Denbury Resources Inc. (DNR)

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Denbury Resources Inc. (DNR)

Q3 2010 Earnings Call Transcript

November 4, 2010 11:00 am ET


Phil Rykhoek – CEO

Mark Allen – SVP and CFO

Tracy Evans – President and COO

Bob Cornelius – SVP, Operations


Mitch Wurschmidt – KeyBanc

Scott Hanold – RBC

Dan Guffey – Stifel Nicolaus

Joe Allman – JPMorgan

Dave Kistler – Simmons & Company

Kevin Cabla – Raymond James



Ladies and gentlemen, thank you for standing by, and welcome to the Denbury Resources and Encore Energy Partners Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) Also, as a reminder, today’s teleconference is being recorded.

At this time, I will turn the conference call over to your host, CEO, Phil Rykhoek. Please go ahead, sir.

Phil Rykhoek

Thank you, Tony. Welcome to Denbury and ENP’s third quarter 2010 conference call. Similar to our normal style, we will cover Denbury first, and then follow with an update on ENP, and then open it up for questions. With me today I have Tracy Evans, our President and COO; Mark Allen, our Senior Vice President and CFO; and Bob Cornelius, our Senior Vice President of Operations.

Operations and performance at Denbury continue to go well and 2010 is shaping up to be a great year for us. I won’t spend a lot of time reviewing 2010 today, but as I did last time, I want to commend our employees for their hard work in handling and absorbing all of the extra work generated by this constant stream of transactions and activity this year, primarily related to the Encore acquisition in March.

It’s a tribute to our employees that we have been able to outperform and exceed our 2010 projections in almost every way, while still handling all of the transition and other extra work generated by our acquisitions and divestitures.

Our asset sales have exceeded their projected upper limit of $1 billion by $150 million or so, and we still have one potential sale transaction in the works, and that’s the sale of ENP.

We’ve not only cleaned up our balance sheet and reduced the debt incurred for the Encore acquisition, but we’ve provided sufficient capital to fund almost all of our 2010 spending. If ENP closes, we’ll have also raised enough funds to more than cover 2011 as well.

Further, while our asset sales have achieved the desired results, or if you want to put it in another way, we’ve basically sold these assets to more than we paid for them, I think it’s important to note that after raising more than $1 billion from asset sales, we still have more proved reserves today than we did in March when we closed Encore. We plan to provide more details on this at our forthcoming Analyst Meeting, but I thought it might be good just to remind you of these highlights.

Looking more specifically at this quarter, our tertiary production is doing very well, ahead of forecast again. Expenses are on track. So, those always make a nice combination. Our Green Pipeline is almost finished.

We’ve added 1 Tcf of proved reserve this year at Jackson Dome, we just closed on Riley Ridge, which gives us a lot of optionality for CO2 in the Rockies and we expect to close on the Haynesville in early December.

As I mentioned we would last quarter, we remarketed these assets, and as part of that effort, received what we perceive to be a good price for these properties, at least, in today’s natural gas market. Of course, our primary reason to sell these assets is to focus our capital expenditures and attention on our core EOR assets and the Bakken where we believe we have better returns in today’s commodity price environment.

Conceptually, the funds that were invested in Haynesville in 2010 will be reallocated to the Bakken in 2011. This sale will slightly lower our overall 2011 production growth as the Haynesville wells are high rate wells on a Boe basis that we believe that the quality and economics of our investments will be better without these gassy assets. We are still hopeful that we can sell ENP by year-end, although, admittedly, we are getting late in the year, but our goal is still to do that.

So, with that introduction, I’ll let the other guys walk you through the quarter in more details, starting with Mark.

Mark Allen

Thank you, Phil. As reported in our press release, Denbury had net income for the third quarter of $29.1 million or $0.07 per basic common share. However, our net income adjusted to exclude fair value hedging changes, Encore merger-related costs and the impact from a revision to our accounting for CO2 discovery cost was $52.7 million or $0.13 per share.

As I’ve typically done, I will primarily focus on the sequential results of the second and third quarters of 2010. During the third quarter of 2010, our tertiary production averaged 29,531 barrels per day, 4% higher than our Q2 tertiary production.

As you recall, last quarter we increased our annual 2010 tertiary production guidance to 28,000 barrels per day, and we are now increasing it again to 28,750 barrels per day due to the continued production increases during the third quarter. Bob will discuss more about that momentarily.

As updated at the end of Q2, our forecasted production for 2010, excluding the divested southern assets for the entire year, was estimated at 77,000 Boe per day, which includes 8,600 Boe per day associated with Encore Energy Partners or ENP.

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