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Denbury Reports 2021 Fourth Quarter and Full-Year Results

·15 min read

PLANO, Texas, February 24, 2022--(BUSINESS WIRE)--Denbury Inc. (NYSE: DEN) ("Denbury" or the "Company") today provided its fourth quarter and full-year 2021 financial and operating results.

4Q 2021

FY 2021

(in thousands, except per-share and volume data)

Total

Per Diluted

Share

Total

Per Diluted

Share

Net Income

$120,631

$2.19

$56,002

$1.04

Adjusted net income(1)(2) (non-GAAP)

41,670

0.76

137,646

2.56

Adjusted EBITDAX(1) (non-GAAP)

81,466

316,422

Cash flows from operations

69,601

317,158

Adjusted cash flows from operations(1) (non-GAAP)

82,824

312,115

Development capital expenditures

78,350

252,171

Average daily sales volumes (BOE/d)

48,882

48,770

Blue Oil (% oil volumes using industrial-sourced CO2)

25%

24%

Industrial-sourced CO2 injected (thousand metric tons)

841

3,271

FULL YEAR 2021 FINANCIAL AND OPERATING HIGHLIGHTS

  • Set a fifth consecutive Company annual record for employee and contractor safety, achieving a Total Recordable Incident Rate of 0.40. Over 600,000 man-hours were completed on the Cedar Creek Anticline ("CCA") CO2 pipeline and EOR project without a recordable safety incident.

  • Completed the 105-mile CCA CO2 pipeline ahead of schedule and under budget, which made Denbury the largest operator of CO2 pipelines in the U.S. by mileage.

  • Received third-party verification of the negative Carbon Intensity ("CI") of Denbury’s blue oil production at the West Hastings and Bell Creek CO2 floods, resulting in a CI score ranging between -40 to -20 grams of CO2 equivalent emitted per megajoule of energy.

  • Acquired the Big Sand Draw and Beaver Creek EOR fields in Wyoming, including surface facilities and a 46-mile CO2 transportation pipeline.

  • Divested non-producing surface acreage in the Houston area for $15 million, and sold undeveloped deep mineral rights in Wyoming for $18 million.

  • Generated more than $55 million of free cash flow(1) (a non-GAAP measure).

  • Invested $252 million of development capital, at the low end of the Company’s original development capital guidance range.

  • Reduced the Company’s total debt by $103 million over the last year, and exited 2021 with $532 million of financial liquidity (cash on hand and borrowing capacity under the Company’s existing credit facility).

(1)

A non-GAAP measure. See accompanying schedules that reconcile GAAP to non-GAAP measures along with a statement indicating why the Company believes the non-GAAP measures provide useful information for investors.

(2)

Calculated using weighted average diluted shares outstanding of 55.1 million and 53.8 million for the quarter and year ended December 31, 2021, respectively.

2021 CCUS HIGHLIGHTS

  • Established the Denbury Carbon Solutions team to drive the Company’s CCUS strategy.

  • Executed a term sheet with Mitsubishi Corporation for the transport and storage of CO2 captured from Mitsubishi’s proposed ammonia project along the U.S. Gulf Coast. The agreement covers a 20-year period, and Mitsubishi’s project is targeted to produce associated CO2 emissions of approximately 1.8 million metric tons per year, beginning in the latter half of the decade.

  • Commenced a joint evaluation with Mitsui E&P USA LLC of potential opportunities across the U.S. Gulf Coast to develop carbon-negative oil assets utilizing industrial-sourced CO2. As part of the evaluation, the parties seek to jointly pursue CO2 offtake opportunities from Mitsui’s potential projects along the Gulf Coast.

  • Announced joint development of a Texas Gulf Coast sequestration site with Gulf Coast Midstream Partners, with the potential to store up to 400 million metric tons of CO2. The EPA Class VI permitting process has been initiated and sequestration is estimated to be available by early 2025.

EXECUTIVE COMMENT

Chris Kendall, Denbury’s President and CEO, commented, "I am incredibly proud of our dedicated employees’ achievements throughout 2021 despite many challenges, including the ongoing pandemic and its impacts. First and foremost, we set another record on safety performance, the top priority for me and the entire Denbury leadership team. We further established the framework upon which we will execute our CCUS vision, placing Denbury as the leader in this evolving industry. Within our core operations, we completed the CCA CO2 pipeline project on time and under budget, and I thank our employees and contractors for their exceptional efforts in achieving this great outcome. We successfully initiated the CCA CO2 flood which we expect will be one of the largest CO2 floods in the world, and I’m pleased to share that we started Phase 1 injection early this month. This important milestone will greatly enhance our EOR business and increase Denbury’s production of carbon negative blue oil, which we believe will become a highly desired commodity. Further and importantly, our strong EOR business will provide significant cash flow with which to fund our CCUS investments.

