Denbury Resources Inc. (DNR)

DNR 
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Denbury Resources (DNR)

Q4 2011 Earnings Call

February 23, 2012 11:00 am ET

Executives

Jack T. Collins - Executive Director of Investor Relations

Phil Rykhoek - Chief Executive Officer, President, Director and Member of Investment Committee

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

Craig John Kenneth McPherson - Senior Vice President of Production Operations

Robert L. Cornelius - Senior Vice President of Co(2) Operations and Member of Investment Committee

Analysts

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

Scott Hanold - RBC Capital Markets, LLC, Research Division

Jeffrey W. Robertson - Barclays Capital, Research Division

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

Jason A. Wangler - SunTrust Robinson Humphrey, Inc., Research Division

Daniel Guffey - Stifel, Nicolaus & Co., 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 Fourth Quarter and Year-End 2011 Earnings Conference Call. My name is Mary, 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, Mr. Jack Collins, Denbury's Executive Director of Investor Relations. Please proceed, sir.

Jack T. Collins

Thank you, Mary. Good morning, everyone, and thank you for joining us on our fourth quarter and year-end 2011 conference call. With me today are Phil Rykhoek, our President and Chief Executive Officer; Mark Allen, our Senior Vice President and Chief Financial Officer; Craig McPherson, our Senior Vice President of Production Operations; and Bob Cornelius, our Senior Vice President of CO2 Operations.

In a moment, I will turn the call over to Phil and the other members of our senior management team to discuss our results. But before that, 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. 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 press release, all of which are posted to our website at www.denbury.com.

In addition, over the course of today's call, we will reference certain non-GAAP measures. Reconciliations and disclosures on these measures is provided in today's press release.

With that, let me turn the call over to Phil.

Phil Rykhoek

Thanks, Jack. First of all, let me just say welcome, Jack, to Denbury. I think this is his first call, but he's been with us for a couple of months. We're happy to have him on board, and he's heading up our Investor Relations. So welcome aboard, Jack.

I'm excited about the bottom line results as again, this quarter we were at record levels. This is the third consecutive quarter that we've set records in adjusted income and adjusted cash flow. Adjusted net income was $175 million, adjusted cash flow of $387 million, and that's up 18% and 8% respectively from last quarter's records. Of course, these are non-GAAP measures so do take care and note the reconciling items, which are mainly noncash and nonrecurring items.

Part of our positive results were due to our best-ever oil differentials with our net received oil price averaging $9.14 above NYMEX, at nearly $2 better than last quarter and more than $13 a barrel higher than a year ago, primarily driven by the expanding WTI-LLS differentials.

As you also probably know, because I'm sure you watch the market, the LLS differentials have been rather volatile contracting by more than half by the end of 2011 but then have begun to expand again recently. Of course, the Bakken differentials have also experienced some significant volatility. Mark will talk a little bit more about this in his comments but suffice it to say, we believe our exposure to LLS pricing will continue to benefit our overall oil price realization as we now have more than 70% of our crude sold on some basis other than WTI.

Our production growth this quarter was in line or exceeded expectations and the outlook is favorable. Craig will talk a bit more about that. Operating cost declined quarter-to-quarter, and so all of this contributes to a bottom line that significantly beat first call expectations.

A few weeks ago, we released our proved reserves, and Craig will hit the high points, but one number I always like to point out is that our proved PV-10 at year end was $10.6 billion. If you subtract our net debt, divide it into our expenditures, you'll see our proved net asset value per share is in excess of $20 per share. So what that means is if you buy the stock at today's price, you effectively get the 800 million barrels of unbooked potential that we have associated with our future EOR floods and the Bakken development for free. So while our stock has performed well in the last few months, we believe it still remains a bargain on a 3P net asset value base.

On this call, we'll give you many details about Q4 and brief in historical results, and I think you'll like all these numbers, but to me, the more important thing is the takeaway from this call, we are starting 2012 on a positive note, with both Oyster Bayou and Hastings coming on a couple of weeks early with good initial production rates. We've had good weather in North Dakota, that translates into positive production trends in the Bakken. So all that adds up to running a little ahead of schedule on our 2012 production goals.

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