Denbury Resources (DNR)

Transcription

1 Americas/United States Equity Research Oil & Gas Exploration & Production Rating (from Neutral) OUTPERFORM* Price (28 May 13, US$) Target price (US$) (from 20.00) 24.00¹ 52-week price range Market cap. (US$ m) 6, Enterprise value (US$ m) 9, *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. Share price performance Research Analysts Arun Jayaram, CFA David Yedid, CFA Helen Xu Daily May 29, May 28, 2013, 5/29/12 = US$ May-12 Aug-12 Nov-12 Feb-13 Price Indexed S&P 500 INDEX On 05/28/13 the S&P 500 INDEX closed at Quarterly EPS Q1 Q2 Q3 Q4 2012A E E Denbury Resources (DNR) UPGRADE RATING Winds of Dividend Change Blowing; Raise to Outperform with $24 Target Price Our take: DNR is contemplating a major strategy shift from a growth focus to a balanced growth and income model, with a meaningful dividend component through an upstream MLP structure. In our view, this would be a seminal event for the stock. We believe such a strategy shift would support a re-rating in DNR shares given the growing market appetite for yield (think MLPs, Refiners, and select Offshore Drillers). We see an asymmetric riskreward profile with significant upside, as we do not believe this potential shift is discounted in DNR shares. We see limited downside given strong asset value support at current levels. Upgrade to Outperform, with $24 target price. DNR can walk and chew gum unlike the lion s share of its upstream peers: At this stage in the company s life-cycle, DNR can meaningfully downshift its E&P capital spend, while still growing production. This is unique relative to the bulk of its E&P peers focused on shales, which have hyperbolic decline profiles. This stems from DNR s focus on Enhanced Oil Recovery (EOR) as well as the completion of the company s key infrastructure projects in the Gulf Coast (Green pipeline) and Rockies (Greencore pipeline). Our analysis suggests that DNR could walk and chew gum deliver competitive oil production growth and support a meaningful dividend a sector rarity. Estimate revision: We are increasing our 2013 and 2014 EPS/CFPS to $1.59/$3.84 and $1.60/$4.04 from $1.41/$3.42 and $1.51/$3.76 to incorporate upside Q113 results and updated guidance on the company s recent Q113 conference call. We now forecast 2013 and 2014 production to average 71.3 and 77.8 MBoe/d, up from 70.9 and 77.4 MBoe/d previously. Financial and valuation metrics Year 12/12A 12/13E 12/14E 12/15E Revenue (US$ m) 2, , , ,769.3 EBIDAX (US$ m) 1, , , ,538.1 EPS (CS adj.) (US$) Prev. EPS (US$) ROGIC (%) P/E (x) P/E rel. (%) OCFPS (US$) P/OCF (x) Qtrly ent. val./tot. EBIDAX Net debt (US$ m) 3,047 3,038 2,656 2,454 Dividend (current, US$) Dividend yield (%) Net debt current qtr (US$ m) 3,209.5 Net debt/tot cap (Next Qtr., %) 61.8 BV/share (Next Qtr., US$) 14.0 GIC (12/13E, US$) 8,498.6 EV qtr/gic (x) 1.2 Current WACC Free float (%) Number of shares (m) Source: Company data, Credit Suisse estimates. DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit or call +1 (877) US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

2 Three key levers plus a kicker. We see three key levers for the shift to a more income focused strategy (1) Flatten EOR spend; (2) Utilize MLP structure to enhance tax efficiency of distributions; (3) Hedge meaningful oil volumes to reduce the volatility of future cash flows to support dividends. Meanwhile, we see the potential for multiple expansion assuming a shift to an MLP structure judging by comparative premium valuations for upstream based MLPs. 1. Flattening EOR capex could meaningfully boost free cash flows. Under its current structure that is focused on growth, we forecast 7%, 9%, and 9% oil production growth, with capex of $1.1B, $1.2B, and $1.2B from 2014 to Assuming conversion to a more balanced growth and income model, we estimate DNR could reduce capex by $337 MM, and $344 MM in 2015 and 2016, while delivering competitive oil production growth of 5% and 6%. This would involve flattening EOR spend from a timing perspective. 2. MLP structure would enhance tax efficiency and provide stronger currency for property deals. Another tool at management s disposal to further augment the dividend would be to utilize an MLP structure to enhance the tax efficiency of distributions. As MLPs trade at premium valuations relative to C corps, this could provide Denbury (DNR) a stronger currency to pursue property transactions such as its recent CCA deal with COP. 3. Hedging significant volumes. One of the challenges in employing an MLP structure is the unpredictability of future cash flows given commodity price risk. Given the predictable nature of DNR s production base tied to EOR, management could utilize hedges over a significant chunk of its volumes to lock in future cash flows. What is the magnitude of the dividend? Using the above three levers and assuming DNR commits 50%, 65%, and 75% of its free cash flows toward dividends between 2014 to 2016, we estimate DNR could support a $0.52, $0.86, and $1.02 per share dividend over these three years. This would equate to a dividend yield of 4.6% versus the 1.1% average of the large cap and mid-cap peer group based on our projected dividend for DNR in Shift to MLP structure also deals with a key longer-term elephant in the room. Irrespective of the contemplated strategy shift, DNR was likely going to be generating significant free cash flows beginning in While this was clearly a long-term positive for the story, one of the tradeoffs was the fact that the company would be a significant tax cash payer given reduced tax deferrals from a lower capex spend. A shift to an MLP would clearly support higher distributions, particularly in out-years beyond LLS has decoupled and is no longer a large headwind. When we initiated coverage on DNR shares in September 2012, our Neutral thesis was based on our anticipation that LLS would derate relative to WTI given rising oil supplies along the Gulf Coast. This has largely played out as we expected, with the LLS premium to WTI narrowing from $19.80 per bbl to $8.85 per bbl. With the stock now discounting a narrower LLS premium to WTI, this is no longer a headwind for the shares, in our view. Raise NAV to $24 from $20 per share. We are adjusting our NAV to $24 per share from $20 to incorporate the closing of the $1.05 billion purchase of additional interests in the Cedar Creek Anticline field from ConocoPhillips (COP), which closed at the end of March. Our revised NAV also incorporates analysis from the company s 10-K. Upgrade to Outperform and increase target price to $24 from $20. Using consensus estimates, upstream MLPs trade at 9.4x and 7.6x 2013E and 2014E EBITDA, 47% and 25% premiums to DNR s current multiples of 6.4x and 6.1x on our estimates. As such, we would anticipate a meaningful step-up in DNR s multiple if they Denbury Resources (DNR) 2

