Denbury Reports 2022 Fourth Quarter and Full-Year Results

February 23, 2023 at 6:30 AM·17 min read

PLANO, Texas, February 23, 2023--(BUSINESS WIRE)--Denbury Inc. (NYSE: DEN) ("Denbury" or the "Company") today provided its fourth quarter and full-year 2022 results.

	4Q 2022		FY 2022
(in thousands, except per-share and volume data)	Total	Per Diluted Share	Total	Per Diluted Share
Net Income	$75,115	$1.39	$480,160	$8.83
Adjusted net income⁽¹⁾⁽²⁾ (non-GAAP)	79,960	1.48	368,302	6.78
Adjusted EBITDAX⁽¹⁾(non-GAAP)	140,042		586,429

Net cash flows from operations	124,336		520,745
Adjusted cash flows from operations⁽¹⁾ (non-GAAP)	137,088		568,682

Oil & gas development capital expenditures	120,971		364,198
CCUS capital expenditures - storage sites and related	32,505		64,605

Average daily sales volumes (BOE/d)	46,641		46,809
Blue Oil (% oil volumes using industrial-sourced CO₂)	29%		28%
Industrial-sourced CO₂ injected (million metric tons)	1.15		4.35
Industrial-sourced CO₂injected (% of total CO₂used in EOR operations)	40%		40%

2022 FULL-YEAR HIGHLIGHTS

Generated $521 million in cash flow from operations and $136 million of free cash flow⁽¹⁾ (a non-GAAP measure).
Repurchased $100 million of the Company’s outstanding shares (1.6 million shares or 3.2% of shares outstanding) at an average price of $61.92 per share.
Exited 2022 with $29 million of debt and $711 million of financial liquidity (cash on hand and borrowing capacity under the Company’s existing credit facility).
Utilized 4.4 million metric tons of industrial-sourced carbon dioxide ("CO₂") in enhanced oil recovery ("EOR") operations in 2022, an increase of more than 33% from 2021.
Commenced CO₂ injection at the Cedar Creek Anticline ("CCA") EOR project in early February 2022. The Company had 74 CO₂ injection wells online at CCA at the end of 2022 and had injected a cumulative 1.4 million metric tons of CO₂ in Phase 1 of the development.
Estimated proved reserves at the end of 2022 totaled 202 million barrels of oil equivalent, a 5% increase from 2021. The PV-10 value⁽¹⁾(a non-GAAP measure) of those reserves at that date was nearly $4.5 billion, representing a value uplift of 67% from the end of 2021.

2022 CCUS HIGHLIGHTS

Executed multiple agreements with customers for future transportation and/or storage of industrial-sourced CO₂covering approximately 18 million metric tons of CO₂ per year, including CO₂ transport and storage associated with ammonia, biofuels, and hydrogen projects.
Invested $10 million into a greenfield blue ammonia project through an investment in Clean Hydrogen Works, the developer of the proposed project near Donaldsonville, Louisiana. Initial production from this world-scale development is anticipated in 2027.
Expanded Denbury’s dedicated CO₂ storage portfolio to a total of 7 contracted sequestration sites along the U.S. Gulf Coast representing approximately 2 billion metric tons of potential CO₂ storage capacity.
Submitted the Company’s initial Class VI permit applications (3 wells) for dedicated CO₂storage at the Orion site in Alabama to the Environmental Protection Agency for review and approval.

EXECUTIVE COMMENT

Chris Kendall, Denbury’s President and CEO, commented, "2022 was an incredibly successful year for our Company. Starting with safety, we delivered another strong year, a testament to our highly skilled and focused employees. In addition, we executed well on each of our capital allocation priorities in 2022: to maintain our strong balance sheet; to enhance our oil and gas production base; to advance our leadership position in CCUS; and to return capital to shareholders from our free cash flow."

