Denbury Resources Inc.
) third-quarter 2012 adjusted earnings of 33 cents per share
(excluding one-time items) were on par with the Zacks Consensus
Estimate. However, the quarterly results were 10.8% below the
year-earlier adjusted earnings of 37 cents. This underperformance
was due to the production shut-ins at its several fields for
Total revenue, at $600.4 million, decreased 4.1% year over year
but was almost in line with the Zacks Consensus Estimate of
During the quarter, production averaged 72,776 barrels of oil
equivalent per day (Boe/d), up 8.9% year over year. The increase
was mainly related to the gains in tertiary and Bakken production
that were partly tempered by the declines in conventional
production and asset divestitures.
Oil production averaged 67,655 barrels per day (up by more than
9% from the year-ago level), representing 93% of the total
volume. Natural gas production averaged 30,724 thousand cubic
feet (up 5.7%), on a daily basis.
The company's production from tertiary operations averaged 34,789
barrels per day, which represents a 12% increase year over year.
Contributions from new floods at Oyster Bayou and Hastings fields
and existing floods at Tinsley, Heidelberg and Delhi fields led
to the increase. Again, Denbury's Bakken production experienced a
solid 59% increase in the reported quarter driven by active
drilling program in the region.
Oil price realization (including the impact of hedges) averaged
$92.99 per barrel in the quarter, showing an improvement of 3.7%
year over year, while gas prices increased 24.8% to $5.53 per
Mcf. On an oil equivalent basis, the overall price realization
was $88.77 per barrel, up 4.3% from the year-earlier level of
$92.72 per barrel.
Cash flow from operations was $350.2 million in the reported
quarter versus $357.7 million in the year-ago quarter. Oil &
natural gas capital investments were $274.6 million, up from the
year-earlier level of $269.7 million. Denbury's 2012 capital
expenditure budget remains $1.5 billion. Two-thirds of the budget
was apportioned for tertiary projects, while the remaining was
Cash balance as of September 30, 2012 was $24.0 million and
long-term debt was $3,080.3 million, representing a
debt-to-capitalization ratio of 37.1%.
Denbury reaffirmed its 2012 production guidance at 69,775-74,775
Boe/d. The company's tertiary production target remains unchanged
in the 33,000-36,000 Boe/d range, and the Bakken production
guidance at 14,350-16,350 Boe/d.
We maintain our long-term Neutral recommendation on Denbury
Resources - an exploration and production company engaged in the
acquisition, development, operation and exploration of oil and
natural gas properties in the Gulf Coast and Rocky Mountain
regions of the U.S.
With its unique profile, compelling economics and an unmatched
infrastructure, Denbury is nicely positioned to deliver long-term
We believe that the company's oil-centric niche business model
and comfortable financial position will help maintain its growth
trajectory. We also believe Denbury will eventually experience a
reduced spending profile in tandem with an increasing production
trend, which will create an attractive free cash flow structure
The company's capex will moderate substantially with the
completion of an important infrastructure development in the
Rockies, which needs $200-$350 million of annual capital outlay
till 2015. Meanwhile, many CO2 projects are also expected to
fetch consequential production.
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However, we maintain our long-term Neutral recommendation to
reflect high cost levels associated with the tertiary oil
recovery method. Other concerns are its sensitivity to oil and
gas price volatility, along with drilling results, geo-political
risks and project timing delays.
The company, like its peer
Newfield Exploration Co.
), carries a Zacks #3 Rank (short-term Hold rating).