Denbury Resources Inc. (DNR)
Q2 2010 Earnings Call Transcript
August 5, 2010 11:00 am ET
Phil Rykhoek – CEO
Mark Allen – SVP and CFO
Ronald Tracy Evans – President and COO
Bob Cornelius – SVP, Operations
Mitch Wurschmidt – KeyBanc Capital Markets
Xin Liu – JPMorgan
Scott Hanold – RBC Capital Markets
Dave Kistler – Simmons & Company
Noel Parks – Ladenburg Thalmann
Eric Hagen – Lazard Capital Markets
Nicholas Pope – Dahlman Rose
Kevin Smith – Raymond James
Previous Statements by DNR
» Denbury Resources, Inc. Q1 2010 Earnings Call Transcript
» Denbury Resources Inc. Q4 2009 Earnings Call Transcript
» Denbury Resources, Inc. Q3 2009 Earnings Conference Call
Good morning and welcome to the Denbury Resources second quarter 2010 earnings release. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
I would now like to turn the conference over to Phil Rykhoek. Please go ahead.
Thank you. Welcome everybody to Denbury and ENP second quarter conference call. Similar to last time, we plan to talk about Denbury first, then we’ll follow with an update on ENP and then open it up for questions.
With me today, I have Tracy Evans, our President and COO; Mark Allen, our Senior VP and CFO; and Bob Cornelius, our Senior VP of Operations.
As you can see, things at Denbury are continuing to go well. As we highlighted in the press release, our production is ahead of forecast, expenses are on track or below and that’s always a nice combination which allowed us to beat the First Call earnings expectations by a few pennies.
Further, as you may notice, a significant portion of the green pipeline is now in service. We are also quite proud that we have replaced the proven reserves that we sold into our produced. As you can see, the value of the Encore assets we acquired are getting better and better as evidenced by our new estimate of the Bakken oil potential.
I might remind you that we didn’t pay much for that upside or non-proved reserves in our Encore transaction, and the fact that we’ve just added over 15 million BOEs of proven reserves in the Bakken, 12 million BOEs in the Haynesville, and now projected we could have up to 350 million BOEs of total Bakken potential, that’s up from Encore’s estimate of approximately 100 million barrels, illustrates the quality of the assets we acquired and, if you will, that the acquisition was a good deal.
The sale of the acquired southern Encore assets for $900 million was also a good value and also concluded sooner than expected. The point I am making is I want to reinforce what several of our shareholders are beginning to realize and that is the Encore acquisition was a good deal for us.
The other guys will walk you through the numbers and give you more details on this quarter’s news, but I think one of the things I am most proud of is that we maintained or exceeded our forecast in budgets during a time when there was an extra strain on our entire organization.
During the last several months, we have been actively moving forward, integrating Encore’s assets, systems, and personnel and we are far from done, but thanks to the diligent efforts of our employees all these extra work has not reduced the quality of our core operations and that is something I think all of us at Denbury can be proud of.
I think Tracy may give you a little update on divestitures, but we are about to send out a set of repackaged Haynesville assets. We have broken it up into smaller pieces, which we hope will be more attracted to the other operators by allowing them to limit the amount of non-operated interests they would be acquiring.
We are also marketing some other minor properties we acquired in the Encore acquisition, and our review of strategic alternatives for ENP is still ongoing. The ENP process has taken a bit longer than expected as we have been focused on a potential transaction on Elk Basin, one of the Rocky Mountain properties that we would like to flood with CO2 someday.
We are hopeful that we would be able to close on enough additional asset sales to fund the projected 2010 cash flow deficit as we are spending a bit more than we are making. If we accomplish this goal we will leave 2010 with very little or no bank debt, unless of course we buy something else. That would give us about $1.6 billon of dry powder for the future.
If these divestitures don’t materialize or close this year, we will simply dip into our almost unused bank credit line. Bottom line there are a lot of good things happening here at Denbury, the oil prices are even cooperating, most recently back in the low 80s in spite of a lethargic economy. It is definitely a good time to be an oil-focused independent.
Now let’s move on to details, Mark will give you a review of the financials.
Thank you, Phil. As reported in our press release, Denbury had net income for the second quarter of $135.4 million, $0.34 per basic common share. However, net income adjusted to exclude fair value hedging changes, the Encore merger-related costs, and the impact from a change in our tax rate as a result of the southern asset sale was $72.9 million or $0.18 per share.
As we’ve typically done, I’ll primarily focus on the sequential results of the first and second quarters of 2010. During the second quarter of 2010, our tertiary production was 28,507 barrels per day, 5% higher than our Q1 tertiary production.
On a pro forma basis, excluding the production associated with the southern property sale and assuming the acquired Encore properties had been included in our first quarter results for the entire quarter, our overall production increased 5% sequentially to 78,545 BOEs per day in Q2 as compared to 74,489 BOEs per day in Q1. That increased primarily due to our tertiary Bakken and Haynesville production.