NFX Newfield Exploration Company

Denbury Resources Inc. (DNR) has reported record fourth-quarter 2011 adjusted earnings of 45 cents per share (excluding one-time items), beating our expectation of 33 cents. The quarterly results were also well above the year-earlier adjusted earnings of 22 cents, attributable to overall higher price realization.

For the full year 2012, adjusted profit was $1.43 per share versus 61 cents in the prior year period. The reported figure comfortably surpassed our expectation of $1.33.

Total revenue jumped 19% to $617.3 million from the year-ago level of $519.1 million and comfortably surpassed the Zacks Consensus Estimate of $576 million. Full year 2011 total revenue expanded 20% year over year to $2,309.3 million, beating the Zacks Consensus Estimate of $2,263 million.

Operational Performance

During the quarter, production averaged 67,234 barrels of oil equivalent per day (Boe/d), down 12% year over year, attributable to the sale of assets in 2010. Oil production averaged 62,901 barrels (down 3% from the year-ago level) and natural gas averaged 25,998 thousand cubic feet (down 62%), on a daily basis.

Oil price realization (including the impact of hedges) averaged $102.86 per barrel in the quarter, showing an improvement of 30% year over year, while gas prices increased 6% to $7.65 per Mcf. On an oil equivalent basis, the overall price realization was $99.18 per barrel, up 34% from the year-earlier level of $73.79 per barrel.

Financials

Cash flow from operations was $386.9 million in the reported quarter versus $247.5 million in the year-ago quarter. Capital investment was $461.5 million, up from the year-earlier level of $237.4 million. Denbury's 2012 capital expenditure budget iremains unchanged at $1.35 billion, excluding acquisitions.

Cash balance at the end of 2011 was $18.7 million and long-term debt was $2,436.4 million, representing a debt-to-capitalization ratio of 33.6% (versus 30.4% in the preceding quarter).

Outlook

With its own in-house CO2 reserve base, Denbury enjoys a significant competitive advantage in acquiring and exploiting mature oil reservoirs. Tertiary operations remain the company's principal focus with particular emphasis on the Gulf Coast, Rocky Mountains and Bakken Shale holdings.

Denbury reaffirmed its 2012 production guidance in the 70,250 Boe/d and 75,250 Boe/d, The company’s tertiary production target was in the 33,000 Boe/d and 36,000 Boe/d range, and Bakken production was set in between 12,750 Boe/d and 14,750 Boe/d.

However, we see limited upside potential for shares due to its sensitivity to oil price volatility, along with drilling results, costs, geo-political risks and project timing delays. Additionally, competition from Pioneer Natural Resources (PXD) and Newfield Exploration Co. (NFX) is also a cause for concern.

We currently reiterate our long-term Neutral rating on Denbury shares. The company carries a Zacks #2 Rank (short-term Buy rating).

 
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