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Denbury Resources (DNR) Down 3.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Denbury Resources (DNR). Shares have lost about 3.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Denbury Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Denbury Resources Meets Q3 Earnings Estimates on Cost Efficiency

Denbury Resources reported third-quarter 2019 earnings (excluding one-time items) of 8 cents per share, in line with the Zacks Consensus Estimate. The bottom line was supported by lower costs and expenses. However, the reported earnings were lower than 13 cents in the year-ago period, owing to decline in commodity price realizations and production volumes.

Total revenues were $315.5 million, down from $395 million in the year-ago quarter. However, the top line beat the Zacks Consensus Estimate of $307 million.

Operational Performance:

Production Declines

During the quarter, production averaged 56,441 barrels of oil equivalent per day (Boe/d) compared with 59,181 Boe/d in the prior-year period. The decline stemmed from planned maintenance at the Rockies CO2 source facility and tropical storm Imelda that impacted its Gulf Coast output.

Oil production averaged 55,085 barrels per day (BPD), down from the year-ago level of 57,410 BPD. Natural gas daily production averaged 8,135 thousand cubic feet (Mcf/d), lower than the year-ago period’s 10,623 Mcf/d.

The company’s production from tertiary operations averaged 36,702 Boe/d, down from 37,219 Boe/d in the year-ago quarter.

Price Realizations Decline

Oil price realization (excluding the impact of hedges) averaged $57.64 per barrel in the quarter, decreasing from the year-ago level of $71.44. Gas prices declined to $1.46 per Mcf from $2.35 in the year-ago quarter. On an oil-equivalent basis, overall price realization was $56.46 per barrel, lower than the year-earlier level of $69.73.  

Cost & Expenses Improve

During the quarter, the company incurred lease operating expenses of $117.9 million, lower than the year-ago period’s $122.5 million. Costs related to transportation and marketing fell to $10.1 million from the year-ago level of $11.1 million. Total expenses in the reported quarter fell to $205.5 million from the year-ago level of $300.9 million.

Capital Expenditure

Oil and natural gas capital investments were approximately $48.1 million compared with $73.3 million in the year-ago quarter. Total capital spending (excluding capitalized interest and acquisitions) was $51.4 million, lower than $86.1 million in third-quarter 2018.

Financials

Adjusted cash flow from operations was $125.8 million, down from $134.5 million in the year-ago quarter.

As of Sep 30, 2019, its cash balance was around $0.5 million and total debt was $2,436.4 million, with a debt-to-capitalization ratio of 64.4%.

Guidance

Denbury expects to generate free cash flow in the range of $140-$150 million in 2019, assuming oil price to be $55 per barrel in the fourth quarter. The company reiterated its 2019 production guidance in the band of 57,000-59,500 Boe/d. Capital expenditure view for 2019 is reiterated in the range of $240-$260 million, indicating 20-25% decline from the 2018 capital spending level.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted 5.88% due to these changes.

VGM Scores

At this time, Denbury Resources has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Denbury Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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