Energy Prospectus

..Denbury Resources upgraded to Strong Buy from Outperform at Raymond James

Theflyonthewall.com – 48 minutes ago

..Raymond James upgraded Denbury based on oil growth from Bakken shale drilling and its tertiary operations. Price target is $22.

..

If oil stays over $100/bbl, DNR is going to have a fantastic year and it is worth a lot more than $22/share.

I will be posting an updated forecast model under the Sweet 16 Tab today.

DNR has 55% of their 2012 natural gas production hedged at $6.50/mcf. They also sell 60% of their oil into the Gulf Coast Market at close to Brent. Their realized oil price in the 3rd quarter was $96.85/bbl, so it may top $100/bbl in Q4 considering how high Brent was for most of the quarter. Their North Dakota oil sells at about a $10/bbl discount to WTI.

DNR's production should be around 70,000 boepd now with 92% of production oil.

The Bakken will drive production higher in Q4 and Q1. A couple tertiary projects (CO2 Floods) will kick in big time mid-2012.

dan, you significantly raised dnr's fair value. even though you have forecasted lower earnings in '12.

the lower eps surprised me--what caused this? is it the slower returns on the capex for the new tertiary projects?

You may be looking at something wrong. My forecast for 2012 did not change very much.

Earnings per share:
> 2010 Actual: $0.68
> 2011 Forecast: $1.64
> 2012 Forecast: $1.42
Note that Q2 and Q3 actuals for 2011 include big gains on their derivatives. I do not include mark-to-market adjustments on hedges in my forecasts, so you can compare my numbers to First Call. Plus, they are almost impossible to forecast.
Also, you should note that the most recent forecast submitted to First Call is $1.76 EPS for 2012. It was probably submitted by Raymond James. I have a very high level of respect for the RJ energy sector team based in Houston.

For all E&P companies your focus should be on cash flow per share.
Cash Flow per share:
> 2010 Actual: $1.88
> 2011 Forecast: $3.09
> 2012 Forecast: $3.33

IMO, because DNR has such high quality long-lived reserves, it should trade at close to 10 X CFPS. They also have an extremely valuable acreage position in the Bakken Shale. My "Fair Value" estimates are what I think a company would sell for in a competitive bid takeover.

you be right--i got first call ests mixed up with your fv in my memory banks.

and thx for reminding of the mark to mkt issue.