Denbury Resources (DNR) is building out oil and gas plays in the suddenly hot U.S. shale plays, a strategy which has analysts hopeful. Although natural gas prices have fallen, DNR is focused heavily on oil recovery, they note.

Denbury Resources is a domestic independent oil and natural gas company with 461.9 million barrels of oil equivalent (BOE) of proved oil and natural gas reserves as of Dec. 31, 2011, of which 77 percent is oil.

Denbury management says that it is the largest combined oil and natural gas producer in Mississippi and Montana; owns the largest reserves of CO2 used for tertiary oil recovery east of the Mississippi River; and holds significant operating acreage in the Rocky Mountain and Gulf Coast regions.

“Our goal is to increase the value of acquired properties through a combination of exploitation, drilling and proven engineering extraction practices, with our most significant emphasis relating to tertiary recovery operations,” DNR management said in a recent filing.

On March 9, 2010, DNR acquired Encore Acquisition Company in a stock and cash transaction valued at approximately $4.8 billion at the acquisition date, including the assumption of Encore debt and the value of the noncontrolling interest in Encore Energy Partners LP (ENP).

DNR subsequently divested production and acreage in the Cleveland Sand Play and Haynesville Play during 2010 and sold ownership interests in ENP on Dec. 31, 2010. Collectively, Denbury received approximately $1.5 billion in total consideration from these divestitures in 2010, excluding the bank debt of ENP that was assumed by the purchaser in the sale.

Denbury Resources has a market cap of $5.84 billion in a sector, oil, gas, and consumable fuels, where the average company size is $43.83 billion. Its trailing 12-month P/E ratio is 8.60 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.43, compared to 0.85 for the sector.

Its projected earnings per share growth for the coming year is at negative 1.2 percent, compared to a sector average of 16.17 percent.

New field

Wall Street is bullish on Denbury, with buy or outperform ratings in from Morgan, Keegan & Co., Raymond James, Standard & Poor’s Equity Research, and SunTrust Robinson Humphrey.

“DNR will up '12 capex $150 million to $1.5 billion on drilling in Bakken and tertiary operations, and has agreed to acquire a new field for $360 million.We lift our '12 EPS estimate $0.01 to $1.71, '13's by $0.22 to $2.07 on oil prices,” S&P analysts wrote in early May.

“We keep our $23 target price, and with oil at 93 percent of production mix, we upgrade on a pullback in shares and potential we see.”

Denbury Resources next reports on Aug. 2.