Denbury Falls a Penny Short

Denbury Resources Inc. (DNR) reported first-quarter 2011 earnings of 26 cents per share (excluding one-time items), missing our expectation by a penny. However, the quarterly result was well ahead of the year-earlier earnings of 6 cents, attributable to overall production growth as well as higher price realization.

Total revenue jumped 17% to $514.2 million from the year-ago level of $438.8 million and also comfortably surpassed the Zacks Consensus Estimate of $484 million.

Operational Performance

During the quarter, production averaged 63,604 barrels of oil equivalent per day (Boe/d), up 20% year over year. Oil production averaged 58,460 barrels (up 32% from the year-ago level) and gas accounted for 30,866 thousand cubic feet (up 42%), on a daily basis.

Tertiary production in the quarter averaged 20.825 thousand barrels per day (MBbl/d), up 14% from the year-earlier level on the back of continued expansion of the tertiary floods in Tinsley, Heidelberg and Delhi Fields.

Oil price realization (including the impact of hedges) averaged $92.72 per barrel in the quarter, showing an impressive 53% year-over-year growth, while gas prices increased 16% to $7.19 per Mcf. On an oil equivalent basis, overall price realization was $88.70 per barrel, up 56% from the year-earlier level of $56.70 per barrel.


Cash flow from operations was $271.2 million in the reported quarter versus $66 million in the year-ago quarter. Capital investment was $286.3 million, up from the year-earlier level of $165.6 million.

Cash balance at the end of the quarter was $127.9 million and long-term debt stood at $2.11 billion, representing a debt-to-capitalization ratio of 32.5% (versus 33.2% in the preceding quarter).


With its own in-house CO2 reserve base, Denbury enjoys a significant competitive advantage in acquiring and exploiting mature oil reservoirs. Tertiary operations remain the company’s principal focus with particular emphasis on the Gulf Coast, Rocky Mountains and Bakken Shale holdings. The company set its tertiary production target at 32,500 Bbls/d and Bakken production at 8,700 Boe/d for 2011.

For 2011, the company raised its capital expenditure to $1.3 billion from its prior expectation of $1.1 billion.

However, we are concerned about the growing cost pressure in the company’s operations, as Denbury’s lease operating expenses increased 32% year over year on an absolute basis in the reported quarter. Additionally, competition from Pioneer Natural Resources (PXD) and Atlas Energy (ATLS) is also a cause for concern. We currently reiterate our long-term Neutral rating on Denbury shares. The company carries a Zacks #3 Rank (short-term Hold rating).

PIONEER NAT RES (PXD): Free Stock Analysis Report

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