3 shift to an MLP structure. We believe a shift to a balanced growth and income structure for DNR would support a target multiple of 8.0x EBITDA given the strength of the company s asset base and rising cash flow profile thereby justifying a 12-month target price of $24 per share, which is at parity with our revised NAV. We see 29% upside from current levels, which we believe warrants an upgrade in our rating to Outperform from Neutral. Denbury Resources (DNR) 3

4 Dividend Change Winds Blowing Since its inception, DNR has never paid a common stock dividend. DNR is contemplating a major strategy shift from a growth focus to a balanced growth and income model. In particular, management could implement a meaningful dividend utilizing an upstream LP structure. Given the growing market appetite for yield (note the significant outperformance of MLPs, Refiners, and select Offshore Drillers), we believe this would be a seminal event for the stock. Despite the fact that the lion s share of DNR s properties are conventional, the company has a large portfolio of secondary and tertiary projects through CO 2 injection, which should support a visible, long-term growth profile. Importantly, we believe its asset base is ripe for an upstream MLP given the lower decline rate of its properties relative to unconventionals. This stems from DNR s focus on Enhanced Oil Recovery (EOR) as well as completion of the company s key infrastructure projects in the Gulf Coast (Green pipeline) and Rockies (Greencore pipeline). We see three key levers for a strategy shift to an income focused strategy. 1. Flattening EOR capex could meaningfully boost free cash flows. We forecast 7%, 9%, and 9% oil production growth, with capex of $1.1B, $1.2B, and $1.2B from 2014 to Assuming conversion to a balanced growth and income model, we estimate DNR could reduce capex by $337 MM and $344 MM in 2015 and 2016, while delivering competitive oil production growth of 5% and 6%. This would involve flattening EOR spend from a timing perspective. 2. MLP structure would enhance tax efficiency and provide stronger currency for property deals. Another tool at management s disposal to further augment the dividend would be to utilize an MLP structure to enhance the tax efficiency of distributions. As MLPs trade at premium valuations relative to C corps, this could provide Denbury (DNR) a stronger currency to pursue property transactions such as its recent CCA deal with COP. 3. Hedging significant volumes. One of the challenges in employing an MLP structure is the unpredictability of future cash flows given commodity price risk. Given the predictable nature of DNR s production base tied to EOR, management could utilize hedges over a significant chunk of its volumes tied to LLS to lock in forward cash flows. Using the above three levers and assuming DNR commits 50%, 65%, and 75% of its cash flows toward dividends between 2014 to 2016, we estimate DNR could support a $0.52, $0.86, and $1.02 dividend per share in these three years. This would equate to a dividend yield of 4.6% versus the 1.1% average of the large cap and mid-cap peer group on the 2015 dividend. Exhibit 13 on page 11 illustrates the current upstream MLP multiples assuming consensus estimates. The peer group is trading at 2013 and 2014 EV/EBITDA multiples of 9.4x and 7.6x, respectively. This compares to DNR s 2013 and 2014 multiples of 6.4x and 6.1x times. Exhibit 1 highlights the sensitivity of DNR s stock price to various multiples and commodity prices under our MLP case. The key assumptions around this case are included on pages We believe a shift to a balanced growth and income structure for DNR would support a target multiple of 8.0x EBITDA given the strength of the company s asset base and rising cash flow profile. We believe this should support a 12-month target price of $24 per share, which is also at parity with our revised NAV. Denbury Resources (DNR) 4

