Over the past week or so, oil drilling penny stocks have been in the news for a range of factors. The latest oil driller to be in the news is Texas-based Denbury Resources Inc. (DNT Penny Stock Report). The company had been in news earlier this year when the deal to merge with Penn Virginia broke down due to disapproval from the shareholders.
In the end, the leadership of the two companies decided that there was no point in putting up a fight with their respective shareholders. That being said, the breakdown of such a deal can have a significant effect on the immediate future of companies. They typically have to reorganize their plans altogether. Here is a closer look at the implications that could be in play for Denbury Resources.
Can Key Developments Make This A Penny Stock To Buy In August?
The decision to merge with Penn Virginia had been regarded as a strange one by most analysts at the time. First, the two companies operate in regions which are far away from each other and that would have made it difficult for the merged entity to operate in complete harmony. In addition to that, the two companies employed two different drilling techniques. Denbury had hoped that the merged entity could benefit from the usage of both techniques.
Due to the breakdown of the deal, this penny stock is now back to square one. Further, it will be looking for new ways to unlock value for its shareholders. It is a relatively small oil drilling company, valued at around $500 million. Its primary thrust towards oil rather than natural gas is also a promising aspect of its business.
DNR: A Penny Stock Looking For New Highs
That being said, the company’s core business may not be the biggest problem. Instead, it is Danbury’s massive cash pile that could threaten the company. The reason behind the merger with Penn Virginia is believed to have been rooted in the understanding that it would have improved the company’s balance sheet significantly. Ultimately, Penn Virginia had a much stronger balance sheet and had a debt to equity ratio that stood at 0.8.
Hence, in the foreseeable future, the company would need to come up with innovative strategies in order to manage its debt. Experts believe that even 12 months down the line, the company could be heavily indebted. With this in mind, will the company be one of the penny stocks to buy in August? Or will this debt burden hasten progress?