Denbury Resources Inc.
(DNR) reported second-quarter earnings of 16 cents per share, compared with the Zacks Consensus Estimate of 17 cents and the 55 cents reported in the year-ago period. The steep decline in commodity prices was the main factor behind the negative year-over-year earnings comparison.

Including one-time items, Denbury posted a loss of 35 cents per share versus a profit of 47 cents a year earlier. Total quarterly revenue was $217 million, down 48% from last year.


Production during the quarter averaged 52.3 thousand oil-equivalent barrels per day (MBOE/d), an increase of approximately 13% year over year and a decrease of 2% sequentially. Of the total quarterly production, approximately 73% was oil. The year-over-year production increase was driven by the recently acquired Hastings Field and a 29% tertiary oil production increase. Tertiary production for the quarter averaged at 24.1 thousand barrels per day (MBbl/d). The Heidelberg, Tinsley, Eucutta and McComb fields were the main contributors for the tertiary production increase.


Denbury’s realized oil prices (including the impact of hedges) averaged $66.70 per barrel, down. 40% year over year. Realized natural gas prices for the quarter was $2.98 per Mcf, a decrease of 65% year over year.


Lease operating expenses on a per BOE basis decreased more than 3% year over year to $17.59. G&A expenses per BOE increased significantly year over year to $6.97, mainly due to incentive compensation awards for the management of Genesis and retirement compensation to the CEO and president of the company. DD&A expenses on a per BOE basis declined slightly year-over-year to $11.42.

Capital budget & Guidance

Denbury reiterated its 2009 capital budget at $750 million, of which approximately 90% will go to the company’s tertiary operations. As a result of the Barnett Shale assets divestment, the company decreased its 2009 production guidance to 47.5 MBOE/d. However, Denbury reaffirmed its tertiary production guidance of 24.5 MBbl/d.


Our Neutral recommendation for Denbury shares reflects the company’s low-risk profile and oil-centric niche business model. With oil representing about three quarters of the total production, the company is experiencing an enviable position in the industry, given the higher realizations and margins that presently exist in oil than gas.

Denbury recently completed the sale of its 60% interest in Barnett Shale. We consider this as a prudent step that will bring the company greater liquidity and flexibility to focus on its core tertiary oil operations. While tertiary production continues to grow, Denbury’s solid hedging position at attractive prices will help the company to operate in the current low commodity price environment.

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