Carbon capture utilization and storage (known as CCUS) has become a hot topic for energy companies in recent years, as oil and gas producers are under pressure to reduce carbon emissions, explains Mike Cintolo, editor of Cabot Top Ten Trader.
The costs involved in CCUS are huge and will require years before most energy firms can fully address it, but Denbury (DEN) has a big head start on its competitors.
Denbury operates mainly in the Gulf Coast and Rocky Mountain regions, with most of its reserves (97%) in oil. But what separates the company from other energy firms is its focus on carbon dioxide enhanced oil recovery (CO2-EOR), a technique that allows for (a) significantly higher oil extraction from a reservoir by utilizing CO2 in the extraction process, while (b) reducing the carbon footprint of the oil produced.
Denbury’s long-term goal is to fully offset its CO2 emissions using this method, and its strategy involves buying mature oil properties that have reached their limits using traditional extraction methods, then using CO2-EOR to revitalize the wells and continue cranking oil from them. Part of the recent strength was due to a Bloomberg report that the company is exploring a sale of its operations (though the company has declined to comment).
But another source of the strength was Denbury’s eye-opening Q2 report, which saw revenue of $482 million increase 60% from a year ago and per-share earnings of $2.83 that rallied 177%. Denbury’s operating activities allowed it to generate $55 million in free cash flow in Q2 (up 244%) and $106 million year-to-date (up 27%).
The company also signed an agreement for a planned CO2 storage site in Louisiana, exited the quarter with zero debt and repurchased $100 million in stock (2%-plus of shares outstanding). Analysts see the bottom line soaring 178% in 2022.
Technically, DEN came public at $21 in September 2020 and, after a few weeks of consolidation, rocketed all the way to $90 by the following November. The stock, though, was capped after that, missing out on the broad energy sector advance for most of this year, with the stock hitting a low in July near $58.
But the past weeks have seen a huge change in character, helped along by the buyout rumors, which admittedly add some uncertainty. Still, we’re fine picking up a few shares on any further weakness.