As we enter 2022, we are extremely excited about what lies ahead for Denbury. Our expansive CO2 pipeline network and proven track record in all aspects of CO2 transportation and injection positions Denbury as the ideal partner to provide CCUS solutions. We demonstrate our expertise continuously by safely transporting and injecting the nearly ten thousand tons of CO2 we receive daily from our industrial partners into underground formations. We built on these strengths in 2021 with the execution and establishment of several new CCUS agreements that further set the stage for even greater success in our CCUS operations. My aspiration is that all of Denbury’s existing and future CCUS customers will recognize Denbury as the experienced and accountable partner upon whom they can rely to safely handle their captured CO2 for decades to come."

FOURTH QUARTER 2021 FINANCIAL AND OPERATING RESULTS

Denbury’s fourth quarter 2021 total revenues and other income totaled $362 million, a five percent increase over third quarter 2021 levels, driven primarily by an improvement in underlying commodity prices and improved oil price differentials. The Company’s fourth quarter 2021 average pre-hedge realized oil price was $75.68 per barrel ("Bbl"), which was $1.22 per Bbl below NYMEX WTI oil prices. Denbury’s average differential improved more than 50 cents per Bbl from the third quarter of 2021 as values for the Company’s Gulf Coast and Rocky Mountain region sales volumes both improved relative to WTI.

Oil and natural gas sales volumes averaged 48,882 BOE/d during the fourth quarter of 2021, down modestly from the third quarter of 2021 and lower than expectations primarily as a result of unplanned downtime in December. In addition, lower volumes at CCA were attributed to increased oil prices and profitability resulting in more volumes allocated to the third-party net profits interest in that field. Oil represented 97% of the Company’s fourth quarter 2021 volumes, with 25% of the Company’s oil produced through the injection of industrial-sourced CO2, resulting in carbon-negative blue oil.

Lease operating expense in the fourth quarter of 2021 was $116 million, or $25.75 per BOE, consistent with the Company’s expectation. The slight increase on a per BOE basis from the third quarter 2021 was primarily related to higher commodity prices as higher oil prices increase the Company’s CO2 costs and higher natural gas prices increase power expenses. Transportation and marketing expenses for the quarter totaled $7 million, consistent with the third quarter of 2021 and reflecting improved contractual arrangements for certain of the Company’s Rocky Mountain region oil volumes.

General and administrative expenses were $16 million in the fourth quarter of 2021, in line with expectations and relatively consistent with the third quarter of the year. Depletion, depreciation, and amortization ("DD&A") expense was $37 million during the fourth quarter of 2021, or $8.25 per BOE, essentially flat with the third quarter of the year.

Commodity derivatives expense totaled $23 million in the final quarter of 2021, comprised of cash payments on hedges that settled in the quarter of $98 million, offset by a $75 million non-cash gain representing mark-to-market changes in the value of the Company’s hedging portfolio. The Company’s effective tax rate for the fourth quarter of 2021 was negligible, as virtually all of the tax expense/benefit generated is currently fully offset by a change in valuation allowance on its federal and state deferred tax assets.

CAPITAL EXPENDITURES

Fourth quarter 2021 development capital expenditures totaled $78 million, bringing full-year 2021 capital expenditures to a total of $252 million, close to the low end of the Company’s original annual guidance range of $250 million to $270 million. Nearly 60% of the fourth quarter total was dedicated to the CCA EOR project, including the completion of the 105-mile CO2 pipeline from Bell Creek to CCA, the booster station install, and the infield distribution system to prepare for CO2 injection. The CCA CO2 Pipeline was completed ahead of schedule and under budget. Line fill of CO2 was also completed in 2021, and CO2 injection into the Cedar Hills South and East Lookout Butte fields commenced in early February 2022. Tertiary oil production response is anticipated in the second half of 2023.