5 Exhibit 1: DNR Stock Price Under MLP Scenario Oil Price EBITDA 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x 9.5x 10.0x $60.00 $1,069 $11.09 $12.55 $14.00 $15.46 $16.92 $18.37 $19.83 $21.29 $70.00 $1,133 $12.22 $13.77 $15.31 $16.86 $18.40 $19.94 $21.49 $23.03 $80.00 $1,197 $13.36 $14.99 $16.62 $18.25 $19.88 $21.51 $23.14 $24.77 $90.00 $1,451 $17.86 $19.83 $21.81 $23.79 $25.76 $27.74 $29.72 $31.69 $ $1,684 $21.98 $24.28 $26.57 $28.87 $31.16 $33.46 $35.75 $38.04 Source: Company data, Credit Suisse estimates. Note: this table illustrates the sensitivity in DNR s stock price to various EBITDA multiples on 2014 estimates assuming conversion to an upstream MLP. The key assumptions that underpin these EBITDA assumptions are included on pages We see an asymmetric risk-reward profile, with significant upside as we do not believe this potential shift is discounted in DNR shares and limited downside given strong asset value support at current levels. We see 29% upside from current levels, which we believe warrants an upgrade in our rating to Outperform from Neutral. One of the pushbacks to our call is the fact that DNR had previously shunned an MLP structure, citing increased complexity and limited value uplift as DNR shares already trade at a premium valuation. We believe DNR is now ready to shift to an MLP structure as the timing of its free cash flow profile is in the near future, perhaps as early as When we initiated coverage on DNR shares in September 2012, our Neutral thesis was based on our anticipation that LLS would derate relative to WTI given rising oil supplies along the Gulf Coast. This has largely played out as we expected, with the LLS premium to WTI narrowing from $19.80 per bbl at the time of our initiation to $8.85 per bbl. Exhibit 2: LLS Premium Relative to WTI Source: Bloomberg DNR has assets ripe for an MLP Given the depleting nature of the asset base, one of the most important characteristics of a successful E&P company is the presence of a core foundation asset that provides an inventory of low-cost and low-risk development drilling opportunities. A foundation asset with a longer reserve life is critical to not only support near-term production growth but provide a source of dependable cash flow that can be reinvested in long-term growth projects. In a robust oil price environment, tertiary recovery through CO 2 is an effective enhanced oil recovery (EOR) technique to maximize oil production, support long-term production growth, and boost returns. CO 2 EOR is an alternative method of extracting oil from a reservoir that has already undergone some sort of primary or secondary extraction. CO 2 Denbury Resources (DNR) 5

6 acts as a solvent that unlocks oil from porous rock, allowing oil to flow through the reservoir and into production wells. Denbury Resources is one of the largest CO 2 reserve holders in the U.S., with 9.6 Tcf of CO 2 reserves. The company is the leading producer of CO 2 in the Gulf Coast region and the second largest CO 2 EOR producer in North America. Exhibit 3: CO 2 Life Cycle EOR Production Recovery vs. Primary or Secondary Recovery Secure CO 2 Supply Transport via Pipeline Inject into Oilfield Primary, 20% Secondary (waterfloods), 18% Tertiary (CO2 EOR), 17% Remaining Oil, 45% Source: Company data. We consider enhanced oil recovery properties as foundation assets, given attractive full-cycle costs, a predictable production stream, and a favorable free cash flow profile on our long-term oil forecast. Despite the fact that the lion s share of DNR s properties are conventional, the company has a large portfolio of secondary and tertiary projects, which should support a visible, long-term growth profile. Importantly, we believe its asset base is ripe for an upstream MLP given the lower decline rate of its properties relative to unconventionals. The company also has significantly higher production visibility than its peers given its longer reserve life. Finally, a significant chunk of its infrastructure spending, particularly in the Gulf Coast is in the rear-view mirror, which is another factor that would support the return of cash to shareholders. Exhibit 4 shows the lower estimated decline rate of DNR s properties relative to the significant hyperbolic decline rate for unconventionals in several plays. Our analysis shows the initial first year declines in several of DNR s EOR properties that have peaked relative to 1 st year declines in several key unconventional liquids plays. Denbury Resources (DNR) 6

7 Exhibit 4: EOR 1 st Year Production Decline vs. Horizontal Drilling 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1st Year Decline Rate by Basin (Horizontal Drilling vs. EOR) Source: Company data, Credit Suisse estimates Exhibit 5 illustrates that the company s reserve life index of 17.6 years is significantly higher than the peer group average of 12.4 years, which highlights the enhanced visibility of DNR s future production profile relative to its peer group. Exhibit 5: Denbury s Reserve Life Index Relative to Its Peers Reserve Life Index: DNR vs. Peer Group Peers DNR Source: Company data, Bloomberg Finally, the company has spent significant capex on CO 2 related infrastructure, including pipelines. As such, the level of infrastructure spending as a whole should decline over time (particularly along the Gulf Coast). The easing of infrastructure spend would also support the ability of management to institute a dividend policy over time. Denbury Resources (DNR) 7

8 Exhibit 6: Historical Infrastructure Spending--CO 2 Pipelines and Sources Total CO 2 Pipelines $103 $343 $543 $172 $134 $182 $110 $1,587 CO 2 Sources (incl. Riley Ridge) $68 $120 $88 $73 $104 $239 $200 $891 Total $171 $463 $630 $245 $238 $420 $310 $2,478 Source: Company data, Credit Suisse estimates DNR has a visible project inventory in the Gulf Coast and Rockies that can provide consistent growth even at lower capex levels assuming DNR shifts to a growth and income model. Tertiary production from DNR s CO 2 floods in the Gulf Coast should drive consistent growth through the middle part of the decade ( ) before its longer-term projects in the Rocky Mountains (Bell Creek and Cedar Creek Anticline) begin to drive the next layer of growth. In addition, the Conroe, Webster, Hastings, and Thompson properties in the Gulf Coast are not expected to peak until after What are the potential benefits to DNR from an MLP? There are several benefits for DNR to shift to an MLP structure if it plans to pursue a growth and income focused model. Irrespective of the contemplated strategy shift, DNR was likely going to be generating significant free cash flows beginning in While this was clearly a long-term positive for the story, one of the tradeoffs was the fact that the company would be a significant tax cash payer given reduced tax deferrals from a lower capex spend. We believe the company would be able to defer less than 50% of its income tax accrual in 2017 versus 85% today. Exhibit 7: Typical MLP Structure Sponsor Common & Sub Units 100% Public General Partner (GP) Common Units Master Limited Partnership (MLP) 100% 2% GP & IDRs Operating Limited Partnership (Assets and Businesses) Source: Company data, Credit Suisse estimates A shift to an MLP would clearly support higher distributions, particularly in out-years beyond The key benefits include: Tax efficiency: As a pass-through entity, MLPs are an efficient way to distribute cash to owners and avoid double taxation. Cost of capital advantage: There is a cost of capital advantage because MLPs pay no corporate level federal tax. Denbury Resources (DNR) 8

