DNR Update

[dan_s]

I will be updating my forecast for Denbury this weekend after I get some "fires" put out. Below is a summary of their conference call from an analyst. IMO their recent acqusition is a big plus. - Dan

Q1’12 Bottom Line – As outlined in our Quick Read note this morning, Denbury
reported better-than-expected bottom line results due to lower-than-projected LOE and
G&A costs, while output and commodity price realizations were previously disclosed.
 Production Guidance Intact – Denbury reiterated full-year production guidance of
68.2-73.2 MBOE/d (adjusted for asset sales) and now projects output will be at the
higher-end of this range due to a faster-than-anticipated ramp-up of tertiary oil and
Bakken shale volumes. Thus, adding ~2.2 MBOE/d for the recently announced
Thomson field acquisition (not in DNR’s guidance yet), we are modeling 2012 output of
~74 MBOE/d, up ~13% year over year. Nearly one-half of total production should be
from tertiary fields and another ~22% from the Bakken shale.
 Raising Capex Estimate – The company now pegs its 2012 capital budget at $1.5bn,
up $150mm from its previous estimate and up ~3% yr/yr due to accelerated tertiary
development and keeping a fourth Bakken rig drilling throughout the year. With another
$360mm allocated for the Thomson field acquisition and $240mm of proceeds from first
quarter asset sales, we project Denbury will outspend operating cash flow by just
$18mm this year, which can be easily covered by its revolver.
 Tertiary Update – Following initial response from Oyster Bayou and Hastings fields in
December last year and January of this year, output from both areas is growing faster
than expected, with a continued ramp-up expected through the year. Tinsley is
projected to reach capacity by mid-2012 post Q4 remediation activity and additional
wells are continuing to drive growth at Delphi.
 Bakken Update – Following encouraging results from its Three Forks well test (Cherry
area), Denbury is planning 17 wells in the region this year with an emphasis on multipad
drilling and optimization techniques to lower costs ($10.8mm/well currently). As
planned, Denbury will drop one of its five operated rigs in the play in a few weeks.
 Adjusting Estimates – Adjusting for the Thomson field purchase, higher capex
guidance and other minor changes, our EPS/CFPS estimates are now $1.85/$4.20
(from $1.88/$4.19) for 2012, and $2.53/$5.48 (from $2.29/$5.02) for 2013.