Market Overview

Denbury Resources Reports Third Quarter 2019 Results

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PLANO, Texas, Nov. 07, 2019 (GLOBE NEWSWIRE) -- Denbury Resources Inc. (NYSE:DNR) ("Denbury" or the "Company") today announced net income of $73 million, or $0.14 per diluted share, for the third quarter of 2019.  Adjusted net income(1) (a non-GAAP measure) was $41 million, or $0.08(1)(2) per diluted share, with the difference from GAAP net income primarily due to a $35 million gain from noncash fair value adjustments ($26 million after tax) on the Company's commodity derivative positions (see reconciliation of GAAP and non-GAAP measures in tables beginning on page 9 of this press release).

THIRD QUARTER AND RECENT HIGHLIGHTS

  • Generated cash flow from operations of $131 million and free cash flow(1) (a non-GAAP measure) of $44 million after considering development capital expenditures, capitalized interest and interest treated as debt reduction, with 2019 year-to-date free cash flow(1) of $109 million
  • Continued debt reduction through debt repurchases and exchanges which reduced debt by $87 million since June 30, 2019 (including October transactions) and by $139 million since January 1, 2019
  • Reaffirmed borrowing base of $615 million on senior secured bank credit facility
  • Production of 56,441 barrels of oil equivalent ("BOE") per day ("BOE/d"), in-line with expectations and on track for the midpoint of previously raised full-year guidance
  • Two successful Mission Canyon exploitation wells recently drilled and completed with a projected combined IP-30 rate of 1,000 barrels of oil per day
  • Completed $9 million of surface acreage sales during the third quarter of 2019 and an additional $5 million in October 2019
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(1) A non-GAAP measure.  See accompanying schedules that reconcile GAAP to non-GAAP measures along with a statement indicating why the Company believes the non-GAAP measures provide useful information for investors.
(2) Calculated using weighted average diluted shares outstanding of 547.2 million, 467.4 million, and 458.5 million for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively.



SELECTED QUARTERLY COMPARATIVE DATA

    Quarter Ended
(in millions, except per-share and per-unit data)   September 30, 2019   June 30, 2019   September 30, 2018
Net income   $ 73     $ 147     $ 78  
Adjusted net income(1) (non-GAAP measure)   41     59     59  
Adjusted EBITDAX(1) (non-GAAP measure)   145     169     148  
Net income per diluted share   0.14     0.32     0.17  
Adjusted net income per diluted share(1)(2) (non-GAAP measure)   0.08     0.13     0.13  
Cash flows from operations   131     149     148  
Adjusted cash flows from operations(1) (non-GAAP measure)   126     145     135  
Development capital expenditures   51     77     86  
             
Oil, natural gas, and related product sales   $ 293     $ 330     $ 380  
CO2, purchased oil sales and other   22     13     15  
Total revenues and other income   $ 315     $ 343     $ 395  
             
Receipt (payment) on settlements of commodity derivatives   $ 8     $ (2 )   $ (62 )
             
Average realized oil price per barrel (excluding derivative settlements)   $ 57.64     $ 62.22     $ 71.44  
Average realized oil price per barrel (including derivative settlements)   59.23     61.92     59.78  
             
Total production (BOE/d)   56,441     59,719     59,181  
Total continuing production (BOE/d)(3)   56,441     59,313     58,412  

 

____________
(1) A non-GAAP measure.  See accompanying schedules that reconcile GAAP to non-GAAP measures along with a statement indicating why the Company believes the non-GAAP measures provide useful information for investors.
(2) Calculated using weighted average diluted shares outstanding of 547.2 million, 467.4 million, and 458.5 million for the three months ended September 30, 2019, June 30, 2019 and September 30, 2018, respectively.
(3) Continuing production excludes production from Citronelle Field sold on July 1, 2019 and production from Lockhart Crossing Field sold in the third quarter of 2018.


MANAGEMENT COMMENT

Chris Kendall, Denbury's President and CEO, commented, "Denbury's third quarter results once again demonstrate our commitment to exceptional execution, cost efficiency, and capital discipline.  We generated $44 million of free cash flow in the third quarter, keeping us on course to generate $140 – $150 million in free cash flow for the full year.

"We continue to execute on our key priorities for 2019 and we remain on track to reach the midpoint of our previously raised 2019 production guidance, despite third quarter production curtailments relating mainly to a planned maintenance shut-down of the Rockies CO2 source plant impacting our Bell Creek production and Tropical Storm Imelda impacting our Gulf Coast production.  Our spending discipline is evident across the board, with capital spend, lease operating expense, and G&A spend each on target to be at or below full-year guidance.