2021 PROVED RESERVES

The Company’s total estimated proved oil and natural gas reserves as of December 31, 2021, were 192 million barrels of oil equivalent (MMBOE), consisting of 189 million barrels of crude oil and 17 billion cubic feet of natural gas. Proved reserves increased by 49 MMBOE during 2021, primarily resulting from increased commodity pricing utilized in determining economic reserves. As of the end of 2021, 95% of proved reserves were proved developed.

Year-end 2021 estimated proved reserves and the discounted net present value of Denbury’s proved reserves, using a 10% per annum discount rate ("PV-10 Value")(1) (a non-GAAP measure), were computed using first-day-of-the-month 12-month average prices of $66.56 per Bbl for oil (based on NYMEX prices) and $3.60 per million British thermal unit ("MMBtu") for natural gas (based on Henry Hub cash prices), adjusted for prices received at the field. Comparative prices for 2020 were $39.57 per Bbl of oil and $1.99 per MMBtu for natural gas, adjusted for prices received at the field. The PV-10 Value(1) of Denbury’s proved reserves was $2.7 billion at December 31, 2021, compared to $0.7 billion at December 31, 2020.

Denbury’s estimated proved CO2 reserves at year-end 2021 were 5.5 trillion cubic feet ("Tcf"), including 4.5 Tcf at Jackson Dome in Mississippi (on a gross basis) and 1.0 Tcf at LaBarge Field in Wyoming (overriding royalty interest). Total CO2 reserves reflected a slight reduction from year-end 2020 due to 2021 production.

CONFERENCE CALL AND WEBCAST INFORMATION

Denbury management will host a conference call to review and discuss fourth quarter and full-year 2021 financial and operating results, as well as its outlook for 2022, today, Thursday, February 24, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time). Additionally, Denbury will post supporting materials on its website before market open today. The presentation webcast will be available, both live and for replay, on the Investor Relations page of the Company’s website at www.denbury.com. Individuals who would like to participate in the conference call should dial the following numbers shortly before the scheduled start time: 877.705.6003 or 201.493.6725 with confirmation number 13723080.

Denbury is an independent energy company with operations and assets focused on Carbon Capture, Use, and Storage (CCUS) and Enhanced Oil Recovery (EOR) in the Gulf Coast and Rocky Mountain regions. For over two decades, the Company has maintained a unique strategic focus on utilizing CO2 in its EOR operations and since 2012 has also been active in CCUS through the injection of captured industrial-sourced CO2. The Company currently injects over three million tons of captured industrial-sourced CO2 annually, and its objective is to fully offset its Scope 1, 2, and 3 CO2 emissions within this decade, primarily through increasing the amount of captured industrial-sourced CO2 used in its operations. For more information about Denbury, visit www.denbury.com.

(1)

A non-GAAP measure. See accompanying schedules that reconcile GAAP to non-GAAP measures along with a statement indicating why the Company believes the non-GAAP measures provide useful information for investors.

This press release, other than historical information, contains forward-looking statements that involve risks and uncertainties detailed in the Company’s filings with the Securities and Exchange Commission, including Denbury’s most recent report on Form 10-K. These risks and uncertainties are incorporated by this reference as though fully set forth herein. These statements are based on financial and market, engineering, geological and operating assumptions that management believes are reasonable based on currently available information; however, management’s assumptions and the Company’s future performance are both subject to a wide range of risks, and there is no assurance that these goals and projections can or will be met. Actual results may vary materially. In addition, any forward-looking statements represent the Company’s estimates only as of today and should not be relied upon as representing its estimates as of any future date. Denbury assumes no obligation to update its forward-looking statements.

FINANCIAL AND STATISTICAL DATA TABLES AND RECONCILIATION SCHEDULES

References below to "Successor" refer to the new Denbury reporting entity after the Company’s emergence from bankruptcy on September 18, 2020 (the "Emergence Date"), and references to "Predecessor" refer to the Denbury entity prior to emergence from bankruptcy. The following tables include selected unaudited financial and operational information for the Successor three month and annual periods ended December 31, 2021, Successor period from October 1, 2020 through December 31, 2020 and September 19, 2020 through December 31, 2020; Predecessor period from January 1, 2020 through September 18, 2020; and certain Combined information for the year ended December 31, 2020, in order to assist investors in understanding the comparability of the Company’s financial and operational results for the applicable periods. All sales volumes and dollars are expressed on a net revenue interest basis with gas volumes converted to equivalent barrels at 6:1.

