Denbury Resources Inc. (DNR)

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Denbury Resources (DNR)

Q2 2013 Earnings Call

August 06, 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

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

Analysts

Arun Jayaram - Crédit Suisse AG, Research Division

Scott Hanold - RBC Capital Markets, LLC, Research Division

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

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

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

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

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

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

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

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

Robert Bellinski - Morningstar Inc., Research Division

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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Denbury Resources Second Quarter 2013 Results Conference Call. My name is Marla, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded.

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

Thank you, Marla, and good morning, everyone, and thank you for joining us on today's call.

With me today on the 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 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

Thanks, Jack. Happy to report that we continued our positive start in 2013 as Q2's production, earnings, cash flow again exceeded consensus estimates, excluding the earnings charge we took for Delhi, and I'll talk a little bit about Delhi here in just a minute.

From a total production standpoint, things are now back to normal after all the M&A activity of last year. This quarter being the first one that included all the assets we acquired in that series of property trades over the last 12 months.

As you can see, we've now more than replaced production related to the Bakken and the other assets we've sold, which, coupled with our higher percentage of oil and attractive oil pricing, resulted in record high quarterly revenues.

The exchange of assets that were uses of cash, like the Bakken, for assets that generate free cash flow, like the CCA properties we acquired from ConocoPhillips, enabled us to fully counter our growth CapEx in the first half of 2013 with operating cash flow.

We remain on track to fully fund our 2013 capital budget with cash from operations, and if oil prices remain near the current levels, we should have a little bit of cash left over.

In addition to the record revenue and strong cash flow, we have some other positive things to report. First, Bell Creek. We started Bell Creek Field in Montana [indiscernible] tertiary oil production slightly ahead of schedule. This is a big milestone for us as it represents our first tertiary oil production in our second core area, the Rocky Mountain region, and if you recall, that's the property we obtained in the 2010 Encore acquisition. Tertiary production from Bell Creek is relatively low today, but it is expected to gradually increase particularly when we complete the full commissioning of its facilities later this quarter.

We also had some positive developments in the Gulf Coast CO2. As you know, we continually work to develop new sources of CO2 in order to perpetuate our growth plan. We told you last quarter we thought we had drilled a good well at Jackson Dome, our primary CO2 source for the Gulf Coast region. And we're pleased to announce we added 350 billion cubic feet of proved CO2 at Jackson Dome in Q2 for this well. Also, in the CO2 supply front, during the second quarter, we began receiving CO2 from a second man-made source into our Green Pipeline system. These projects illustrate our unique ability to use and store captured CO2 that might otherwise be released.

With the long and successful history of CO2 enhanced recovery in the U.S., we believe we offer one of the most economic and proven ways to store carbon dioxide underground. We have now injected over 5 trillion cubic feet or nearly 300 million tons of CO2 into our operated fields. While almost all of that to date come from a natural source at Jackson Dome, today, we're using between 50 million and 70 million cubic feet of man-made or anthropogenic CO2. And we expect this amount to gradually increase over time, making us more and more eco-friendly.

Let me talk a little bit about one other event in the quarter that wasn't quite so positive. Craig will give you a more thorough update on this release -- on the release we experienced at Delhi in June, but I'd like to make just a few comments on it.

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