"Our unique portfolio of assets and high quality, low decline, oil-weighted production are the driving forces behind our ability to generate sustainable free cash flow, enabling us to actively allocate capital to manage our debt maturities and reduce leverage.  We continued to make meaningful progress on improving our balance sheet by repurchasing or exchanging $54 million of 2022 and 2023 senior subordinated notes at a significant discount, and we further reduced our borrowings under our senior secured bank credit facility by $30 million.  Importantly, our flagship Cedar Creek Anticline EOR development continues to progress on schedule with first CO2 injection projected in early 2021.

"None of these results would have been possible without the dedication to success and commitment to safety of Denbury's team members across the business.  As we move into the final quarter of 2019, I am excited about where the Company is headed.  We continue to perform, to consistently deliver on our promises, and to make steady progress toward securing our long-term success.  Additionally, the low carbon footprint of our CO2 EOR focused strategy will continue to differentiate us from the industry, providing an ideal solution that significantly reduces the CO2 emissions associated with the production of oil, a vital energy source today and for the foreseeable future."

REVIEW OF OPERATING AND FINANCIAL RESULTS

Denbury's oil and natural gas production averaged 56,441 BOE/d during third quarter 2019, a decrease of 5% from continuing production on a sequential-quarter basis and a decrease of 3% compared to continuing production in the prior-year third quarter.  The sequential-quarter decrease was primarily due to an expected reduction in production at Bell Creek Field associated with planned maintenance at the Company's primary CO2 source in the Rocky Mountain region.  Third quarter production was also impacted by approximately 400 BOE/d due to unplanned downtime from power outages and flooding caused by Tropical Storm Imelda.  Further production information is provided on page 15 of this press release.

Denbury's third quarter 2019 average realized oil price, including derivative settlements, was $59.23 per barrel ("Bbl"), a decrease of 4% from the prior quarter and 1% from the prior-year third quarter.  Denbury's NYMEX differential for the third quarter 2019 was $1.30 per Bbl above NYMEX WTI oil prices, compared to $2.35 per Bbl above NYMEX WTI in the prior quarter and $1.84 per Bbl above NYMEX WTI in third quarter 2018.  The sequential decrease was primarily attributable to a lower Gulf Coast premium in the third quarter of 2019, which represents approximately 60% of the Company's crude oil production.

Total lease operating expenses in third quarter 2019 were $118 million, or $22.70 per BOE, relatively unchanged on an absolute-dollar basis compared to the prior quarter.  When compared to third quarter 2018, lease operating expenses decreased $5 million, or 4%, on an absolute-dollar basis, primarily due to lower workover and power costs.

General and administrative expenses were $18 million in third quarter 2019, up slightly from the prior quarter, and a $3 million decrease compared to third quarter 2018, primarily due to lower performance-based compensation expense in the current-year period.

Interest expense, net of capitalized interest, totaled $23 million in third quarter 2019, a $2 million increase from the prior quarter and an increase of $4 million compared to third quarter 2018.  The sequential-quarter and prior-year increases were primarily due to noncash expense for amortization of debt discounts associated with the Company's recently issued 7¾% Senior Secured Second Lien Notes due 2024 and 6⅜% Convertible Senior Notes due 2024.  The discount on these notes was initially recorded during the second quarter of 2019 and will continue to be amortized as interest expense over the terms of these notes.  A schedule detailing the components of interest expense is included on page 17 of this press release.

Depletion, depreciation, and amortization ("DD&A") was $55 million during third quarter 2019, compared to $58 million in second quarter 2019 and $51 million in third quarter 2018.  The sequential-quarter decrease was primarily due to lower depletion on CO2 assets resulting from lower CO2 production in the Rocky Mountain region, and the increase compared to prior year was due primarily to an increase in depletable costs.

Denbury's effective tax rate for third quarter 2019 was approximately 34%, higher than the Company's estimated statutory rate of 25% due primarily to a valuation allowance applied against a portion of the Company's business interest expense deduction that it estimates will be disallowed in the current year as a result of limitations enacted under the Tax Cuts and Jobs Act.  The Company currently forecasts that its effective tax rate for the fourth quarter and full-year 2019 will be approximately 32%, depending in part on taxable income.

RECENT DEBT TRANSACTIONS AND BANK CREDIT FACILITY

During the third quarter, Denbury repurchased $11 million in aggregate principal amount of its then outstanding 5½% Senior Subordinated Notes due 2022 ("5½% Senior Subordinated Notes") in open market transactions for a total purchase price of $5 million, excluding accrued interest.  In connection with these transactions, the Company recognized a $6 millio

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