Why Denbury Resources Stock Cratered 33% in November

What happened

Shares of Denbury Resources (NYSE: DNR) plummeted in November, falling 32.9% for the month, according to data provided by S&P Global Market Intelligence. Driving the decline was a slump in oil prices as well as concerns about the company's pending merger with Penn Virginia (NASDAQ: PVAC), which overshadowed its stronger-than-expected third-quarter results.

So what

Crude prices crashed in November, losing about 22% on the month -- the biggest monthly drop in a decade -- amid growing worries that the market had too much supply. That in turn had to do with the Trump administration's unexpectedly granting waivers to the bulk of Iran's customers, which allowed that country to continue selling oil, easing fears of a potential shortfall if Iran couldn't export any oil. The plunge in crude weighed heavily on Denbury Resources since it needs higher prices to generate enough cash to support its operations.

Also weighing on the oil stock last month was news that one of the company's largest investors, Mangrove Partners, disapproved of its plans to acquire Penn Virginia. Mangrove Partners boosted its stake in the company from 9.5% to 10.7% and intended to vote against the deal and solicit other shareholders to do the same. That move led Oppenheimer to downgrade the stock from outperform to perform amid the uncertainty surrounding the deal. An analyst at Oppenheimer wrote says that he now lacks confidence that the company can get enough votes to close the acquisition and sees an increased risk that Denbury will be in a state of "strategic limbo" if the deal falls apart.

Those negatives eclipsed the company's solid third-quarter earnings report. While production declined versus the year-ago period due to asset sales and scheduled downtime at some of its fields, earnings beat analysts' expectations while cash flow more than doubled versus the year-ago period. Meanwhile, the company noted that it's on pace to produce significant free cash flow for the year, which has helped it pay down debt.

Now what

Denbury Resources is more sensitive to swings in the oil market because it still has a relatively weak balance sheet. That was one of the draws of the Penn Virginia deal: It would significantly improve the company's financial profile. If that deal falls through, and oil prices continue slipping, it would put even more pressure on the company's stock price.

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Matthew DiLallo owns shares of Denbury Resources. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.