Denbury Resources Inc. (DNR) reported third-quarter earnings of 13 cents per share (excluding one-time items), which was in line with the Zacks Consensus Estimate. However, the quarterly figure came in below the year-earlier profit of 16 cents.
Total revenue increased substantially to $466.7 million from the year-ago level of $227.2 million and also surpassed the Zacks Consensus Estimate of $432 million.
Operational Performance
Production during the quarter averaged 77,730 oil-equivalent barrels per day, a significant increase of approximately 82% year over year. Oil production averaged 64,233 barrels (up 84% from the year-ago level) and gas accounted for 80,983 cubic feet (up 75%). The drastic improvement in production volumes was driven by contributions from the Encore acquisition in the first quarter, last year’s acquisition of Conroe fields as well as higher tertiary production.
Tertiary production in the quarter averaged 29.53 thousand barrels per day (MBbl/d), up 21% from the year-earlier level. The company raised its tertiary production target for this year to 28.75 MBbl/d from the previous guidance of 28.0 MBbl/d, owing to continued success related to production.
Denbury’s realized oil prices (including the impact of hedges) averaged $71.63 per barrel, up 2% year over year, while gas prices significantly increased to $6.38 per Mcf. On an oil equivalent basis, realized price was $65.84 per barrel, up 8% from the year-earlier level.
Cash flow from operations was $219.9 million versus $137.0 million in the year-ago quarter. Capital investment in the quarter was $267 million, up nearly 22% from the year-earlier level.
Cash balance at the end of the third quarter was $86.3 million and long-term debt stood at $2.53 billion, representing a debt-to-capitalization ratio of 34.3%.
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. Denbury’s Conroe acquisition and plans to develop it as a tertiary field is a prudent step, which will aid its fundamentals in the long run.
However, we are concerned about the growing cost pressure in the company’s operations as Denbury’s lease operating expenses in the quarter increased 58% year over year. 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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