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Can Denbury Benefit from $1.7B Penn Virginia Acquisition?

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Denbury Resources Inc.DNR recently agreed to acquire Penn Virginia Corp. PVAC for $1.7 billion. The move is expected to add a new core position in the Eagle Ford shale to Denbury's portfolio.

Deal Details

For each Penn Virginia stock, Denbury will pay $25.86 in cash and 12.4 shares of Denbury. The shareholders of Penn Virginia can opt for all stock, all cash or a combination of stock and cash. Around 191.6 million Denbury shares will be issued for the transaction, along with $400 million in cash. The cash and stock transaction incorporates Penn Virginia's debt.

The combined entity is expected to have an enterprise value of $6 billion. Following the closure of the transaction, Denbury stockholders are expected to hold around 71% of the combined entity. The deal is expected to complete in the first quarter 2019.

Deal Rationale

The Eagle Ford assets are expected to have a low breakeven point, which will complement Denbury's portfolio. Moreover, the deal is expected to strengthen its balance sheet, which is currently highly leveraged with a debt-to-capitalization ratio of 75.2%. The company expects the combined entity to bring about positive free cash flow without further ado.

The acquisition will likely bring opportunities of short cycle development to the company's medium cycle development assets. As of Dec 31, 2017, the combined entity is estimated to have 343 million barrels of oil equivalent of proved reserves. Also the entity's second-quarter production is estimated at 84 thousand barrels of oil equivalent per day.

The deal is further expected to enable the company to maintain a high oil weightage in its production volume mix. Of the total production, more than 90% is expected to be oil. With its oiler production mix, the company is well positioned the strengthening crude prices.

Price Performance

Plano, TX-based upstream energy company, Denbury has gained 32.2% in the past six months against the 14.4% fall of its industry .

Zacks Rank & Key Picks

Currently, Denbury has a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks given below:

El Dorado, AR-based Murphy Oil Corp. MUR carries a Zacks Rank #2 (Buy). The company's sales for 2018 are expected to grow more than 20% from 2017. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Brazilian state-run Petroleo Brasileiro S.A. or Petrobras PBR has a Zacks Rank #2. The company's earnings for 2018 are expected to surge more than 100% from the 2017 level.

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Petroleo Brasileiro S.A.- Petrobras (PBR): Free Stock Analysis Report

Denbury Resources Inc. (DNR): Free Stock Analysis Report

Murphy Oil Corporation (MUR): Free Stock Analysis Report

Penn Virginia Corporation (PVAC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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