Denbury Resources Inc. (DNR)

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Denbury Resources (DNR)

Q1 2013 Earnings Call

May 02, 2013 11:00 am ET


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

K. Craig Mcpherson - Chief Operating Officer and Senior Vice President


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

Pearce W. Hammond - Simmons & Company International, Research Division

Robert Bellinski - Morningstar Inc., Research Division

Arun Jayaram - Crédit Suisse AG, Research Division

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

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

Michael S. Scialla - Stifel, Nicolaus & Co., Inc., Research Division

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

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

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

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



Good day, ladies and gentlemen, and welcome to the Denbury Resources First Quarter 2013 Results Conference Call. My name is Lori, and I will be your operator for today. [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 go ahead.

Jack T. Collins

Okay, thank you, Lori, and good morning, everyone, and thank you for joining us on today's call. With me today in the room 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

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, let me turn the call over to Phil.

Phil Rykhoek

Thank you, Jack. I'm happy to report we're off to a great start this year, we exceeded the consensus expectations again this quarter and that was largely due to solid tertiary production growth and we also had some very good oil price realizations. Our tertiary production increased 4% sequentially quarter-over-quarter and 17% higher than it was a year ago or first quarter of 2012. Craig is going to review that in more detail, but in summary, things are all looking good.

With a strong start, we're effectively increasing our 2013 production guidance and are expected to be in the upper half of the previously estimated ranges. In addition to the strong production growth, we also set a record for the highest ever oil premiums relative to NYMEX, largely due to the change in our production mix as we head a higher percentage of Gulf Coast crude with the sale of Bakken. With our premium price realizations at 93% crude oil, I mean [ph], our operating margins remain strong and among the highest of the peer group.

This quarter was a bit of a transition quarter for us, particularly with regard to production as we sold the Bakken assets in Q4 and get close on the Conoco and Cedar Creek Anticline assets until this -- with those funds until the end of the first quarter. Even though we had an agreement to purchase these assets in early January with an effective date of January 1, for revenue and cost purposes, we are not allowed to book production until transaction closes. While we got -- while we think it's record production, we did get the economic benefit of the first quarter net cash flow from these properties as a downward adjustment to the purchase price.

This temporary decline in total production quarter to quarter as we saw the timing of these deals was with the primary reason for lower revenue and income and flat cash flow if you compare sequential quarters. Next quarter production should be back to Q4 or higher. And Mark is also going to provide you with several pro forma numbers so you can see what the first quarter would have been had we closed on January 1 instead of the end of March.

Another notable achievement we've had is we recently began receiving and using CO2 from 2 manmade sources of the Air Products plant in Texas and Potash Corp.'s plant in Louisiana. These projects are expected to provide some 70 million cubic feet of CO2 per day to our Gulf Coast region and tertiary operations and illustrate our unique ability to use and store CO2 underground that would otherwise be released to the atmosphere. We remain encouraged by the opportunities that we see to further expand these anthropogenic or man-made CO2 supplies in the coming years.

In the Rocky Mountain region, our tertiary offerings are making progress as we expect to see our first tertiary oil production on this area later this year. We began filling up our first CO2 pipeline, the Greencore pipeline, in that region with CO2 from ConocoPhillips' Lost Cabin gas plant and expect to begin injecting CO2 in the Bell Creek Field right there on the Montana well border in the next month. We'd anticipate tertiary oil productions of field probably late third quarter.

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