During 2014, Denbury Resources (DNR, Financial) delivered nearly $107 million of surplus free cash flow that illustrates its focused effort to balance its cash flows and is primarily due to its continued cost-saving efforts that led to the company’s both LOE and capital coming under its budget for the year.
The strategically planned cost-cutting efforts of Denbury are believed to deliver robust top line growth for the company and thus benefiting the key stakeholders.
In 2014, Denbury concluded the refinancing of its sub debt and modified its bank credit accord, allowing it with superior maturities for the future. Denbury offered solid interest rates and lowered its major interest expenditures. Further, it has widespread hedges in 2015 that are believed to offer the company major additional cash flows.
Better times ahead
The robust asset base coupled with the planned reduction of the capital expenditures is estimated to uniquely position Denbury among its peers and enable it to lead the competition with enhanced company growth and better investor returns.
Overall company production for the quarter was somewhat greater than its forecasted range of 74,000 barrels a day. Its tertiary production added to slightly under 41,900, a small sequential increase and post neutralizing the poor production linked to the revised interest at Delhi. The robust growth verticals in the quarter were Tinsley, Oyster Bayou and Heidelberg.
Oyster Bayou is continuously illustrating impressive reservoir reaction, enhancing sequentially by approximately 1,000 barrels a day during the fourth quarter. The expansion is primarily due to robust traction for innovative models in the A-2 Zone.
The improvement in the overall company production along with the sharp cost control efforts implemented by Denbury is forecast to uniquely position the company for superior long-term growth.
Denbury illustrated an increase in the production at Conroe by about 1,300 barrels a day equivalent, improving sequentially for the quarter and in line with the target of achieving extra workovers and recompletions.
However, Denbury’s Cedar Creek Anticline production at the Rockies remained constant sequentially in the fourth quarter with the falling production at the Cedar Hills South unit linked to water injection facility breakdown during the third quarter, which was partially balanced by enhanced waterflood performance in the developed regions.
The improvement in the production at Conroe is estimated to be slightly offset by somewhat flat production at Cedar Creek Anticline in the Rockies.
In the Gulf Coast, Denbury delivered nearly 880 million cubic feet of CO2 per day from Jackson Dome, along with about 70 million cubic feet a day from industrial CO2 supply, satisfying the needs of the EOR fields.
In the Rockies, Denbury received more than 110 million cubic feet a day of CO2 from its consolidated sources at Lost Cabin and LaBarge.
The robust production at the Gulf Coast in addition to the key CO2 production synergies received from the identified sources at the Rockies is believed to expand the reservoir base of the company and thus deliver solid top line growth, going forward.
The strengths of Denbury Resources include robust assets base with controlled F&D expenditure, solid financial flexibility and significant untapped resource potential.
But these strengths are believed to be outshined by several negative factors like reduced oil price, lowering of capital expenditures, constant to declined production in 2015 coupled with 2016 and forecasted fall in the dividend offerings.
Conclusion
Overall, the investors are advised to avoid investments into the Denbury Resources Inc. till a major turnaround occurs and the company returns to profitability looking at the poor company valuations with the trailing P/E and forward P/E ratios of 4.68 and 77.00 respectively, indicating an excessively overvalued stock, moving ahead. The PEG ratio of -0.37 depicts no growth but decline. However, the profit margin of 26.29% is satisfactory. Still, Denbury is hugely debt-burdened with significant total debt of $3.57 billion against weaker total cash of $23.15 million only, restricting the company to plan for future growth investments.
