Denbury Resources Inc. (DNR) reported fourth-quarter 2010 earnings of 22 cents per share (excluding one-time items), exceeding the Zacks Consensus Estimate of $19 cents and the year-earlier earnings of 18 cents. Full-year 2010 earnings declined 11% year over year to 62 cents per share, beating the Zacks Consensus of 58 cents.
Total revenue increased substantially to $519.1 million from the year-ago level of $270.8 million and also comfortably surpassed the Zacks Consensus Estimate of $493 million. Total revenue improved more than 100% year over year to $1,921.8 million, beating the Zacks Consensus Estimate of $1,811 million.
Operational Performance
Production during the quarter averaged 76,435 oil-equivalent barrels per day, growing of approximately 70% year over year. Oil production averaged 64,914 barrels (up 74% from the year-ago level) and gas accounted for 69,130 thousand cubic feet (up 50%). The huge improvement in production volumes was driven by contributions from the Encore acquisition in the first quarter of 2010 as well as higher tertiary production.
Tertiary production in the quarter averaged 31.14 thousand barrels per day (MBbl/d), up 18% from the year-earlier level.
Denbury’s realized oil prices (including the impact of hedges) averaged $79.18 per barrel in the quarter, up 9% year over year, while gas prices significantly increased to $7.24 per Mcf. On an oil equivalent basis, the realized price was $73.79 per barrel, up 15% from the year-earlier level.
Cash flow from operations stood at $247.5 million in the reported quarter versus $151.7 million in the year-ago quarter. Capital investment in the quarter was $237.4 million, down 60% from the year-earlier level.
Cash balance at the end of 2010 was $381.9 million and long-term debt stood at $2.18 billion, representing a debt-to-capitalization ratio of 33.2% (versus 34.3% in the preceding quarter).
Outlook
With its own in-house CO2 reserve base, Denbury has 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.
For 2011, the company expects its capital expenditure to be around $1.1 billion, however, it is expected to be $1.2 billion including capitalized interest and tertiary start-up costs at Hastings and Oyster Bayou Fields during 2011.
Denbury has been actively engaged in divesting non-core acquired properties. Recently, it completed the sale of its stake in Encore Energy Partners to Vanguard for $380 million. As the company has been utilizing proceeds from recent divestitures to reduce its debt level and free up available liquidity, the flexibility to focus on its core tertiary oil operations will increase.
However, we are concerned about the growing cost pressure in the company’s operations as Denbury’s lease operating expenses increased 56% year over year 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).
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