Denbury Resources Inc. (DNR)

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Denbury Resources Inc. (DNR)

Q4 2009 Earnings Call

February 23, 2010 11:00 am ET


Phil Rykhoek - CEO

Tracy Evans - President & COO

Mark Allen - SVP & CFO

Bob Cornelius - SVP, Operations

Jonny Brumley - President, CEO & Director

Bob Reeves - SVP, CFO & Treasurer

Ben Nivens - SVP & COO

Jon Brumley - Chairman of the board


Noel Parks - Ladenburg Thalmann

Eric Hagen - Lazard

Andrew Coleman - UBS

Brian Kuzma - Weiss Multi-Strategy

Mitch Wurschmidt - KeyBanc



Good morning, and welcome to the Denbury Resources Inc. fourth quarter 2009 earnings release conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

The following discussion contains forward-looking statements and our actual results may differ materially from those discussed here. Additional information concerning factors, such as price volatility, production forecasts, drilling results, and current market conditions that could cause such a difference can be found in our reports filed with the Securities and Exchange Commission, including our reports on forms 10-K and 10-Q.

I would now like to turn over the conference to Phil Rykhoek. Please go ahead.

Phil Rykhoek

Thank you, Amy. Welcome everybody to Denbury and Encore's combined fourth quarter conference call. It's obviously been a busy place here at Denbury and a lot of positive things are happening. By now you should have received your proxy for shareholder meetings scheduled for March 9. Assuming approval which we expect closing and emerge will happen shortly thereafter. You probably also noticed that we have essentially finished the financing for the Encore acquisition. The banks indication was over sold as well as the $1 billion subordinate debt offering we completed a couple of weeks ago. Now we were pleased with the positive response and the rate we obtained on that debt transaction and glad to have that behind us.

Our fourth quarter production as previously announced were slightly ahead of forecast, accrued reserves we're either on track or slightly better. If you noticed we had at almost tcf of additional CO2 reserves during 2009, the timing of which couldn't have been better since we need that CO2 for the recently purchased Conroe Field, our 130 million barrel potential EOR flood just north of Houston. We are focused on the Encore acquisition integration of personnel assets and operations that have been dedicating significant resources to that process. We are doing that ground work for our divestiture package which we hope to launch soon after closing. In summary, positive things are happening and things are falling into place.

Our staff has been extremely busy the last couple of months as all these activities take a tremendous amount of extra work and I want to probably thank them for their extra effort. I countered approximately 45 SEC volumes that Denbury has made since our merger announcement early November in case you haven't found it yet. But that's a lot of paper.

And today we are here to talk about fourth quarter and 2009 earnings and results. With me today from Denbury I have Tracy Evans, our President and COO; Mark Allen, our Senior VP and CFO; and Bob Cornelius, our Senior VP of Operations.

We also have from Encore, Jonny Brumley, President and CEO; Bob Reeves, Senior Vice President and CFO; Ben Nivens, Senior VP and COO and John Brumley Chairman of the board. These guys will give you more details about our respected companies, operating results as well as provide an operational update. We will start with Mark's review of Denbury's financials. Mark?

Mark Allen

Thank you, Phil. As reported in our press release we had net income for the fourth quarter of $3.5 million which included a non-cash charge for the change in fair value of commodity derivative contracts at $59.5 million or $36.9 million after taxes. We also had merger related expenses associated with Encore transaction of $8.7 million or $5.4 million after taxes. When you exclude these items we had adjusted net income in the fourth quarter of $45.8 million or $0.18 per share essentially on top of first call estimates. This adjusted net income amount also included expense of $5.1 million or $3.2 million after taxes related to the Genesis management compensation awards with some analysts may not include in their estimates.

If you exclude this charge our adjusted net income would have been approximately $49 million or $0.20 per share. In other case, the current quarter results are higher than the prior quarters' adjusted net income of approximately $40.7 million or $0.16 per share. As I had typically done, I will primarily focus on the sequential results of the third and fourth quarters of 2009 rather than the comparative fourth quarter of 2008.

During the fourth quarter of 2009 our tertiary production averaged 26,307 BOEs per day, 8% higher than our Q3 tertiary production and on overall basis our production increased by approximately 6% over Q3 levels.

In mid-December 2009, we closed on the acquisition of Conroe field at the end of December; we closed on the sale of the remaining 40% of our Barnett Shale properties. On a pro forma basis, adjusting for the sale of the Barnett Shale properties and a full quarter of production from Conroe field our production might have been approximately 42,000 BOEs per day.

Bob is going to discuss more about our production in a moment but I stated in our press release we are reaffirming our tertiary production guidance for 2010 of 27,000 barrels per day. And estimate that our total company 2010 production will average approximately 41,500 BOEs per day after adjusting for the sale of the Barnett Shale and purchase of Conroe field. Approximately at 7% year-over-year annualized increase on a pro forma basis.

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