Denbury Resources (DNR)

[dan_s]

I attended the DNR "Analyst Day" in Houston on Monday, November. The slides they spoke from today are available on their website. They talked for over 2 hours. Lots of details.

My notes:
> DNR is going to start paying dividends in 2014. $0.25/share in 2014 and expect to raise it to at least $0.50/share in 2015.
> DNR will stay a C-Corp. They did consider forming an MLP but that will not happen now.
> DNR will spend ~$1 Billion in CapEx each of the next five years.
> Production expected to grow 8% to 12% each year.
> Proven Oil reserves will grow faster.
> Share repurchase program increased to $250 million this year. Excess cash flows above capex + dividends will be used to repurchase shares.

Conclusion: DNR has matured into a very predictable "Growth & Income" stock. By paying dividends it should be open a lot of "G&I" funds to buy it. DNR has rock solid long-term oil reserves. An active hedging program locks in strong cash flows and they know they are going to make money. This stocks is for people that want to own proven domestic reserves. I think it is worth $30/share. I believe their year-end reserve report will prove it.

Today's selling by those who expected it to convert to an MLP. I think it is a gold plated buying opportunity on a steady grower of cash flows and proven reserves.

[dan_s]

I did ask Phil when they expected the Delhi Field to reach Payout, which will result in a big increase in Evolution Petroleum's (EPM) revenue interest in the field. He said it depends on the insurance settlement.

DNR spent close to $100 million on the spill clean-up. If the insurance company pays half of the cost, the field should reach Payout in mid-2014. If not. it should reach Payout by the end of 2014.

[adamlloyd]

If I recall correctly, previous Denbury presentations made the point that capital expenditures would be decreasing as the major pipelines were completed, leading to steadily increasing free cash flow. This latest presentation states that capital expenditures will be approximately constant through 2020, and there is no discussion at all about free cash flow. No wonder the stock has taken a 9% haircut in the past three days. Very disappointing!

Adam

[dan_s]

The stock took a dip because many investors were expecting them to convert to an MLP.

DNR is generating FREE CASH FLOW today and they expect it to increase in the future. This is why they have increased their stock repurchase program and announced on Monday that they will begin paying dividends. They also said Monday they expect to double the dividend in 2015.

[mingya]

I listened to the presentations and it really did not sound that uplifting.

MLP discussion - likely a collective groan in the room on that one...
Reducing the production growth to create a dividend, delaying a lot of field injections by a few years
Hastings is less than others for recovery - seems like efficient waterfloods lower the CO2 recoveries
Delphi is a bit worse that initially discussed - need additional capex to check on P&A wells
Hard to get additional oil fields (not sure they need any...), required the Bakken land to entice a deal

Overall, it looks like they realize they need to start showing the wall of cash flow in order to get any excitement in the stock. I have other stocks like this - Canadian Natural CNQ and Cenevous CVE which kind of have similar story. Huge upfront capex for the cashflow prize. All these stocks just trade sideways - i still hold on for the day it all works out - I think all of them have a good strategy, but I guess the timing for these stocks is closer to the point the wall of cash arrives.

[ghrcap]

Denbury Resources Inc. (NYSE:DNR) was downgraded by analysts at Susquehanna from a "positive" rating to a "neutral" rating. Previous closing price of $17.31

[dan_s]

Has anyone ever heard of "Susquehanna"?

[ghrcap]

Seriously?

They are probably the largest institution HQ'ed in Philly. They are a division of Susquehanna International Group.

"Susquehanna International Group (SIG) is a privately held global investment, trading and technology firm servicing securities markets worldwide. SIG comprises a number of affiliated entities specializing in trading and proprietary investments in equities, fixed income, energy, commodity, index and derivative products, private equity and venture capital, research, customer trading and institutional sales. Susquehanna is probably best known for expertise in derivatives pricing and trading, especially equity options.

SIG is a specialist or DPM (designated primary market maker) in approximately 600 equity options and 45 index options on the CBOE, AMEX, PHLX, and ISE, including big name equities such as Google, Goldman Sachs, JP Morgan, GE,

PepsiCo, and Microsoft and indices such as Nasdaq and Russell 2000 options.[1]

SIG's headquarters office is in Bala Cynwyd, a western suburb of Philadelphia, Pennsylvania, USA. The firm employs more than 1,500 people in offices across North America (New York, Chicago, San Francisco, Philadelphia, Boston), Australia (Sydney), Europe (Dublin), China (Shanghai, Beijing) and Hong Kong (Hong Kong). SIG is one of the largest employers in Lower Merion Township."

Duane Grubert is the analyst there who covers DNR and Denbury lists him on their IR page roster of covering analysts.

[ghrcap]

Duane also covers EXXI and he's a sharp guy. Ask Kim, Greg or Stewart what they think of his expertise.

[dan_s]

I'm sure they are very smart. The fact that I have never heard of them doesn't mean a thing. There are plenty of very smart people in this world that I have never met.