Last year was one that investors in Denbury Resources (DNR +0.00%) will want to forget. While shares of the oil producer rocketed more than 200% at one point, the stock gave up all those gains and then some as oil prices crashed and the company made a head-scratching offer to buy shale-focused driller Penn Virginia (PVAC +0.00%).
Denbury will officially put 2018 behind it this week by reporting its fourth-quarter and full-year results. Here are a few things to keep an eye on in that report.
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1. Look for an update on its merger with Penn Virginia
All eyes will be on the latest update of the company's proposed merger with Penn Virginia. While Denbury initially expected that deal to close during the first quarter of this year, it has run into intense opposition from shareholders on both sides of the transaction who question the strategic rationale. Not only would the merger combine two companies with entirely different business models, but the significant decline in oil prices since the announcement has materially weakened Denbury's financial position and the anticipated benefits from this transaction.
Because of the growing opposition to the deal, Denbury could opt to walk away. Given that possibility, investors should see what the company says about this transaction and whether it remains committed to completing the deal.
2. See how the company fared compared to its guidance for 2018
When Denbury reported its third-quarter results in early November, it also provided investors with an update on its progress toward achieving its full-year guidance for capital expenses and production. At that time, Denbury noted that it had spent $215 million in capital through the third quarter, which had it on pace to invest at the upper end of its $300 million to $325 million budget range. Ideally, the company will end the year spending below the top end of its forecast, especially since oil prices crashed during the quarter.
Despite spending toward the top end of its guidance range, Denbury estimated that its full-year production would average between 60,100 and 60,600 barrels of oil equivalent per day (BOE/D), which was toward the low end of its original 60,000 to 64,000 BOE/D guidance range. The hope is that the company was able to outperform those expectations. Otherwise, Denbury would end up spending at the high end of its budget while producing at the low end of its forecast, which would suggest it did a poor job both operationally and in allocating capital in 2018.
3. Check out its outlook for 2019
Denbury has yet to unveil its 2019 capital budget and production guidance, likely due to the uncertainty surrounding its merger with Penn Virginia. However, the company will likely provide at least a preliminary look at 2019 along with its fourth-quarter results.
With oil prices crashing at the end of last year, most U.S.-focused oil companies plan to invest less capital in 2019, with the majority aiming to spend within the cash flows they can produce on $50 oil. The hope is that Denbury Resources will do the same since that would enable the company to generate free cash flow to help pay down debt, as oil prices are currently in the mid-$50s.
Check out the latest Denbury earnings call transcript.
All eyes are on the Penn Virginia deal
While Denbury Resources believes it has a solid strategic rationale for acquiring Penn Virginia, investors remain unconvinced. The company could walk away from the deal, but that would impact its near-term growth prospects since it saw Penn Virginia as an accelerant to help restart its production growth engine. Given the uncertainty surrounding that deal, shares of the oil producer could swing wildly this week depending on what it decides to do.
