UPDATE 1-Denbury suspends dividend as hedging contracts set to expire

(Adds analysts' comments, context, background)
By Amrutha Gayathri
Sept 21 (Reuters) - Oil and gas producer Denbury Resources (NYSE:DNR)
Inc DNR.N said it would suspend dividend payments from the
fourth quarter, ahead of the expiry of its hedging contracts, as
it seeks to shore up its finances in the face of weak oil
prices.
Denbury shares were up 7 percent at $3.11 in afternoon
trading on the New York Stock Exchange.
Denbury, a producer focused more on enhanced oil recovery
than on drilling wells like shale drillers, said it expected to
save about $88 million annually by suspending its payout.
Nearly a year of sub-$60 a barrel oil prices is forcing
higher-cost and debt-laden companies to rein in spending.
"Although our oil commodity hedges and proactive reduction
in capital spending have buffered us to a large degree from this
oil price downturn, the benefit from our hedges will begin to
diminish in the fourth quarter of 2015," Chief Executive Phil
Rykhoek said in a statement on Monday. ID:nGNXLYQQPa
As old hedges begin to expire and banks begin to squeeze
lending lines due to the fall in oil prices, more producers may
face financial distress, triggering further consolidation that
may quicken the decline in once-surging U.S. oil production.
Chesapeake Energy Corp (NYSE:CHK) CHK.N , the second-largest U.S.
natural gas producer, said in July it would suspend dividend
payments. Canada's Penn West Petroleum Ltd PWT.TO followed
suit this month.
"Every company has hedges that effectively lose their
coverage at the end of this year, because no one had the
opportunity back (in 2014) to put on significant hedges into
2016," Keybanc Capital Markets analyst David Deckelbaum said.
"Denbury can't sustain the dividend without hedging north of
$75 per barrel," Deckelbaum said.
The company also reinstated a previously authorized share
repurchase program, which was suspended in November last year,
and has $222 million in authorized buybacks.
"Denbury's strategy was to be a total-returns kind of
company because they are not drilling wells the same way shale
players were," Raymond James analyst Andrew Coleman said.
However, the dividend elimination did not change the
"complexion of things", and it was a "tactical response" to free
up capital, Coleman said.
Denbury, which operates in the U.S. Gulf Coast and Rocky
Mountain region, said it would pay a cash dividend of 6.25 cents
per share for the third quarter.
The company said the timeline for reinstating a dividend was
uncertain and would depend on oil prices.