Denbury Resources Inc. (DNR - Analyst Report) announced an increase of $250 million to its authorized share repurchase program, leaving $422 million of authorized repurchases remaining as of Dec 31, 2013. The increase raises the total amount authorized under the program since it commenced in Oct 2011 to $1.162 billion.
Of the total, Denbury has spent $740 million as of Dec 31, 2013, to acquire a total of approximately 48 million common shares, or about 12% of shares outstanding at Sep 30, 2011, at an average cost of $15.55 per share. Of the total amount spent on repurchases, $78 million was spent in the fourth quarter to acquire approximately five million common shares at an average cost of $16.22 per share.
Denbury has a relatively low-risk business model as it produces oil by applying tertiary recovery techniques to mature fields. Tertiary operations remain the company’s principal focus. The company’s production from tertiary operations averaged 37,513 barrels per day in the third quarter, which represents a 7.8% increase year over year. Contributions from continued field development and expansion of facilities in Delhi, Hastings, Heidelberg and Oyster Bayou fields led to the increase.
Denbury Resources remains on track to continue its growth momentum. The company, driven by higher contribution from its core tertiary operation, is steadily yielding more. As the company’s production is fairly oil weighted, we view strong earnings and cash flow visibility in the future.
Denbury expects 2013 production in the range of 68,700–71,700 barrels of oil equivalent per day (Boe/d). Strong growth from the company's high-growth projects at Delhi, Hastings and Oyster Bayou should drive production toward the higher end of the guided range. This will aid the company in effectively replacing all of the sold Bakken production. The tertiary production growth was set at 6–14%, reflecting normal year-to-year variability. Capital expenditure was set at $1.06 billion for the year, of which approximately 85% of the total capital outlay is for tertiary projects. The balance will likely be for conventional projects, primarily in the Cedar Creek Anticline (CCA).
Oil price realization (including the impact of hedges) averaged $105.80 per barrel in the quarter, showing a rise of 13.8% year over year, while gas prices contracted 38.9% year over year to $3.38 per Mcf. On an oil equivalent basis, the overall price realization was $101.22 per barrel, up almost 14% from the year-earlier level of $88.77 per barrel.
On the flip side, we remain cautious due to high cost levels associated with the tertiary oil recovery method and harsh weather conditions that might restrict the activity level.
Plano, Texas-based Denbury Resources is a growing exploration and production company engaged in the acquisition, development, operation and exploration of oil and natural gas properties in the Gulf Coast and Rocky Mountain region of the U.S. It is the largest oil producer in Mississippi, with further properties in Louisiana, Alabama and Southeast Texas.
Denbury carries a Zacks #3 Rank (short-term Hold rating). However, there are better-ranked stocks in the oil and gas sector – CVR Energy Inc. , Pacific Drilling S.A. (PACD - Snapshot Report) and LRR Energy L.P. (LRE - Snapshot Report) – which hold a Zacks Rank #1 (Strong Buy) and are expected to outperform the market.