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Denbury Resources’ Operating Costs Are Drifting Upward

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Denbury’s operating costs

Revenues represent just one side of a company’s profitability. Revenues are the money a company earns from its operations. In the case of an oil exploration and production (or E&P) company such as Denbury Resources (DNR), revenues are mainly driven by the price of crude oil and the level of its production.

Check out our analysis of Denbury’s production in the Market Realist article Analyzing Denbury Resources’s production.

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The other side of a company’s profitability equation is costs. Broadly, revenues less costs equals profits. While crude oil prices cannot be controlled by E&P companies, they can boost production through investments. They can also control and sometimes even reduce operating costs through efficiency measures.

A breakdown of operating costs

A breakdown of Denbury Resources’ (DNR) operating costs over the last few quarters on a per barrel of crude oil equivalent (or BOE) can be seen in the above table.

Over the last 12 quarters, Denbury’s operating costs have been drifting upward. They rose from $21.19 per BOE in 1Q12 to $22.64 per BOE in 4Q14.

The company has managed to reduce $1.82 per BOE in other costs and $0.21 per BOE in well workovers. Well workovers include additional work needed on already completed wells. These reductions are a good sign that the company has experienced greater increases elsewhere.

The largest of these increases came from  power and fuel costs, followed by labor and overhead costs and CO2 costs. CO2 costs are unique to producers like Denbury.

Unique producer

Denbury’s CO2-based enhanced oil recovery (or EOR) for deriving most of its production makes the company unique among its upstream peers. However, other American energy companies such as Occidental Petroleum (OXY), Apache Corporation (APA), and Anadarko Petroleum (APC) also use CO2 EOR.

Denbury Resources (DNR) is a relatively small energy company with a market capitalization of ~$2.7 billion. Nevertheless, the company finds a place in the broad market SPDR S&P 500 ETF (SPY) and the iShares U.S. Energy ETF (IYE), accounting for ~0.014% and ~0.16% of these ETFs, respectively.

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