Carbon Dioxide Didn’t Provide Much Pop for Denbury Resources Inc.

Flat results for Denbury Resources Inc.

Feb 21, 2014 at 10:30AM

Oil Well Wyoming

Photo credit: Flickr/Robert Ashworth

Denbury Resources (NYSE:DNR) recently reported its fourth-quarter and full-year results. While production was up by 2%, adjusted net income fell. Let's take a closer look at why it fell flat.

Drilling down into the numbers
Denbury Resources reported fourth-quarter adjusted net income of $100 million or $0.25 per share. That was $37 million or $0.05 per share less than it reported in last year's fourth quarter. Lower realized oil prices, combined with higher costs hurt the company's earnings.

More importantly, however, was the fact that cash flow was much stronger than earnings. Denbury Resources' adjusted cash flow from operations was $295 million in cash flow. That's only off slightly from the $316 million it produced in last year's fourth quarter. For a slower growth company like Denbury Resources, we want to see stable cash flow, especially now that its paying a dividend. 

Production rises
One of the positives on the quarter was its production which nudged higher by 2% and was slightly ahead of its estimates. That was despite some weather issues and a delay in the completion of its Greencore Pipeline interconnect.

Over time the company's production out of the Rocky Mountains is an area that should only get better over time. The company's Bell Creek field, for example, recently began to respond to the carbon dioxide injections. While the field was producing 177 barrels of oil per day in the fourth-quarter, that jumped to more than 500 barrels per day in January. Because of this investors can expect increasing oil production from the region as Denbury Resources starts flooding more Rocky Mountain properties with carbon dioxide.

Looking ahead
If there is one concern, it's the fact the company sees its 2014 production coming in at the lower end of its guidance range. The company has been facing weather issues early in 2014 and when that's coupled with downtime at the Riley Ridge gas processing plant, the result will be lower production.

That said, the company's aggressive share repurchase program should result in higher production growth per share. Denbury Resources already repurchased 4% of its outstanding shares in the past two months and bought back 14% of its total outstanding shares since 2011. As the following slide shows, Denbury Resources is buying back its shares at a compelling discount to its net asset value.

Dnr Share Buyback

Source: Denbury Resources Investor Presentation  

In one sense the company is following in the footprints of ExxonMobil Corporation (NYSE:XOM) by using buybacks as a path to grow. ExxonMobil is a real expert at repurchasing shares. While its overall production growth has averaged about 1% each year, its per share production growth has averaged about 5% per year thanks to its robust repurchase program. That's more than double ExxonMobil's nearest competitor which averaged about 2% annual production growth over the same time period. Denbury Resources offers similar potential where the combination of slowly growing production is enhanced by share buybacks and the dividend. 

Investor takeaway
Denbury Resources didn't produce a lot of fizz last quarter, which is to be expected because that's not what the company is about. Instead, it produced another slow and steady improvement in production while continuing to deliver solid cash flow. Over the long-term this slow and steady pace should fuel solid returns for investors. Especially now that it has added a dividend.

Looking for more solid dividend stocks?

One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.


Matt DiLallo owns shares of Denbury Resources. The Motley Fool owns shares of Denbury Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information