9 Tax deferred distributions. Cash distributions are treated as a tax deferred return of capital. Stronger currency to pursue property acquisitions. MLPs trade at premium valuations relative to C corps given the significant tax advantage as well as focus on cash distributions. This would provide DNR with a stronger currency to pursue property transactions. In order to maintain maximum flexibility, DNR as the C corp should transfer its assets to a newly created MLP or LLC. DNR would remain a C corp for tax purposes and its sole purpose would be to own one unit of the MLP for each DNR share outstanding. As a result, DNR would simply receive cash distributions from the MLP and then distribute this cash flow in the form of a dividend to its existing shareholders. Exhibit 8 illustrates the key differences between an MLP, LLC, or C Corp structure. Exhibit 8: Major Differences Between MLPs, LLCs and Corporations Characteristics MLP LLC Corporation Taxable at entity level Tax items flow through Tax deferral on distributions Tax reporting K-1 K-1 DIV-1099 General partner Incentive distribution rights (IDRs) Investor voting rights Source: National Association of Publicly Traded Partnerships (NAPTP) Given its structure as a C corp, DNR would provide the MLP with a currency if it wants to pursue an M&A transaction for a public company as DNR shares could be held by the majority of the target s existing shareholders (unlike an MLP). On the other hand, the MLP would have a stronger currency to pursue property transactions such as the recently completed purchase of additional interests in the Cedar Creek Anticline. An example of an upstream MLP structure is Linn Energy (RESTRICTED, $34.75), which is an independent oil and natural gas company that began its operations in March Linn Energy completed the IPO of LINE on January 12, 2006 becoming the first publicly traded independent oil and natural gas limited liability company (LLC). As an LLC, LINE has no incentive distribution rights. The effect of this is to lower its cost of capital relative to other MLPs. LinnCo, LLC (LNCO) was formed in 2012 and structured as a corporation for tax purposes. The company s sole purpose is to own one LINE unit for each LNCO share outstanding. As a result, LNCO receives cash distributions from LINE and then redistribute this cash flow in the form of a dividend to its shareholders (after withholding cash to pay taxes on income allocated to it by LINE). Exhibit 9 and Exhibit 10 illustrate the corporate structure utilized by Linn Energy. LinnCo is essentially a C corp that is utilized to pursue corporate acquisitions. Denbury Resources (DNR) 9

10 Exhibit 9: Linn Energy Structure Linn Energy, LLC (LINE) 229,895,612 units outstanding Exhibit 10: LinnCo Structure Linn Energy, LLC (LINE) Cash Distributions Public LINE Units LinnCo, LLC (LNCO) LinnCo, LLC (LINE) 199,645,612 units (87%) 30,250,000 units (13%) Public LNCO Shares 30,250,000 shares (100%) Cash Distributions from LINE - Taxes on Allocated Income = Cash Available for Dividend Cash Dividends Source: Company data Dividend Scenario Analysis Source: Company data Exhibit 11 illustrates our production and free cash flow estimates for DNR under our Base Case model, which assumes growth and no dividend. Given the magnitude of capex spend and forecasted declines in oil prices, the company s free cash flow per share profile was relatively modest, although we note an increasing cash balance. Exhibit 11: Base Cash (non-mlp, Current Forecast) Scenario Base Case Capex $1,063 $1,100 $1,200 $1,200 Total Production (MBoe/d) Oil Production (MBopd) Oil Growth 7% 9% 9% Average Oil Price $ $ $94.41 $84.02 Cash Taxes $65 $55 $47 $36 Free Cash Flow $311 $382 $203 $67 FCF per Share $0.84 $1.04 $0.55 $0.18 Cash Balance $225 $406 $609 $676 Source: Company data, Credit Suisse estimates Exhibit 12 illustrates the potential impact to cash flow assuming the shift to a balanced dividend and income model. The key assumptions in our analysis are: Reduced Capex. A reduction in 2015 and 2016 capex to approximately $850 MM per annum from $1.2 billion per annum. Lower oil production. Given lower capex, we assume 3.0% and 6.1% lower production volumes in 2015 and 2016 or approximately 2,589 Boe/d and 5,614 Boe/d. Higher G&A expense. We raised our G&A expense by $20 MM per annum to incorporate higher costs administration costs associated with supported an MLP structure (dual-reporting, etc.). Rising payout ratios. We assume DNR could raise its payout ratio as a percentage of FCF from 50% in 2014 to 65% in 2015 and 75% in Despite the increase in the payout, our analysis shows the company s cash balance rising from $225 MM currently to $712 MM by the end of LNCO Shareholders Denbury Resources (DNR) 10

