Denbury Resources Inc.’s (DNR - Free Report) shares scaled a new 52-week high of $5.65, closing the session a little lower at $5.61 on Aug 30. The company’s strong focus on prolific oil and gas resources in the United States, and rising output has been fueling the firm’s performance. In fact, the stock rallied 429.3% over the past year, significantly outperforming 23.8% collective gain of the stocks belonging to the industry.
Let’s trace the factors behind the company’s appealing run.
Denbury’s strategic position in the prolific regions like the Gulf Coast and Rocky Mountain bodes well. The company implements enhanced oil recovery or tertiary recovery techniques to produce oil from its reserves, which differentiates it from most of its peers. Along the Gulf Coast region, the company has its operations in Mississippi, Texas, Louisiana and Alabama. Here, the company has 127,423 thousand barrels of oil equivalent (MBOE) proved reserves under its tertiary properties. It also has 20,706 MBOE of proved reserves under its non-tertiary properties in this region.
Similarly, in the Rocky Mountain region, the company has its operations in Montana, North Dakota and Wyoming, where it has proved reserves of 26,018 MBOE under its tertiary properties and 85,598 MBOE of non-tertiary properties. Surging production from Denbury’s tertiary and non-tertiary properties in this region contributed heavily to its output level.
Rising Production & Oilier Volume Mix:
At the end of 2017, Denbury’s total proved reserves were 260 million barrels of oil equivalent (MMBOE), of which 97% was oil. The figure was higher than that of 2016. During the first half of 2018, its total production averaged 61,171 barrels of oil equivalent per day (Boe/d), with approximately 97% oil. The total output is higher than the first-half 2017 level. Also, Denbury expects 2018 production in the range of 60,000-64,000 Boe/d. The upper limit of the guidance is much higher than 2017’s production figure of 60,298 Boe/d.
The ‘oilier’ nature of Denbury’s volume mix positions it to benefit from strengthening oil prices, which has come a long way from the historical lows — below $30 per barrel — in early 2016. Notably, oil price is hovering above the $65 per barrel level since the past few months. Hence, the growing production trend along with rising prices will clearly boost its earnings in the coming quarters. This is also reflected in its earnings estimate revision.
Positive Earnings Estimate Revisions
Over the past 30 days, two analysts have upwardly revised earnings estimates for the third quarter of 2018, while none have decreased the same for Denbury. The Zacks Consensus Estimate for the current quarter has been revised upward from 8 cents per share to 10 cents, which is 150% higher than the year-ago figure of 4 cents. Moreover, for the full year of 2018, the bottom line is expected to surge 235.7% to 47 cents.
Impressive Earnings Surprise
Denbury retained investors’ favorable sentiment surrounding the stock, with an impressive record of positive earnings surprises, having surpassed the consensus estimate in each of the last four reported quarters. It recorded a positive earnings surprise of 162.9% in the trailing four quarters.
Denbury’s cost-cutting measures through 2017 were impressive, and the trend continued through the first half of 2018 as well. During the first half of this year, marketing and operating costs reduced more than 14%, and general and administrative expenses were down by nearly 27%. This drove the company’s better-than-expected results in the last four quarters.
Finally, it can be said that Denbury’s strong presence in the Rocky Mountain and Gulf Coast regions will help it to reach its production target in 2018. Surging output and oiler volume mix amid rising prices will enable it to deliver improving results in the coming quarters. The cost-reduction initiatives undertaken by the company will also improve its margins. These factors show that there is further upside potential left in the stock, thus substantiating its Zacks Rank #2 (Buy).
Investors interested in the energy sector can also opt for other top-ranked stocks like McDermott International, Inc. (MDR - Free Report) , Subsea 7 S.A. (SUBCY - Free Report) and Helix Energy Solutions Group, Inc. (HLX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Houston, TX-based McDermott is an equipment provider for energy companies. The company’s top line for 2018 is likely to improve 145% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 101.7%.
Luxembourg-based Subsea is an oilfield service providing company. In the last four reported quarters, the company delivered an average positive earnings surprise of 318.6%.
Houston, TX-based Helix Energy’s bottom line surpassed the consensus mark in three of the last four quarters, with the average positive earnings surprise being 66.7%.
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