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It has been about a month since the last earnings report for Denbury Resources (DNR). Shares have lost about 64.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Denbury Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Denbury Resources’ Q4 Earnings Top Estimates But Down Y/Y
Denbury Resources reported fourth-quarter 2019 earnings (excluding one-time items) of 9 cents per share, beating the Zacks Consensus Estimate by a penny. However, the reported earnings were lower than 10 cents per share in the year-ago period.
Total revenues were $310.6 million, down from $338.4 million in the year-ago quarter. However, the top line was in line with the Zacks Consensus Estimate.
The better-than-expected earnings were supported by lower transportation and marketing, and lease operating expenses. The positives were partially offset by decline in commodity price realizations and production volumes.
Despite the earnings beat, the stock declined 5.6% yesterday, given a year-over-year decline in production guidance amid a weak oil-price environment.
Proved Reserves
At the end of 2019, Denbury Resources’ total proved reserves were 230 million barrels of oil equivalent, of which 98% was liquids. This figure reflects a decline from the previous year.
Operational Performance:
Production Declines
During the quarter, production averaged 57,511 barrels of oil equivalent per day (Boe/d) compared with 59,867 Boe/d in the prior-year period. The decline stemmed from the divestment of Citronelle Field in mid-2019.
Oil production averaged 56,185 barrels per day (BPD), down from the year-ago level of 58,266 BPD. Natural gas daily production averaged 7,954 thousand cubic feet (Mcf/d), lower than the year-ago period’s 9,603 Mcf/d.
The company’s production from tertiary operations averaged 37,250 Boe/d, down from 37,764 Boe/d in the year-ago quarter.
Price Realizations Decline
Oil price realization (excluding the impact of hedges) averaged $56.58 per barrel in the quarter, decreasing from the year-ago level of $60.50. Gas prices declined to $1.89 per Mcf from $3.44 in the year-ago quarter. On an oil-equivalent basis, overall price realization was $55.53 per barrel, lower than the year-earlier level of $59.44.
Cost & Expenses
During the quarter, the company incurred lease operating expenses of $116 million, lower than the year-ago period’s $128.5 million, which can be attributed to reduced workover and CO2 costs. Expenses related to transportation and marketing fell to $9.7 million from the year-ago level of $12.3 million. However, total expenses in the reported quarter rose to $274.9 million from the year-ago level of $115.7 million, mainly owing to increased commodity derivative costs.
Capital Expenditure
Oil and natural gas capital investments were $46.7 million compared with $101.1 million in the year-ago quarter. Total capital spending (excluding capitalized interest and acquisitions) was $47.6 million, lower than $107.8 million in fourth-quarter 2018.
Financials
Adjusted cash flow from operations was $115.6 million, up from $65.4 million in the year-ago quarter. Notably, in 2019, the company recorded $165 million of free cash flow, the highest since 2015.
As of Dec 31, 2019, its cash balance was $516,000 and total debt was $2,281.7 million, with a debt-to-capitalization ratio of 61.8%.
Guidance
Denbury Resources expects to generate free cash flow of more than $100 million in 2020, assuming oil price to be $50 per barrel. The company anticipates its 2020 production guidance in the band of 53,000-56,000 Boe/d, adjusted for Gulf Coast divestments. Production was recorded at 56,900 Boe/d in 2019.
Base development capital expenditure view for 2020 is expected in the range of $174-$185 million, indicating a 25% decline from the 2019 level. Additionally, $140-$150 million capital will likely be allocated for Cedar Creek Anticline enhanced oil recovery development. The company has three significant tertiary projects, which are expected to come online within the third quarter.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -14.29% due to these changes.
VGM Scores
Currently, Denbury Resources has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Denbury Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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