earlier level. The Tinsley, Brookhaven, Eucutta and Soso fields were the main contributors for the tertiary production increase. In addition, during 2009, the company had initial production response from its tertiary floods at the Cranfield and Heidelberg fields.

Denbury’s realized oil prices (including the impact of hedges) averaged $72.67 per barrel, up 32% year over year. Realized natural gas prices for the quarter was $3.90 per Mcf, a decrease of 40% from the year-ago quarter. Lease operating expenses on a per BOE basis increased 2% year over year to $22.37, primarily on account of the Barnett Shale property sale.

Capital Budget & Guidance

Denbury anticipates a $650 million capital budget for 2010 on a stand-alone basis. However, following the completion of the Encore acquisition, the combined company’s capital budget is expected to be $1 billion. The company is anticipating average tertiary oil production for 2010 of 27,000 Bbls/d.


Our medium to long-term oil-price outlook remains favorable. Denbury’s niche business model of extracting crude oil from mature fields using tertiary recovery methods turns out to be very valuable in this commodity-price outlook. The purchase of Encore Acquisition Company (NASDAQ:EAC) and significant investment decision for Conroe oil field to develop it as tertiary field are positive factors for the company’s future growth. We are currently Neutral on Denbury shares.