11 Low cash taxes. Under a dividend model, we assume the cash tax rate of the MLP would be 0%. That said, distributions to the C corp would likely have some minimal cash taxes. Commodity price hedges. We assume DNR hedges 80% of forward oil volumes at the current futures strip. Exhibit 12: The MLP Case MLP Case Capex $1,100 $863 $856 Total Production (MBoe/d) Oil Production (MBopd) Oil Growth 7% 5% 6% Average Oil Price $ $93.16 $89.33 Cash Taxes $55 $0 $0 Free Cash Flow $385 $486 $500 FCF Per Share $1.05 $1.32 $1.36 Dividends Per Share $0.52 $0.86 $1.02 Payout as % of FCF 50% 65% 75% Cash Balance $417 $587 $712 Source: Company data, Credit Suisse estimates Exhibit 13 illustrates the current upstream MLP multiples assuming consensus estimates. The peer group is trading at 2013 and 2014 EV/EBITDA multiples of 9.4x and 7.6x, respectively. This compares to DNR s 2013 and 2014 multiples of 6.4x and 6.1x. Exhibit 13: Upstream MLPs EV-to-EBITDA Multiples Name Ticker EV EBITDA ($MM) EV / EBITDA ($MM) 2012A 2013E 2014E 2012A 2013E 2014E Exploration & Production Arc Resources Ltd. (Canada) ARX 9, , x 10.8x 9.1x Atlas Resource Partners LP ARP 1, x 6.1x Breitburn Energy Partners, LP BBEP 2, x 8.5x 6.7x Crescent Point Energy Corp (Canada) CPG 16,251 1,669 1,845 2, x 8.8x 7.7x EV Energy Partners, LP EVEP 2, x 12.9x 9.2x Legacy Reserves L.P. LGCY 2, x 8.7x 8.3x Linn Energy, LLC LINE 14,470 1,420 1,773 2, x 8.2x 6.2x Mid-Con Energy Partners L.P. MCEP x 8.8x 7.4x Pioneer Southwest Energy Partners LP PSE 1, x 12.2x 9.7x QR Energy, LP QRE 2, x 6.5x 5.2x Vanguard Natural Resources LLC VNR 3, x 9.4x 8.0x Average 9.7x 9.4x 7.6x Median 9.1x 8.8x 7.7x Source: Company data, Credit Suisse estimates, Factset Exhibit 14 highlights the anticipated dividend yield on DNR relative to the peer group. This is based on the MLP case highlighted in Exhibit 12. Based on our analysis, DNR would have the most attractive yield among its large cap and mid cap E&Ps in our coverage group. Denbury Resources (DNR) 11

12 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb % 1.28% 0.85% 0.79% 0.58% 0.52% 0.41% 0.21% 1.97% 2.50% 4.62% 4.26% 29 May 2013 Exhibit 14: E&P Coverage Dividend Yield E&P Coverage Dividend Yield 5.00% 4.50% 4.00% Group Average: 1.14% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Source: Company data, Factset Exhibit 15 shows the historical performance of MLPs, Refiners, and E&Ps over the past 5 years. Note the meaningful outperformance of MLPs, which have historically returned cash to shareholders through distributions, and refining stocks, which began shifting in earnest to cash distribution models in Exhibit 15: Relative Performance of the MLPs, Refiners and E&Ps MLPs, E&Ps and Refiners 5-Year Return 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% MLP Index (Alerian) Refiner Index (S&P Refiners) E&P Index (XOI) Source: Company data, Factset Denbury Resources (DNR) 12

13 Net Asset Value (NAV) Analysis: Raise to $24 from $20 per share Exhibit 16 highlights our updated NAV forecast for DNR, which includes the closing of the company s $1.05 billion acquisition of additional interests in the Cedar Creek Anticline from ConocoPhillips (Note: the final adjusted purchase price was $988 MM) for cash. As part of the transaction, DNR acquired approximately 42 MMBoe of reserves (99% oil and NGLs), with average production of 10,200 Boe/d. In addition, our NAV assumes updated disclosure in the company s 10-K for the following key assets: $350 MM of value for the company s invested capital in the Greencore pipeline. $403 MM of invested capital in the Riley Ridge Unit. $315 MM of value associated with the LaBarge CO2 assets obtained in the Bakken sale transaction with ExxonMobil on December 24, $383 MM of value for the anticipated CO2 flood at the Webster field. $206 MM of value for the anticipated CO2 flood at Hartzog Draw. Our NAV also incorporates the March 31, 2013 balance sheet and use of proceeds from the previously completed Bakken transaction to fund the CCA acquisition under a like-kind exchange transaction. Our revised NAV is $8.9 billion or $24 per share from $20 per share previously. Our NAV is based on oil prices (Brent) of $111.97/bbl, $110.00/bbl, and $100.00/bbl from 2013 to 2015, respectively. DNR sells approximately 50% of its crude tied to an LLS index price, while another 25% of its oil is partially tied to LLS. Denbury Resources (DNR) 13

14 Exhibit 16: Denbury Resources (DNR): Net Asset Value Denbury Resources (DNR) Net Asset Value Summary Shares Out. (MM) 371 Proved Reserves Oil Gas Total Asset Value Oil & Gas Properties (MMbbls) (Bcf) (MMBoe) % Gas ($/Boe) ($MM) ($/Share) United States - non CO % $12.37 $3,099 $8.40 Mature Fields % $16.21 $875 $2.40 Heidelberg % $26.99 $934 $2.50 Tinsley % $27.01 $768 $2.10 Delhi % $23.48 $588 $1.60 Total Proved Properties % $15.96 $6,264 $16.90 Other Assets ($MM) ($/Share) Vanguard Natural Resources, LLC (NYSE: VNR) 3.1 MM Units $85 $0.20 Greencore pipeline $350 $0.90 LaBarge CO 2 $315 $0.80 Riley Ridge Unit $403 $1.10 Total Other Assets $1,153 $3.10 Liabilities ($MM) ($/Share) Long-Term Debt $3,182 $8.58 Cash & Equivalents ($99) ($0.27) Total Liabilities $3,084 $8.30 Proven Net Asset Value $4,333 $12.00 Unproven Reserve Potential Oil Gas Total Asset Value Oil & Gas Properties (MMbbls) (Bcf) (MMBoe) % Gas ($/Boe) ($MM) ($/Share) Mature Properties (tertiary) % $16.21 $1,135 $3.10 Heidelberg (tertiary) 6-6 0% $26.99 $162 $0.44 Tinsley (tertiary) 9-9 0% $27.01 $243 $0.66 Delhi (tertiary) 8-8 0% $23.48 $188 $0.51 Hastings (tertiary) % $39.55 $949 $2.56 Oyster Bayou (tertiary) % $39.33 $433 $1.17 Conroe (tertiary) % $6.17 $802 $2.16 Bell Creek (tertiary) % $2.53 $74 $0.20 Webster (tertiary) % $5.63 $383 $1.00 Hartzog Draw (tertiary) % $8.23 $206 $0.60 Total Unproven Reserve Potential % $12.03 $4,574 $12.30 Total Net Asset Value % $11.52 $8,907 $24.00 Last Price $18.59 Price - to - Full NAV 77% Price - to - Proved Only NAV 155% Source: Company data, Credit Suisse estimates Denbury Resources (DNR) 14

