On Jun 18, 2014, we issued an updated research report on Denbury Resources Inc. (DNR). With its unique profile, compelling economics and unmatched infrastructure, Denbury is nicely positioned to deliver long-term sustainable growth.
This Zacks Rank #3 (Hold) company delivered positive earnings surprise in three of the last four quarters, with an average beat of 4.94%.
Denbury has a relatively low-risk business model as it produces oil by applying tertiary recovery techniques to mature fields. Tertiary operations – the company’s principal focus – averaged 39,892 barrels per day in the first quarter, up 2.0 % year over year. Contributions from continued field development and expansion of facilities in Delhi, Hastings, Heidelberg and Oyster Bayou fields led to the increase.
Denbury expects 2014 production in the range of 76,500–78,500 barrels of oil equivalent per day (Boe/d). Strong growth from the company's high-growth projects at Delhi, Hastings and Oyster Bayou should drive production toward the higher end of the guided range. This will aid the company in effectively replacing all of the sold Bakken production. The tertiary production growth was set at 6–14%, reflecting normal year-to-year variability. The capital expenditure budget has been reiterated at $1 billion, of which about 78% is apportioned for tertiary projects. The remainder is for conventional projects, with special emphasis on Cedar Creek Anticline and Hartzog Draw fields.
On the flip side, the Texas-based company reported sagging price realizations during the first quarter of 2014. Oil price realization (including the impact of hedges) averaged $93.46 per barrel, reflecting a fall of 11.5% year over year, while gas prices expanded 34.5% year over year to $4.41 per Mcf. On an oil equivalent basis, the overall price realization was $89.93 per barrel, down almost 10.0% from the year-earlier level of $99.87 per barrel.
Further, Denbury’s project inventory is concentrated mostly within a few tertiary recovery projects. Hence, total company performance as well as profitability remain particularly exposed to execution and operational risks of individual projects.
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