We have maintained our long-term Neutral recommendation on
Denbury Resources Inc.
) - 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.
In the first quarter, Denbury posted better-than-expected
results given record tertiary oil production and the Bakken output.
Its quarterly production rose 12% on an annualized basis and as the
company's production is fairly oil-weighted, we view strong
earnings and cash flow visibility in the future.
Denbury raised its 2012 annual production guidance to the range
of 69,775-74,775 barrels of oil equivalent per day (Boe/d) fromthe
previous expectation of68,325-73,625 Boe/d. The increment in
production estimate was made following the closure of its purchase
of Thompson Field in Fort Bend County, Texas.
The raised guidance reflects average daily production of about
2,000 barrels of oil from the properties acquired, for the
remainder of 2012. Denbury targets total production in the upper
half of the estimated range.
With its in-house CO
reserve base, Denbury has a significant competitive advantage in
acquiring and exploiting mature oil reservoirs. Notably, the
acquisition of Thompson Field in Fort Bend County, Texas is
beneficial to the company. The 8,454 acre oilfield, which produces
oil from the Frio zone, is located 18 miles west of the Hastings
field, and will be used to enhance oil recovery by pumping CO
. It lies close to the company's network of the existing CO
pipelines. Hence, Denbury is expected to reap benefits from the
infrastructure it has built over the last decade.
With its unique profile, compelling economics and unmatched
infrastructure, Denbury is nicely positioned to deliver long-term
sustainable growth. Denbury has a relatively low-risk business
model -- it produces oil by applying tertiary recovery techniques
to mature fields that remains its principal focus. The company is
continuously expanding its tertiary floods in several CO
projects, namely Tinsley, Hastings, Heidelberg, Bell Creek, and
Delhi that are expected to generate meaningful production.
However, we remain on the sidelines due to high cost levels
associated with the tertiary oil recovery method. In addition to
industry-wide oilfield cost inflation, Denbury's growing outlays
also reflect its exposure to higher energy costs (electrical and
fuel charges), resulting from continuing emphasis on CO
Denbury holds a Zacks #3 Rank, which translates to a Hold rating
for a period of one to three months. The company competes with
Newfield Exploration Co.
QEP Resources, Inc.
Plains Exploration & Production Company
DENBURY RES INC (DNR): Free Stock Analysis
NEWFIELD EXPL (NFX): Free Stock Analysis Report
PLAINS EXPL&PRD (PXP): Free Stock Analysis
QEP RESOURCES (QEP): Free Stock Analysis Report
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