15 1.3x 1.3x 1.5x 1.6x 1.8x 2.0x 2.0x 2.1x 2.1x 2.2x 2.2x 2.4x 63% 3.1x 77% 77% 78% 78% 83% 85% 86% 88% 88% 92% 93% 94% 4.7x 99% 116% 7.2x 29 May 2013 DNR is one of the most attractively valued stocks on asset based measures, trading at 77% of our revised NAV versus the peer group average of 86%. DNR is also trading at an attractive relative valuation on a PV10 basis. Exhibit 17: Price-to-Net Asset Value Exhibit 18: EV-to-PV10 Ratio 140% 120% Mean: 86% 8.0x 7.0x Median: 2.1x 100% 6.0x 80% 60% 40% 5.0x 4.0x 3.0x 2.0x 20% 1.0x 0% 0.0x Source: Company data, Credit Suisse estimates Estimate Revision Source: Company data, Credit Suisse estimates We are increasing our 2013 and 2014 EPS/CFPS to $1.59/$3.84 and $1.60/$4.04 from $1.41/$3.42 and $1.51/$3.76 to reflect a slight uptick in our production outlook. We now forecast 2013 and 2014 production to average 71.3 and 77.8 MBoe/d, up from 70.9 and 77.4 MBoe/d previously. After a strong start of 2013 with production of 63.8 MBoe/d topping our forecast by 1%, DNR is effectively increasing its full year guidance to the upper half of its 68.7 to 71.7 MBoe/d range. Excluding the acquired CCA production (~10 MBoe/d), management expects for flattish production in Q2 and Q3 and an uptick in Q4 production mainly driven by Heidelberg and Hastings. The Company is currently filling the Greencore pipeline with CO2 and recently began injecting CO2 into Bell Creek next month. Initial tertiary production from Bell Creek is anticipated in Q3 or Q4. DNR increased its 2013 capex budget by $60 million, or 6%, to $1.06 billion. $20 million of the increment will be invested in optimizing the water floods along the newly acquired CCA properties, in order to increase production. The other $40 million was carried over from 2012 s budgeted expenditure that was not spent. Exhibit 19 to Exhibit 23 highlight our updated financials and key operating assumptions for DNR. Denbury Resources (DNR) 15

16 Financial Summary Exhibit 19: DNR Financial Snapshot DNR ($ millions, except per share) 2012E 2013E 2014E 2015E EPS $1.45 $1.59 $1.60 $1.38 CFPS $3.55 $3.84 $4.04 $3.82 Net income $563 $588 $589 $508 Interest expense $154 $144 $141 $135 Effective tax rate 39% 38% 38% 38% Average fully diluted shares EBITDA $1,531 $1,570 $1,677 $1,585 Depreciation $508 $519 $582 $627 EBIT $1,010 $1,039 $1,095 $959 Cash flow from operations $1,380 $1,420 $1,482 $1,403 Capex* $1,449 $1,063 $1,100 $1,200 Free cash flow from operations ($68) $357 $382 $203 Year-end cash balance $99 $225 $406 $609 Year-end debt $3,146 $3,262 $3,062 $3,062 Year-end net debt $3,047 $3,038 $2,656 $2,454 Net Debt/EBITDA 2.0x 1.9x 1.6x 1.5x Net Debt/Cap 37% 36% 31% 27% Production Oil (MMBbls) % growth 10% -1% 7% 9% % of total 93% 93% 91% 92% Average realized price $97.18 $ $ $94.41 Natural Gas (MMcf) % growth -1% -3% 45% -3% % of total 7% 7% 9% 8% Average realized price $3.06 $3.74 $4.30 $4.38 Total (MMBoe) % growth 10% -1% 9% 8% Credit Suisse Commodity Price Outlook WTI Crude Oil ($/Bbl) $94.14 $98.09 $ $90.00 US Natural Gas ($/Mcf) $2.80 $3.70 $4.18 $4.25 Source: Company data, Credit Suisse estimates Denbury Resources (DNR) 16

