The bull case for Denbury Resources (DNR) was that higher oil and gas prices would bail out the company. Now that those prices have arrived, the company still appears to be taking on water and sinking fast.
Adjusted cash flow (omitting any changes in working capital) projected for the 2018 fiscal year would be $430 million to $480 million. Interest payments treated as a debt reduction (which is distressed company accounting) would reduce that cash flow by $90 million to a minimum of $340 million. Normally that interest expense would be part of the cash flow accounting. Now the new GAAP distressed company accounting has changed the calculation. In effect that $90 million becomes a mandatory debt payment after the cash flow calculation. The company estimates development capital at $300 million and capitalized interest at $30 million to yield an excess cash flow of $10 million at a minimum.
Currently oil prices are about $5 per barrel higher than the assumptions used. If those oil prices remain there, then the company would net another $100 million in cash flow. That is still well short of what is needed to amply fund the debt. Higher oil prices were not nearly as helpful as some had hoped.
