Barclays Downgrades Denbury Resources, Says Balance Sheet Remains 'Stretched'

Although Denbury Resources Inc. DNR has lowered its cost structure and debt, its balance sheet still appears stretched, Barclays’ Jeffrey W. Robertson said in a report. Following the run-up in shares, the analyst downgraded the rating on the company from Equal Weight to Underweight, while reducing the price target from $3 to $2.50.

Positive Steps, But Balance Sheet Still Stretched

Denbury Resources has achieved significant cost and debt reduction so far in 2016 via, Robertson mentioned. Cash costs are down 25 percent from the 2014 level and 15 percent from 1Q15.

Injected CO2 volumes have declined by 53 percent since 1Q15 and by 28 percent since 1Q16. The company averaged LOE expenses of $17.04 per BOE in 2Q16, versus $16.23 in 1Q16 and $19.70 in 2Q15.

Denbury Resources reduced its debt by 16 percent since end-2015 through $443 million in debt exchanges and $97 million in open-market purchases.

Shares Gain

Denbury Resources’ shares have gained almost 50 percent year-to-date, on the oil price recovery from their February lows. This compares with a 17 percent gain in the XOP.

“We would expect the shares to respond favorably to further oil price gains given the roughly 95% oil-weighted production mix. However, we believe the company’s asset base requires a higher oil price threshold and longer lead time to drive volume growth compared to some peers,” the analyst commented.

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