Denbury Ups '12 Yield Outlook - Analyst Blog

Oil and natural gas company Denbury Resources Inc. (DNR) has raised its 2012 annual production guidance. The company expects total production for 2012 in the range of 69,775–74,775 barrels of oil equivalent per day (Boe/d).

The 1,150 Boe/d increment in production estimate was made following the closure of its purchase of Thompson Field in Fort Bend County, Texas. The raised guidance reflects average daily production of about 2,000 barrels of oil from the properties acquired, for the remainder of 2012. Denbury targets its total production in the upper half of the company's estimated range.

The acquisition of Thompson Field cost the company approximately $360 million prior to purchase price adjustments. Denbury proposes to fund the purchase with $213 million in cash (generated from its sale of non-core properties earlier in 2012) and borrowing under its revolving credit facility. The portion of the acquisition that was financed by the property sale did not generate any tax liability on it, thereby facilitating the company with a tax gain of $30 million in 2012.

The Thompson field in Fort Bend County produces 2,200 barrels of oil per day and holds potential conventional reserve capacity of around 17 million barrels of oil. The 8,454 acre oilfield, which produces oil from the Frio zone, is located 18 miles west of the Hastings field, and will be used to enhance oil recovery by pumping carbon dioxide.

The Thompson field, discovered in the early 1930s, was jointly owned and operated by Chevron Corporation (CVX) and ExxonMobil Corporation (XOM) from 1932 onwards. Later, both companies sold their stakes in separate transactions to a private buyer, who then sold it to Denbury in 1999 and 2003.

Denbury holds a Zacks #3 Rank, which translates to a Hold rating for a period of one to three months. For the long term, we maintain our Neutral recommendation.

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