Denbury Resources [stock_market_widget type="inline" template="generic" color="default" assets="DNR" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] recently released its fiscal fourth quarter and full year 2018 results, and investors liked what they saw. The oil producer’s revenue and earnings were ahead of what analysts were expecting, and there was a lot to like about the guidance as well considering the massive capital spending cut that the company is planning for this year.
2018 Operational Highlights
Denbury produced 59,867 barrels of oil equivalent (BOE) per day for the fourth quarter of 2018, while for the full year, the company’s production averaged 60,341 BOE per day. |This represented a slight production decline during the fourth quarter as compared to the prior year period, while it was nearly flat on a full-year basis.
However, investors were pleased with the fact that Denbury’s production arrived at the higher end of its guidance range. Additionally, the company was able to generate $81 million in cash flow for the full year, while reducing its debt principal by $243 million. These positive developments were a result of an increase in Denbury’s average realized oil price (including derivative settlements), which came in at $57.91 per barrel for the full year as compared to $48.40 per barrel in 2017.
The higher oil prices for the full year enabled Denbury to increase its adjusted net income from $55 million in 2017 to $220 million in 2018. Revenue, meanwhile, was up 3.6% annually during the fourth quarter to $338 million. For the full year, the revenue increase was much more impressive at 30% thanks to the strong oil prices enjoyed by Denbury in the first three quarters of 2018.
However, what’s even more impressive is Denbury’s preparation for a weak oil pricing environment as well as what its guidance shows.
2019 Guidance Holds Its Ground Despite Oil Price Environment
Oil prices started tumbling in October last year, and it is only this year that they have started showing some signs of recovery. However, the recent recovery in oil prices seems to be shaky considering the developments around the globe, though OPEC’s decision to curtail production has turned out to be a solid driving force.
As it stands, West Texas Intermediate (WTI) oil is currently trading at $56 per barrel, but Denbury has designed its 2019 capital expenditure plan quite conservatively in case things go south. The company’s planned capital outlay of $240 million-$260 million for 2019 represents a 20%-25% cut over last year. But despite this massive spending cut, Denbury’s production is expected to drop less than 4% year over year at the mid-point of its 56,000-60,000 BOE per day guidance range.
What’s more, Denbury believes that it can generate between $50 million and $100 million in free cash flow at a WTI oil price of $50 per barrel. But with WTI oil now trading well above that level, there’s a good chance of Denbury generating stronger free cash flow than expected.
