How a Fall in Crude Oil Affected Denbury Resources’ Earnings



Denbury Resources’ 1Q16 revenue

In 1Q16, Denbury Resources reported adjusted revenue of ~$266 million, ~3% lower than Wall Street analysts’ consensus of ~$273 million. DNR’s 1Q16 revenue was ~41% lower than its 1Q15 revenue of ~$453 million. Even when compared sequentially with 4Q15, Denbury Resources’ 1Q16 revenue was lower by ~23%.

Due to the steep downward trend in energy prices, almost all S&P 500 (SPY) upstream companies such as Devon Energy (DVN), Marathon Oil (MRO), and ConocoPhillips (COP) reported ~35%, ~52%, and ~37% year-over-year falls in their 1Q15 adjusted revenues, respectively.

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Denbury Resources’ 1Q16 EBITDA

In 1Q16, Denbury Resources reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of ~$105 million, ~10% higher than Wall Street analysts’ consensus estimate of ~$96 million.

DNR’s 1Q16 adjusted EBITDA were ~53% lower than its 1Q15 adjusted EBITDA of ~$226 million. Even when compared sequentially with 4Q15, Denbury Resources’ 1Q16 adjusted EBITDA were lower by ~29%.

Denbury Resources’ EBITDA and crude oil prices

The lower-for-longer trend in natural gas prices in the last two years has not only seen the values of crude oil and Denbury Resources’ stock fall by ~53% and ~75%, respectively, it has also taken its toll on Denbury Resources’ earnings.

As seen in the above chart, in 1Q14, Denbury Resources’ adjusted EBITDA was ~$325 million while crude oil prices averaged $98.61 per barrel. However, as crude oil’s downtrend progressed, Denbury Resources’ EBITDA was hit by lower realized prices.

In 1Q16, Denbury Resources’ adjusted EBITDA were ~70% lower than in 1Q14. This was the direct result of a ~66% fall in average crude oil prices during the same period.

For 2Q16, Wall Street analysts estimate that Denbury Resources’ adjusted EBITDA will be ~$115 million, ~59% lower compared to 2Q15.

What’s in this series?

After experiencing such a steep fall in revenue and earnings for the last six quarters, where do Denbury Resources’ financials stand today? How have lower earnings affected its debt position, leverage, cash flow, and capital expenditure? How does DNR compare to its peers?

We’ll discuss all of these questions in this series by studying Denbury Resources’ earnings, debt, leverage, cash flow, and relative valuation. Finally, we’ll see what institutional investors think about Denbury Resources.

Let’s start by taking a look at Denbury Resources’ 1Q16 adjusted EBITDA, normalized for total production.


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