Denbury Stays Neutral – Analyst Blog

We maintain our Neutral recommendation for Denbury Resources Inc. (DNR) shares following the completion of divestiture of assets acquired from its merger with Encore. As the company utilizes this amount to reduce its debt level and frees up available liquidity, flexibility to focus on its core tertiary oil operations will increase.

 

Plano, Texas-based Denbury is a growing exploration and production (E&P) company engaged in the acquisition, development, operation, and exploration of oil and natural gas properties in the U.S. Gulf Coast region. It is the largest oil and gas producer in Mississippi, with further properties in Louisiana, Alabama and Southeast Texas.

 

Denbury has a relatively low-risk business model. It produces oil by applying tertiary recovery techniques to mature the fields. Tertiary operations remain the company’s principal focus area. We believe that the

company’s oil-centric (93% of its proved reserves is oil) niche business model and comfortable financial position will help it to maintain its growth profile.

 

Despite recent unfavorable sentiment, our medium-to-long term oil-price outlook remains positive. Denbury’s niche business model of extracting crude oil from mature fields using tertiary recovery methods turns out to be very valuable in this commodity-price outlook. We are concerned about

the growing cost pressure on the company’s operations. In the first quarter of 2010, Denbury’s lease operating expenses (LOE) on a per BOE basis and total expenses were both increased by 29% from the year-earlier level.