DNR - Embedded Expectations Analysis - 2019 04 10
Denbury Resources Inc. (DNR:USA) currently trades at a steep discount to UAFRS-based (Uniform) Assets, with a 0.3x Uniform P/B. Although this discount may make shares appear attractive, management has concerns about oil price volatility and hedges, reserve value and well production, and their potential Penn Virginia acquisition.Specifically, management may be concerned about oil price volatility, their anticipated uses of cash, and their price floor hedges for oil. Moreover, they may be exaggerating the benefits of their CO2 EOR method for oil extraction, and may lack confidence in their ability to sustain PV-10 value increases for their reserves. Also, they may be concerned about oil production from the Charles B wells, and pipeline maintenance and G&A costs. Finally, they may be exaggerating the return potential and operational flexibility of Penn Virginia, and they may be concerned about their ability to produce attractive organic growth and free cash flow by acquiring Penn Virginia.
Denbury Resources is an independent oil and natural gas company. The company's operations are focused in two main operating areas: the Gulf Coast and Rocky Mountain regions. The company's properties with proved and producing reserves in the Gulf Coast region are situated in Mississippi, Texas, Louisiana and Alabama, and in the Rocky Mountain region are situated in Montana, North Dakota and Wyoming.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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