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Denbury Resources Inc. Reports Operating Results (10-Q)

May 11, 2009 | About:

Denbury Resources Inc. (NYSE:DNR) filed Quarterly Report for the period ended 2009-03-31.

Denbury Resources Inc. is a Canadian corp. organized under the Canada Business Corp Act engaged in the acquisition development operation and exploration of oil and gas properties primarily in the Gulf Coast region of the U.S. through its wholly-owned subsidiary Denbury Management Inc. Denbury's production is primarily from developed fields close to major pipelines or refineries and established infrastructure. As a result Denbury has not experienced any difficulty in finding a market for all of its product as it becomes available or in transporting its product to these markets. Denbury Resources Inc. has a market cap of $4.47 billion; its shares were traded at around $18.01 with a P/E ratio of 13.34 and P/S ratio of 3.28. Denbury Resources Inc. had an annual average earning growth of 14.9% over the past 10 years. GuruFocus rated Denbury Resources Inc. the business predictability rank of 3-star.

Highlight of Business Operations:

Despite the increase in our oil and natural gas production volumes in the first quarter of 2009, our oil and natural gas revenues were 46% lower in the first quarter of 2009 than in the prior year first quarter, as our average price received on a per BOE basis was approximately 54% lower in the current year period. The commodity price volatility, which began during the second half of 2008, continued through the first quarter of 2009. NYMEX oil prices moved from $44.60 per barrel at December 31, 2008 to as low as $34.00 per barrel in mid-February, and up to $49.66 per barrel as of March 31, 2009. NYMEX natural gas prices have continued their downward trend, falling from $5.62 per Mcf at December 31, 2008 to $3.78 per Mcf as of March 31, 2009.

We currently estimate our 2009 capital spending will be approximately $750 million, plus $201 million for the already closed Hastings Field acquisition. Our current 2009 capital budget includes approximately $485 million relating to our CO2 pipelines, the majority of which will be spent on the Green Pipeline. The budget also assumes that we fund approximately $100 million of budgeted equipment purchases with operating leases, which is dependent upon securing acceptable financing. Through May 8, 2009, we have completed approximately $18 million of these leases, and expect to close on an additional $20 million around mid-year. If we do not enter into $100 million of operating leases during 2009, our capital expenditures would increase accordingly, and we would anticipate funding those additional capital expenditures with our bank credit line.

The 2009 budget incorporates significantly reduced spending in the Barnett Shale and in other conventional areas such as the Heidelberg Selma Chalk, and a slower development program for our tertiary operations. Based on our current cash flow projections using $50.00 per barrel for oil and $5.00 per Mcf for natural gas prices, and including the expected cash settlements on our 2009 oil derivative contracts, we anticipate our projected 2009 capital expenditures of approximately $750 million, plus our already closed $201 million Hastings acquisition could, in the aggregate, exceed projected cash flow by as much as $450 million to $550 million. We have funded a portion of this shortfall with the approximately $381.4 million of net proceeds from our February 2009 subordinated debt issuance, and anticipate funding the remainder of this shortfall under our bank credit line.

As part of our semi-annual bank review, on April 1, 2009 our borrowing base and commitment amount were reaffirmed at $1.0 billion and $750 million, respectively. The borrowing base represents the amount that can be borrowed from a credit standpoint while the commitment amount is the amount the banks have committed to fund pursuant to the terms of the credit agreement. We anticipate this credit line will be sufficient for our 2009 plans, and do not expect our bank credit line to be reduced by our banks unless commodity prices were to decrease significantly from current levels. Based on current projections, we expect to have a total bank debt balance by the end of 2009 of between $150 million and $250 million, leaving us $500 million to $600 million of availability on our $750 million commitment amount.

Our first quarter 2009 capital expenditures were funded with $112.6 million of cash flow from operations, $15.0 million of net bank borrowings and $381.4 million of proceeds from the February 2009 issuance of 9.75% Senior Subordinated Notes. Our first quarter 2008 capital expenditures were essentially funded with $206.3 million of cash flow from operations, as the $48.9 million of proceeds from the second closing on our Louisiana property sale was used to reduce bank debt by $39.0 million during the first quarter, with the balance of funds from the property sale primarily used to fund other assets.

On February 2, 2009, we closed our $201 million purchase of Hastings Field. Under the agreement, we are required to make aggregate net cumulative capital expenditures in this field of approximately $179 million over the next six years cumulating as follows: $26.8 million by December 31, 2010, $71.5 million by December 31, 2011, $107.2 million by December 31, 2012, $142.9 million by December 31, 2013, and $178.7 million by December 31, 2014. If we fail to spend the required amounts by the due dates, we are required to make a cash payment equal to 10% of the cumulative shortfall at each applicable date. Further, we are committed to injecting at least an average of 50 MMcf/day of CO2 (total of purchased and recycled) in the West Hastings Unit for the 90 day period prior to January 1, 2013. If such injections do not occur, we must either (1) relinquish our rights to initiate (or continue) tertiary operations and reassign to Venoco all assets previously purchased for the value of such assets at that time based upon the discounted value of the fields proved reserves using a 20% discount rate, or (2) make an additional payment of $20 million in January 2013, less any payments made for failure to meet the capital spending requirements as of December 31, 2012, and a $30 million payment for each subsequent year (less amounts paid for capital expenditure shortfalls) until the CO2 injection rate in the Hastings Field equals or exceeds the minimum required injection rate.

Read the The complete ReportDNR is in the portfolios of T Boone Pickens of BP Capital, NWQ Managers of NWQ Investment Management Co.

Rating: 2.5/5 (2 votes)


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