Investors in financial and consumer discretionary stocks must be experiencing a tinge of schadenfreude these days. Energy and materials stocks, for a while seemingly the only game in town, are now taking a shellacking of their own. Denbury Resources (NYSE: DNR ) , for one, has dropped like a stone.
I would have thought Denbury an unlikely oil stock to be abandoned at the first sight of a pullback in crude. Unlike some more fringe players, Denbury doesn't require anything remotely approaching today's oil prices to turn in handsome profits. The company estimates its breakeven point at roughly $34 per barrel.
Like smaller player Arena Resources (NYSE: ARD ) , Denbury coaxes extra oil out of old fields, so its finding costs are rock-bottom. Yes, the company also produces natural gas alongside Chesapeake Energy (NYSE: CHK ) and Quicksilver Resources (NYSE: KWK ) in the Barnett Shale, but enhanced oil recovery is the real growth driver here.
Denbury has mapped out a phased approach to developing its various onshore oil assets that runs well into the next decade. Majors like Chevron (NYSE: CVX ) would kill for this kind of production growth visibility. Oil sands players like Suncor (NYSE: SU ) are pretty much the only competitors with comparable clarity.
Turning to the company's quarterly results, we learned that Denbury's daily production grew 25% over last year, after adjusting for asset sales. Oil production from tertiary operations (i.e., CO2 injection into old fields) lifted 36%. Out of Denbury's eight planned development phases, the Tinsley field, which is number three, just began to flow in the quarter, which gives you a sense of what inning we're in.
Not all is completely rosy for the firm, as costs are rising along with higher oil prices. Denbury also revised its growth model, lowering 2008 tertiary production estimates by 9%. Longer-term, the model revision has effectively pushed back the firm's peak production by a year or two. The long-term picture hasn't dimmed whatsoever.
So why have shares been slashed by roughly 40% since late June? Maybe there was a bit of froth baked into a $40 share price, but this company's potential net asset value, assuming that future development stages go as well as past ones, supports a share price well north of that offered by Mr. Market today. If you're still long-term bullish on crude, Denbury is a candidate worth your consideration.
Fools are fairly sweet on Denbury, rating the company four stars out of five in Motley Fool CAPS. Weigh in with your own call on the firm's future right here.
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