On Dec 16, 2013, we reiterated our Neutral recommendation on
oil and gas exploration and production company
Denbury Resources Inc.
). The company currently has a Zacks Rank #3 (Hold).
In the third quarter of 2013, Denbury's earnings per share and
revenues beat the Zacks Consensus Estimate. On a year-over-year
basis, the company's top and bottom line were boosted on the back
of both higher oil production and realizations.
During the third quarter, continuing production averaged 71,531
barrels of oil equivalent per day (Boe/d) versus 56,024 Boe/d in
the prior-year quarter. Of this, oil production averaged 67,705
barrels per day flattish with the year-ago level. However,
natural gas production averaged 22,957 thousand cubic feet (down
25.3%), on a daily basis.
Denbury has a relatively low-risk business model as it produces
oil by applying tertiary recovery techniques to mature fields.
Tertiary operations remain the company's principal focus. The
company's production from tertiary operations averaged 37,513
barrels per day in the third quarter, which represents a 7.8%
increase 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 Resources remains on track to continue its growth
momentum. The company, driven by higher contribution from its
core tertiary operation, is steadily posting higher production.
As the company's production is fairly oil-weighted, we view
strong earnings and cash flow visibility in the future.
Denbury expects its 2013 production to be in the range of
68,700-71,700 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. Capital expenditure was set at $1.06
billion for the year, of which approximately 85% of the total
capital outlay for tertiary projects. The balance will likely be
for conventional projects, primarily in the Cedar Creek Anticline
Oil price realization (including the impact of hedges) averaged
$105.80 per barrel in the quarter, showing a rise of 13.8% year
over year, while gas prices contracted 38.9% year over year to
$3.38 per Mcf. On an oil equivalent basis, the overall price
realization was $101.22 per barrel, up almost 14% from the
year-earlier level of $88.77 per barrel.
On the flip side, we remain cautious due to high cost levels
associated with the tertiary oil recovery method and harsh
weather conditions that might restrict the activity level.
Other Stocks to Consider
Stocks in the sector that are currently performing well include
Abraxas Petroleum Corp.
Harvest Natural Resources Inc.
Clayton Williams Energy, Inc.
), each with a Zacks Rank #1 (Strong Buy).
ABRAXAS PETE/NV (AXAS): Free Stock Analysis
WILLIAMS(C)ENGY (CWEI): Free Stock Analysis
DENBURY RES INC (DNR): Free Stock Analysis
HARVEST NATURAL (HNR): Free Stock Analysis
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