17 Denbury Resources (DNR) 17 Exhibit 20: DNR Income Statement Denbury Resources (DNR) 2012E 2013E 2014E 2015E Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year INCOME STATEMENT REVENUE Oil and NGL Production $2,575.0 $2,688.8 $2,656.9 $2,587.5 $623.7 $587.2 $579.4 $587.0 $2,377.3 $566.1 $654.7 $658.7 $695.5 $2,575.0 $666.0 $670.6 $681.0 $671.2 $2,688.8 $670.9 $654.7 $676.7 $654.6 $2,656.9 Natural gas sales CO 2 sales and transportation fees Interest income and other income TOTAL REVENUE $2,651.7 $2,800.9 $2,769.3 $2,704.6 $645.1 $601.8 $600.4 $609.2 $2,456.5 $583.1 $673.6 $678.6 $716.4 $2,651.7 $693.9 $697.5 $709.2 $700.3 $2,800.9 $699.0 $682.2 $704.9 $683.1 $2,769.3 OPERATING EXPENSES Lease operating expense $637.0 $694.8 $748.0 $812.7 $138.0 $124.5 $130.5 $139.4 $532.4 $140.5 $164.9 $164.7 $166.8 $637.0 $166.0 $171.9 $176.8 $180.0 $694.8 $179.2 $184.3 $190.1 $194.4 $748.0 Marketing expenses CO 2 discovery and operating expenses Production and Other Taxes General and Administrative Depletion, depreciation, and amortization Derivatives expense Impairment of assets Other Expenses / (Income) TOTAL EXPENSES $1,612.4 $1,705.8 $1,810.5 $1,947.2 $429.5 $217.4 $423.2 $376.0 $1,446.0 $405.1 $396.7 $399.9 $410.7 $1,612.4 $409.7 $422.1 $434.2 $439.8 $1,705.8 $436.1 $446.1 $460.3 $468.1 $1,810.5 OPERATING INCOME $1,039.3 $1,095.0 $958.7 $757.4 $215.6 $384.4 $177.2 $233.2 $1,010.4 $178.0 $276.9 $278.7 $305.7 $1,039.3 $284.1 $275.4 $275.0 $260.5 $1,095.0 $263.0 $236.1 $244.6 $215.0 $958.7 Interest Expense PRETAX EARNINGS $895.2 $954.2 $823.4 $622.1 $179.3 $342.8 $139.4 $195.4 $856.9 $141.9 $240.9 $242.7 $269.7 $895.2 $248.1 $239.4 $240.1 $226.7 $954.2 $229.1 $202.3 $210.8 $181.2 $823.4 Income Tax Expense (Benefit) Note, Effective Tax Rate 38% 38% 38% 38% 37% 38% 39% 41% 39% 38% 38% 38% 38% 38% 38% 38% 38% 38% 38% 38% 38% 38% 38% 38% Current Tax Expense Deferred Tax Expense Deferred Tax Rate 81% 85% 85% 85% 56% 99% 92% 48% 74% 81% 81% 81% 81% 81% 85% 85% 85% 85% 85% 85% 85% 85% 85% 85% Production Tax (% of Revenue) 7% 7% 7% 7% 7.0% 6.6% 6.9% 6.4% 7% 6.6% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% Net Income before Minority Interest $552.3 $588.7 $508.1 $383.8 $113.5 $211.9 $85.4 $114.7 $525.4 $87.6 $148.6 $149.7 $166.4 $552.3 $153.1 $147.7 $148.1 $139.9 $588.7 $141.4 $124.8 $130.1 $111.8 $508.1 Minority Interest (Income)/Loss of Consolidated LLP Net Income to Common $552.3 $588.7 $508.1 $383.8 $113.5 $211.9 $85.4 $114.7 $525.4 $87.6 $148.6 $149.7 $166.4 $552.3 $153.1 $147.7 $148.1 $139.9 $588.7 $141.4 $124.8 $130.1 $111.8 $508.1 Less: Preferred Dividends Net Income To Common $552.3 $588.7 $508.1 $383.8 $113.5 $211.9 $85.4 $114.7 $525.4 $87.6 $148.6 $149.7 $166.4 $552.3 $153.1 $147.7 $148.1 $139.9 $588.7 $141.4 $124.8 $130.1 $111.8 $508.1 Special Items/Adjustments Adjusted Net Income To Common $588.1 $588.7 $508.1 $383.8 $161.2 $138.0 $127.5 $136.5 $563.3 $123.4 $148.6 $149.7 $166.4 $588.1 $153.1 $147.7 $148.1 $139.9 $588.7 $141.4 $124.8 $130.1 $111.8 $508.1 Reported Earnings Per Share (Basic) $1.50 $1.61 $1.39 $1.05 $0.29 $0.55 $0.22 $0.30 $1.36 $0.24 $0.40 $0.41 $0.45 $1.50 $0.42 $0.40 $0.40 $0.38 $1.61 $0.39 $0.34 $0.36 $0.31 $1.39 Reported Earnings Per Share (Diluted) $1.49 $1.60 $1.38 $1.05 $0.29 $0.54 $0.22 $0.30 $1.35 $0.23 $0.40 $0.41 $0.45 $1.49 $0.42 $0.40 $0.40 $0.38 $1.60 $0.39 $0.34 $0.35 $0.30 $1.38 Adjusted Earnings Per Share (Basic) $1.59 $1.61 $1.39 $1.05 $0.42 $0.36 $0.33 $0.36 $1.46 $0.33 $0.40 $0.41 $0.45 $1.59 $0.42 $0.40 $0.40 $0.38 $1.61 $0.39 $0.34 $0.36 $0.31 $1.39 Adjusted Earnings Per Share (Diluted) $1.59 $1.60 $1.38 $1.05 $0.41 $0.35 $0.33 $0.36 $1.45 $0.33 $0.40 $0.41 $0.45 $1.59 $0.42 $0.40 $0.40 $0.38 $1.60 $0.39 $0.34 $0.35 $0.30 $1.38 Discretionary Cash Flow Per Share (Basic) $3.85 $4.05 $3.83 $3.46 $0.91 $0.93 $0.90 $0.83 $3.58 $0.85 $0.96 $0.98 $1.07 $3.85 $1.02 $1.01 $1.02 $1.00 $4.05 $1.00 $0.94 $0.98 $0.91 $3.83 Discretionary Cash Flow Per Share (Diluted) $3.84 $4.04 $3.82 $3.45 $0.90 $0.93 $0.90 $0.82 $3.55 $0.85 $0.96 $0.97 $1.06 $3.84 $1.02 $1.01 $1.02 $0.99 $4.04 $1.00 $0.94 $0.98 $0.91 $3.82 EBITDA $1,570.0 $1,677.2 $1,585.4 $1,438.3 $399.1 $377.8 $375.8 $378.0 $1,530.7 $302.8 $408.3 $413.3 $445.5 $1,570.0 $423.2 $419.4 $423.1 $411.4 $1,677.2 $413.1 $390.5 $403.9 $377.9 $1,585.4 Less: Cash Taxes EBIDA $1,504.6 $1,622.4 $1,538.1 $1,402.5 $370.4 $377.0 $371.4 $336.1 $1,454.9 $292.3 $390.8 $395.7 $425.9 $1,504.6 $409.0 $405.7 $409.4 $398.3 $1,622.4 $399.9 $378.9 $391.8 $367.5 $1,538.1 Basic shares Fully diluted shares Source: Company data, Credit Suisse estimates

