Denbury Resources (NYSE:DNR) has successfully reduced its cost structure to the lowest level in the last nine years, leading the company to double its cash generation potential compared to the past quarter. DNR shares rose 16% after the announcement of strong results for the fourth quarter fiscal 2018.

The company’s revenue of $321 million in the fourth quarter rose 20% from the past year quarter; the revenue also topped the consensus estimate by $13.89 million. The stronger than expected revenue growth was due to higher oil prices in the fourth quarter.

Denbury is an exploration and production company. Its business model is directly correlated with oil prices. Oil prices increased substantially in the final quarter of 2017, supported by production curbs from OPEC and non-OPEC countries. Saudi Arabia and Russia played a key role in stabilizing crude oil markets over the past couple of quarters.

Its average realized oil price increased to $57.17/bbl in the fourth quarter, relative to $47.78/bbl in Q3 and $48.03 in the same period last year.

Combined with higher oil prices, the company’s strategy of lowering operational costs significantly enhanced its earnings potential and cash flows.  Its general & administrative expenses declined to $21 million, signifying a decline of $7 million over the third quarter and down $8 million from the past year period.

Consequently, Denbury posted earnings per diluted share of $0.31 in the final quarter of 2017, higher from the loss of $386 million in the same period last year.

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Chris Kendall, Denbury’s CEO, commented, “I am extremely pleased with our fourth quarter results.  We nearly doubled cash flow from the third quarter, reflecting the combined impact of cost reductions and Denbury’s extraordinary crude oil exposure, clearly demonstrating our upside earnings power.”

Its operating cash flow of $124 million increased 89% from the past quarter. Its capital investments were standing close to $60 million in Q4. Thus, the company was left with positive free cash flows to invest in growth opportunities. Overall, low-cost structure and higher oil prices are likely to offer the support to the share price.

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