Denbury Resources (DNR)

[dan_s]

Denbury Resources (DNR): An updated profile has been posted under the Watch List Tab.

Like most of the E&P companies I follow, DNR is grossly oversold because of the market's fear about where crude oil prices are heading. Denbury has long-lived oil reserves and their CO2 floods have very low decline rates. They can survive and thrive with today's oil price, plus they have more than 75% of their 4th quarter oil production already sold at $92.52/bbl and a high percentage of their oil & gas hedged for 2015 at prices above the current NYMEX strip.

With a strong balance sheet and free cash flows, Denbury is expected to double their dividend to $0.50/share in 2014 and they have a well funded stock repurchase plan. At today’s share price the annual yield will jump to 4% in 2015.

If WTI moves back to the $85/bbl range, DNR has a good shot at reaching First Call’s Target Price of $18.74 within a year. So, it offers investors a decent dividend and capital appreciation. My Fair Value Estimate is $23.50/share.

[ghrcap]

I have shorted the November $12 Puts to own DNR at $11.75 net. You can capture $0.35 premium today to beat my net coming into it. We'll get the declared dividend too.

[dan_s]

Good idea.

[ghrcap]

This has turned out to be a bad idea as the company announced it will only pay $0.40 in 2015, not $0.50, and will cut its CAPEX by half to maintain flattish production. The stock is trading at $10.50 in the pre-market on no growth, smaller dividend and senior operations management sacking. At least they haven't announced they are cancelling their Analyst Day tomorrow. It should be a real truth telling session.