Updated Research Report on Denbury - Analyst Blog

On Mar 24, 2014, we issued an updated research report on Denbury Resources Inc. DNR. With its unique profile, compelling economics and unmatched infrastructure, Denbury is nicely positioned to deliver long-term sustainable growth.

This Zacks Rank #3 (Hold) company delivered positive earnings surprise in three of the last four quarters, with an average beat of negative 7.16%.

Denbury has a relatively low-risk business model as it produces oil by applying tertiary recovery techniques to mature fields. Tertiary operations remain the company's principal focus. The company's production from tertiary operations averaged 38,603 barrels per day in the fourth quarter, representing a 2.8% increase year over year. Contributions from continued field development and expansion of facilities in Delhi, Hastings, Heidelberg and Oyster Bayou fields led to the increase.

Denbury expects 2014 production in the range of 76,500–78,500 barrels of oil equivalent per day (Boe/d). Strong growth from the company's high-growth projects at Delhi, Hastings and Oyster Bayou should drive production toward the higher end of the guided range. This will aid the company in effectively replacing all of the sold Bakken production. The tertiary production growth was set at 6–14%, reflecting normal year-to-year variability. The capital expenditure budget has been reiterated at $1 billion, of which about 78% is apportioned for tertiary projects. The remainder is for conventional projects, with special emphasis on Cedar Creek Anticline CCA and Hartzog Draw fields.

On the flip side, the Texas-based company reported disappointing financial results for the fourth quarter of fiscal 2013 with both the top line and bottom line lagging the Zacks Consensus Estimate.

Further, Denbury's project inventory is concentrated mostly within a few tertiary recovery projects. Hence, total company performance as well as profitability remain particularly exposed to execution and operational risks of individual projects.

Stocks That Warrant a Look

Better-ranked stocks in the oil and gas industry include Valero Energy Corporation VLO, Range Resources Corporation RRC and Helmerich & Payne, Inc. HP. All three stocks sport a Zacks Rank #1 (Strong Buy).