Denbury Resources (DNR +0.00%) has been struggling under the weight of its debt for the last few years. While the energy company has been steadily chipping away at its debt, that hasn't helped alleviate the pressure on its stock, which has tumbled another 38% this year. Because of that, the company continues to look for ways to improve its financial profile.
It made more progress during the third quarter by completing several moves that reduced debt. While those steps were a welcomed sight, it still has a long way to go.
Drilling down into Denbury Resources' third-quarter results
|
Metric |
Q3 2019 |
Q2 2019 |
Q3 2018 |
|---|---|---|---|
|
Total production |
56,441 BOE/D |
59,313 BOE/D |
58,412 BOE/D |
|
Adjusted net income |
$41 million |
$59 million |
$59 million |
|
Adjusted earnings per share |
$0.08 |
$0.13 |
$0.13 |
Data source: Denbury Resources. BOE/D = barrels of oil equivalent per day.
Denbury's production declined 5% from the second quarter and 3% year over year after adjusting for asset sales. Driving the decline was the expected reduction in production at its Bell Creek Field due to planned maintenance at its main carbon dioxide source in the Rocky Mountain region. Additionally, Tropical Storm Imelda caused some unplanned downtime due to power outages and flooding along the Gulf Coast, which affected its output by about 400 BOE/D. Overall, though, its production was in line with expectations.
Denbury's adjusted earnings also declined versus the prior periods thanks to lower production and oil prices. However, it still came in $0.01 per share ahead of the analysts' consensus estimate. That's due in large part to the company's ability to drive down costs. Cash flow from operations likewise declined due to the impact of lower oil prices and output. However, the company still managed to generate $131 million in cash, which more than covered what it invested in capital projects. That enabled it to produce $44 million in free cash flow, pushing its year-to-date total to $109 million.
The company used some of that cash, as well as the $14 million it collected from recent asset sales, to help chip away at its debt. Overall, it has reduced its total borrowings by $87 million since the end of June and by $139 million for the year.
Denbury did this by completing two debt exchanges. During the quarter, it repurchased $11 million in face value of notes due in 2022 on the open market, paying only $5 million. Meanwhile, in October, it repurchased another $13 million in face value of those notes and $29 million in face value of notes due in 2023 through a private exchange. It paid $6 million in cash and issued 14 million of its stock. The company also paid off $30 million on its $615 million bank credit line, reducing its outstanding borrowings on that facility to just $50 million.
Image source: Getty Images.
A look at what's ahead for Denbury Resources
Denbury's third-quarter results keep it on track with its full-year forecast. The company continues to expect production to be between 57,000 BOE/D and 59,500 BOE/D. Further, it anticipates that capital spending will remain between $240 million and $260 million. Given that outlook, the company believes it will produce between $140 million to $150 million in free cash flow this year, assuming oil averages $55 a barrel for the fourth quarter. That should give it the cash to pay off the remaining balance on its bank credit line.
The company ended the quarter with $2.4 billion in debt, which is a $1.2 billion improvement since the oil market's downturn began in 2014. None of it is due to mature next year, which gives Denbury some time. However, it has $716 million in debt maturing in 2021 and another $526 million coming due in 2022. That's a large obstacle for the company to overcome since it can't pay off what it owes with free cash flow even if it continues repurchasing debt at a steep discount. Because of that, the company will likely need to make some other moves next year -- such as selling assets or completing more debt exchanges -- to help address its upcoming maturities.
A long road ahead
Denbury Resources is working hard to chip away at its debt as quickly as it can. While the company made some progress during the third quarter, it still has a lot left to do. Worse yet, it's running short on time. Given the large maturity wall coming in 2021, next year could be a make-or-break year for the oil company.
