The past couple of years have been a period of transition for the oil and gas sector. While many E&P (exploration and production) firms have managed to survive the ups and downs of the market, many others have failed to do so and have been forced into restructuring. Not always, but often, these firms exit bankruptcy as publicly-traded firms once again. When they do, their financial condition is far better than it was previously, giving future prospective shareholders an opportunity to capture strong upside. The latest such firm to emerge from bankruptcy is Denbury Inc. (NYSE:DEN), formerly known as Denbury Resources. Though investors still need to wait for guidance before knowing the exact range of opportunity the business offers moving forward, it does appear to be healthy at the moment. Moving forward, this should help early investors generate nice profits, especially if crude prices rise beyond the $40 range.
A major transformation
Denbury has had a tough road in recent years. Despite surviving a lot of hardship, the company finally was forced into bankruptcy in July 2020. Using an RSA (restructuring support agreement), the firm was able to move quickly through the bankruptcy process. On Sept. 18, the company finally emerged from bankruptcy. Leading into its Chapter 11 filing, management recorded total debt for the firm of $2.49 billion. $2.1 billion of this was wiped out by equitizing its debts (removing its old shareholders and placing its debtholders in charge of the firm). By reducing debt considerably, management said that annual interest expense should be $165 million lower than when the firm entered bankruptcy. This left the business with $257 million in debt, $140 million of which is in the form of a Senior Secured Credit Facility, and the rest, $117 million in all, in the form of pipeline/capital