Denbury Resources Inc. (DNR)

DNR 
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Denbury Resources (DNR)

Q4 2012 Earnings Call

February 21, 2013 11:00 am ET

Executives

Jack T. Collins - Executive Director of Investor Relations

Phil Rykhoek - Chief Executive Officer, President and Director

Mark C. Allen - Chief Financial Officer, Senior Vice President, Treasurer and Assistant Secretary

Craig J. McPherson - Chief Operating Officer and Senior Vice President

Analysts

Arun Jayaram - Crédit Suisse AG, Research Division

Michael A. Glick - Johnson Rice & Company, L.L.C., Research Division

Jason A. Wangler - Wunderlich Securities Inc., Research Division

David W. Kistler - Simmons & Company International, Research Division

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Ryan Oatman - SunTrust Robinson Humphrey, Inc., Research Division

Hsulin Peng - Robert W. Baird & Co. Incorporated, Research Division

Scott Hanold - RBC Capital Markets, LLC, Research Division

Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division

Timothy Rezvan - Sterne Agee & Leach Inc., Research Division

Andrew Coleman - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Denbury Resources Fourth Quarter 2012 Results Conference Call. My name is Lori, and I will be your operator for today. [Operator Instructions] Later we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to your host for today's call, Jack Collins, Denbury's Executive Director of Investor Relations. Please proceed, sir.

Jack T. Collins

Okay, thank you, Lori, and good morning, everyone, and thank you for joining us on what's a busy earnings day. So with me on today's call from Denbury are Phil Rykhoek, our President and Chief Executive Officer; Mark Allen, our Senior Vice President and Chief Financial Officer; and Craig McPherson, our Senior Vice President and Chief Operating Officer.

Before we begin the call, let me remind you that today's call will include forward-looking statements that are based on the best and most reasonable information we have today. There are numerous factors that could cause actual results to differ materially from what is discussed on today's call. You can read our full disclosure on forward-looking statements and the risk factors associated with our business in our corporate presentation, our latest 10-K and today's news release, all of which have been posted to our website at www.denbury.com.

Also, over the course of today's call, we will reference certain non-GAAP measures. Reconciliations of and disclosures on these measures are provided in today's news release.

With that, I'll turn the call over to Phil.

Phil Rykhoek

Thank you, Jack. I'm happy to report that our Q4 financial results were well ahead of consensus expectations, largely driven by strong tertiary production growth and an improved NYMEX oil premium, ending the highly productive year on a strong note.

Craig's going to review tertiary production in more detail, but in summary, we're very pleased with how we finished the year. This strong fourth quarter gives us a great start for 2013 and makes us optimistic about our full year tertiary production outlook.

For those of us that follow -- for those of you that follow us regularly, you know the last 12 months have been a very active period for Denbury. I thought I might quickly highlight some of these recent successes.

On the transaction front, we've completed our announced deals with over $4 billion of aggregate value if you count both the purchase and the sale. So what's the net result of that? First, we sharpened our strategic focus on enhanced oil recovery, where we have a strategic and competitive advantage. Today, nearly everything we own is either a current EOR flood or is part of planned future EOR operations.

Secondly, we increased our unproven EOR potential by nearly 210 million barrels, which even with the Bakken divestiture, results in a net increase in our unproven potential reserves. Further, they are now EOR potential barrels, which we believe will add more value to Denbury than the potential barrels that we sold. We now have over 650 million barrels unbooked EOR potential in our inventory, which gives us more than a decade of growth and will create substantial value for our shareholders.

Third, we nearly replaced the production of the sold assets with that from the acquired or to be acquired assets. Fourth, we exchanged proved reserves with a high proved undeveloped component for reserves that are nearly all proved developed, which significantly increases free cash flow. To be a little more specific, the Bakken assets had over $1.7 billion of future development cost associated with them, and the acquired assets have less than $100 million of future development costs.

Fifth, we have increased our Rocky Mountain CO2 reserves by 1.3 trillion cubic feet and up to 115 million a day of deliverability. Lastly, we did all this, in a tax-efficient basis. Our latest announcement, the pending transaction with Conoco, wherein we're buying their CCA assets for $1.05 billion, allowed us to defer about $400 million of taxes, gives us nearly 11,000 barrels a day of oil production and 60 million to 80 million barrels of potential EOR reserves.

It increases our interest in an area that was already our largest in the Rocky Mountain region, which will allow us to benefit from economies of scale of CCA and leverage our planned CO2 transportation infrastructure. In fact, if you'll note, all of the acquired future EOR fields are very close to existing or planned pipeline infrastructure, allowing us to amortize that cost over millions of additional barrels, improving the returns on these incremental acquisitions.

So bottom line, this collection of M&A transactions could work out probably even better than we'd hoped in our company transforming transactions. If you want more details on the transaction, I encourage you to review our updated investor presentation.

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