Denbury's Oil Growth Continues

Denbury Resources' DNR adjusted fourth-quarter earnings of $45.8 million were above adjusted year-ago earnings of $35.3 million as higher oil prices and tertiary oil production offset the negative impact of higher operating costs and lower production after the sale of Barnett Shale assets in 2009. Production for the fourth quarter was 45,012 barrels of oil equivalent per day, down 7% from year-ago levels largely because of the Barnett Shale sale. We're encouraged by continuing growth at tertiary oil operations, where production grew 20% to 26,307 boe/d in the fourth quarter from 21,874 boe/d a year ago. These results were roughly in line with our model assumptions, prompting no change in our fair value estimate.
Denbury benefited from timely tertiary oil production startup at Cranfield and Heidelberg fields in 2009 along with improved production response at Tinsley, Brookhaven, Eucutta, and Soso fields. Denbury plans to start up tertiary oil production at Delhi Field in mid-2010, but we're more interested in its postmerger plans to develop enhanced oil recovery prospects at acquired Encore Acquisition EAC properties. Denbury expects to close its purchase of Encore on or near March 9 and is working on asset sale packages that could raise $500 million to $1 billion in proceeds. We'll look for news of Denbury's plans to develop acquired Rockies properties and for more development plans at acquired Conroe and Hastings fields in Texas. Timely execution of asset sales and tertiary oil production will be crucial for Denbury this year.