DENBURY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The following information is based on GAAP reported earnings. Additional required disclosures will be included in the Company’s Form 10-K:

Quarter Ended

In thousands, except per-share data

December 31, 2021

December 31, 2020

Revenues and other income

Oil sales

$

329,308

$

177,458

Natural gas sales

4,040

1,329

CO2 sales and transportation fees

12,576

8,452

Oil marketing revenues

12,204

5,225

Other income

3,770

4,603

Total revenues and other income

361,898

197,067

Expenses

Lease operating expenses

115,819

89,750

Transportation and marketing expenses

6,513

9,251

CO2 operating and discovery expenses

2,191

1,734

Taxes other than income

25,891

14,511

Oil marketing purchases

11,971

5,179

General and administrative expenses

16,437

17,735

Interest, net of amounts capitalized of $1,085 and $1,078, respectively

690

1,481

Depletion, depreciation, and amortization

37,118

40,529

Commodity derivatives expense (income)

22,832

65,937

Write-down of oil and natural gas properties

1,006

Other expenses

903

5,908

Total expenses

240,365

253,021

Income (loss) before income taxes

121,533

(55,954

)

Income tax provision (benefit)

Current income taxes

504

24

Deferred income taxes

398

(2,562

)

Net income (loss)

$

120,631

$

(53,416

)

Net income (loss) per common share

Basic

$

2.35

$

(1.07

)

Diluted

$

2.19

$

(1.07

)

Weighted average common shares outstanding

Basic

51,247

50,000

Diluted

55,114

50,000

Year Ended

Dec. 31, 2021

Year Ended

Dec. 31, 2020

Period from

Sept. 19, 2020

through

Dec. 31, 2020

Period from

Jan. 1, 2020

through

Sept. 18, 2020

In thousands, except per-share data

Successor

Combined

(Non-GAAP)(1)

Successor

Predecessor

Revenues and other income

Oil sales

$

1,148,022

$

689,020

$

199,769

$

489,251

Natural gas sales

11,933

4,189

1,339

2,850

CO2 sales and transportation fees

44,175

30,468

9,419

21,049

Oil marketing revenues

38,742

13,919

5,376

8,543

Other income

15,288

13,116

4,697

8,419

Total revenues and other income

1,258,160

750,712

220,600

530,112

Expenses

Lease operating expenses

424,550

351,505

101,234

250,271

Transportation and marketing expenses

28,817

37,759

10,595

27,164

CO2 operating and discovery expenses

6,678

4,568

1,976

2,592

Taxes other than income

91,390

60,115

16,584

43,531

Oil marketing purchases

37,734

13,717

5,318

8,399

General and administrative expenses

79,258

67,992

19,470

48,522

Interest, net of amounts capitalized of $4,585, $24,146, $1,261 and $22,885, respectively

4,147

50,082

1,815

48,267

Depletion, depreciation, and amortization

150,640

234,405

45,812

188,593

Commodity derivatives expense (income)

352,984

(40,130

)

61,902

(102,032

)

Gain on debt extinguishment

(18,994

)

(18,994

)

Write-down of oil and natural gas properties

14,377

997,664

1,006

996,658

Restructuring items, net

849,980

849,980

Other expenses

10,816

43,940

8,072

35,868

Total expenses

1,201,391

2,652,603

273,784

2,378,819

Income (loss) before income taxes

56,769

(1,901,891

)

(53,184

)

(1,848,707

)

Income tax provision (benefit)

Current income taxes

403

(7,230

)

30

(7,260

)

Deferred income taxes

364

(411,425

)

(2,556

)

(408,869

)

Net income (loss)

$

56,002

$

(1,483,236

)

$

(50,658

)

$

(1,432,578

)

Net income (loss) per common share

Basic

$

1.10

$

(1.01

)

$

(2.89

)

Diluted

$

1.04

$

(1.01

)

$

(2.89

)

Weighted average common shares outstanding

Basic

50,918

...

50,000

495,560

Diluted

53,818

50,000

495,560

(1)

Combined results for the year ended December 31, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods. Because of the impact of various adjustments to the financial statements in connection with the application of fresh start accounting, including asset valuation adjustments and liability adjustments, certain results of operations for the Successor are not comparable to those of the Predecessor. Management believes that the combined results provide meaningful information to assist investors in understanding the Company’s financial results for the applicable period, but should not be considered in isolation, as a substitute for, or more meaningful than, independent results of the Predecessor and Successor periods for the year ended December 31, 2020 reported in accordance with GAAP.

...