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Morningstar | Lowering Denbury's FVE to $2 per Share, Stock Fairly Valued. See Updated Analyst Note from 01 Mar 2019

We are reducing our fair value estimate for Denbury to $2 per share after incorporating the firm's fourth-quarter financial and operating results. Though our previous production growth estimates over the next few years still look good, we were probably baking in too much improvement on the operating cost side. The firm has made huge progress bringing its lease operating expense down from over $25 per barrel of oil equivalent back in 2014, but more recently this item has oscillated around $20-$22/boe (making our prior go-forward assumption of $18/boe look overly optimistic).

As a reminder, the firm's fourth-quarter production came within guidance at 60 thousand barrels of oil equivalent, or mboe/d, (1% higher sequentially and 2% lower year over year). But the firm's financial results were slightly better than expected, with adjusted EBITDA and adjusted earnings per share coming in at $162 million and $0.10, respectively (consensus estimates of $132 million and $0.09).

Looking to 2019, the budget was set at $240 million-$260 million, which is 20%-25% below the 2018 spending level (a response to the recent slump in crude prices, which ensures that the firm will live within cash flows at $50 WTI). But as the firm was able to push the facilities spending related to its long-term Cedar Creek Anticline tertiary project into 2020, the budget cut will have little impact on its output this year. The firm anticipates production growth of about 4% at the midpoint of guidance (pro forma for the previously announced Penn Virginia acquisition, which is likely to close in the first half of 2019).