Reading the Signals on Denbury Resources Inc. (NYSE:DNR)

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Denbury Resources Inc. (NYSE:DNR) is on track for gains as crude production continues to rise. DNR provided an average earnings surprise of 125% in the trailing four quarters. Its 2018 estimates have risen by 116.7% to 26 cents per share in the last 60 days. Currently, DNR is trending up with strong volume as the 10-day average is 9.13M, but the balance sheet is still ruining what would be a great story.

Oil and gas stocks like DNR are rebounding and this can be seen even in the slight gains following a devastating hurricane season. This fact is extra important for the Texas-based DNR. The company’s operating expenses ballooned in Q3 after an acquisition and Hurricane Harvey cleanup. Cash-flow is still blighted on the company and more debt swaps are coming as the company sees its price tick upward. The dilution has been rough, but investors might have seen the company fold without it.

Denbury Resources Inc. (NYSE:DNR) is an independent oil and natural gas company. The Company’s operations are focused in two operating areas: the Gulf Coast and Rocky Mountain regions. Its 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. It had an estimated proved oil and natural gas reserves of 254.5 million barrels of oil equivalent (MMBOE) as of December 31, 2016. Its primary Gulf Coast carbon dioxide (CO2) source is Jackson Dome, which is located near Jackson, Mississippi. Its mature group of properties includes the initial CO2 field, Little Creek, and other fields, including Brookhaven, Cranfield, Eucutta, Lockhart Crossing, Mallalieu and Soso fields. Its LaBarge Field is located in southwestern Wyoming. Its Riley Ridge Federal Unit is located in southwestern Wyoming and produces gas from the same LaBarge Field.

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Chris Kendall, DNR’s President and CEO, commented, “We made great progress on several fronts in the third quarter, reflecting both the quality of our assets and, more importantly, the dedication of our workforce to Denbury’s long-term success. Even with the impact of Hurricane Harvey, we arrested the production decline that began in early 2015. We expect production to further increase in the fourth quarter, positioning us nicely heading into 2018. We made significant improvements in our cost structure, both through a workforce reduction and other identified cost savings, and held our normalized LOE flat with the second quarter. Our capital discipline, combined with our low decline, low capital intensity asset base, delivered yet another quarter of investing within cash flow, and we expect cash flow and development capital to be nearly balanced for the full year. Finally, our bank group recently reaffirmed the $1.05 billion borrowing base of our bank credit facility, ensuring a continued strong liquidity cushion as we head into 2018.”

Commodity prices have been rising lately and that will also significantly aid cash flow. Management may be able to hedge some future production at today’s higher prices.

Denbury Resources Inc. (NYSE:DNR) has a market cap of $1.01B with a float of 385.39M. We expect DNR to dilute the stock more to beat back the debt issue. If the company is ever able to get on top of the debt, there is room for growth here. But this stock looks like it is a volatility play or one where only the most nimble trader should tread.  Sign-up for continuing coverage on shares of $DNR stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $DNR, either long or short, and we have not been compensated for this article.