18 Denbury Resources (DNR) 18 Exhibit 21: DNR Cash Flow Statement Denbury Resources (DNR) 2012E 2013E 2014E 2015E Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year CASH FLOW STATEMENT ($MM) NET INCOME $552.3 $588.7 $508.1 $383.8 $113.5 $211.9 $85.4 $114.7 $525.4 $87.6 $148.6 $149.7 $166.4 $552.3 $153.1 $147.7 $148.1 $139.9 $588.7 $141.4 $124.8 $130.1 $111.8 $508.1 Depletion, depreciation and amortization Deferred income taxes Gain on sale of interests in Genesis Stock-based compensation Non-cash fair value derivative adjustments Loss on early extinguishment of debt Founder's retirement compensation Amortization of debt issuance costs and discounts Impairment of assets Other, net Change in working capital, net NET CASH PROVIDED BY OPERATING ACTIVITIES $1,373.4 $1,481.5 $1,402.8 $1,267.2 $291.7 $441.0 $293.5 $270.9 $1,297.0 $269.2 $354.8 $359.6 $389.8 $1,373.4 $373.0 $369.7 $374.4 $364.5 $1,481.5 $366.1 $345.1 $358.0 $333.6 $1,402.8 INVESTING ACTIVITIES Oil and natural gas capital expenditures ($1,063) ($1,100) ($1,200) ($1,200) ($302) ($272) ($275) ($275) ($1,123) ($271) ($264) ($264) ($264) ($1,063) ($275) ($275) ($275) ($275) ($1,100) ($300) ($300) ($300) ($300) ($1,200) Acquisitions of oil and natural gas properties Cash paid in Encore Merger and Riley Ridge acquisit CO 2 capital expenditures Pipelines and plants capital expenditures Purchases of other assets Net proceeds from sale of interests in Genesis Net proceeds from sales of oil and natural gas prope , , Other NET CASH USED FOR INVESTING ACTIVITIES -$1, $1, $1, $1, $ $ $388.7 $ $ $ $ $ $ $1, $ $ $ $ $1, $ $ $ $ $1,200.0 CASH FLOW PROVIDED BY FINANCING ACTIVITIES Bank repayments ($150) ($250) ($570) $- ($970) $ $ $0.0 Bank borrowings Repayment of senior subordinated notes Premium paid on repayment of senior subordinated n Net proceeds from issuance of senior subordinated n Net proceeds from issuance of common stock Costs of debt financing ENP distributions to noncontrolling interest Stock repurchase program Other NET CASH PROVIDED BY FINANCING ACTIVITIES -$ $200.0 $0.0 $0.0 $55.9 $70.6 $91.0 -$1, $954.2 $15.2 -$ $50.0 $0.0 -$134.8 $0.0 $0.0 -$ $ $200.0 $0.0 $0.0 $0.0 $0.0 $0.0 Net increase in cash and cash equivalents $126.0 $181.5 $202.8 $67.2 $59.3 -$49.3 -$4.2 $74.5 $80.2 -$36.2 -$9.2 $45.6 $125.8 $126.0 $98.0 $94.7 -$0.6 -$10.5 $181.5 $66.1 $45.1 $58.0 $33.6 $202.8 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $224.5 $406.1 $608.9 $676.1 $77.6 $28.3 $24.0 $98.51 $98.5 $62.3 $53.0 $98.7 $224.5 $224.5 $322.5 $417.1 $416.5 $406.1 $406.1 $472.2 $517.2 $575.2 $608.9 $608.9 Source: Company data, Credit Suisse estimates

19 Denbury Resources (DNR) 19 Exhibit 22: DNR Production Forecast Denbury Resources (DNR) 2012E 2013E 2014E 2015E Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Production Volumes - Region Daily Production Crude Oil and Condensate Volumes (Mbbl/d) United States Canada / Other Total Crude Oil and Condensate (Mbbl/d) Natural Gas (MMcf/d) United States Canada / Other Total Natural Gas (MMcf/d) Barrels of Oil Equivalent Volumes (Mboe/d) United States Canada / Other Total Production (MBoe/d) Tertiary Oil Production (MBbl/d) Conventional Production (MBoe/d) Summary Production Volumes Crude Oil and Condensate Volumes (MMBbls) United States Canada / Other Total Crude Oil and Condensate (MMBbls) Natural Gas (MMcf) United States Canada / Other Total Natural Gas (MMcf) Total Production (MMBoe) United States Canada / Other Total Production (MMBoe) Total Tertiary Oil Production (MBbls) Total Conventional Oil Production (MMBoe) Source: Company data, Credit Suisse estimates