"Our teams did an excellent job of executing on all fronts in 2022 with strong momentum I believe will carry into 2023. We are excitedly looking forward to the first production from the CCA CO₂ flood in the second half of 2023. CCA represents the Company’s largest potential EOR resource, which we expect will significantly strengthen our production and cash flow for decades into the future with 100% carbon-negative blue oil. We also will continue the aggressive pursuit of new CCUS business opportunities, supported by new transportation and storage agreements. To buttress those efforts, we will consider additional investments in new carbon related ventures while expanding our network of dedicated CO₂ storage sites. With two decades of CO₂ expertise and our extensive infrastructure, I believe Denbury is uniquely positioned to execute on our mission to deliver carbon solutions that provide resources to meet today’s energy needs while working toward a sustainable future. I am tremendously proud of what we have built at Denbury and more excited about the transformational growth journey that lays ahead."

FOURTH QUARTER 2022 FINANCIAL AND OPERATING RESULTS

Denbury’s fourth quarter 2022 total revenues and other income totaled $381 million, down from third quarter 2022 levels primarily as a result of lower oil prices. The Company’s fourth quarter 2022 average pre-hedge realized oil price was $82.54 per barrel ("Bbl"), down 11% from the third quarter of 2022. Denbury’s average realized oil price differential was nearly identical to benchmark West Texas Intermediate prices in the fourth quarter of 2022, but less favorable than the $0.82 positive differential the Company realized in the third quarter of 2022.

The Company’s sales volumes averaged 46,641 barrels of oil equivalent per day ("BOE/d") during the fourth quarter of 2022, down modestly from third quarter 2022 levels primarily due to severe winter storm impacts. Fourth quarter volumes were impacted on average approximately 1,150 BOE/d due to production downtime associated with late December 2022 winter storms and approximately 500 BOE/d related to the temporary curtailment of production in certain areas of the CCA EOR flood where CO₂ arrival has occurred in advance of the completion of CO₂ recycle facilities.

Rocky Mountain region sales volumes were up 2% from the third quarter of the year, largely driven by the Wind River Basin volumes which established a quarterly high in the fourth quarter following 2022 development activities. Sales volumes in the Gulf Coast were down 3%, primarily related to the winter storm impacts and an inventory build at Tinsley. Oil represented 97% of the Company’s fourth quarter 2022 volumes, with 29% of the Company’s oil produced through the injection of industrial-sourced CO₂, resulting in carbon-negative blue oil.

CO₂ sales and transportation fee revenue in the fourth quarter of 2022 was higher than historical periods; however, lower than the third quarter of the year, due primarily to a short-term agreement that expired during the fourth quarter 2022.

Lease operating expense in the fourth quarter of 2022 was $126 million, or $29.31 per BOE. The 6% decrease on a per BOE basis from the third quarter 2022 was primarily related to lower power and fuel costs, which were benefitted by lower natural gas prices, along with lower workover expenses.

General and administrative expenses were $23 million in the fourth quarter of 2022, slightly higher than in the third quarter of the year, driven primarily by personnel costs and a performance-based adjustment to the Company’s annual bonus program. Depletion, depreciation, and amortization expense was $43 million during the fourth quarter of 2022, or $10.02 per BOE.

Commodity derivatives expense totaled $38 million in the final quarter of 2022, comprised primarily of cash payments on hedges that settled in the quarter. Other expense of $5 million for the quarter included CCUS costs of approximately $3 million.

The Company’s fourth quarter 2022 effective income tax rate was approximately 17%, lower than the Company’s 25% statutory rate due to a $12 million valuation allowance released during the fourth quarter of 2022. Current taxes provided a benefit of $1 million in the period, primarily resulting from lower than projected income due to oil price changes versus forecast, reducing full year 2022 current taxes to 7% of total income tax expense.

CAPITAL EXPENDITURES

Fourth quarter 2022 capital expenditures, excluding capitalized interest, totaled $153 million, with 79% related to oil & gas development and 21% related to CCUS business activities. During the fourth quarter, the Company spent $51 million on the CCA EOR project, primarily focused on the construction of four planned CO₂ recycle facilities, well conversions, and drilling the Interlake Pennel CO₂ pilot. The CCA project remains on plan to commence EOR production in the second half of 2023. Non-CCA oil & gas development capital was deployed principally for horizontal drilling activity at Webster, drilling of Mission Canyon and Charles wells in the Cedar Creek Anticline, and the Oyster Bayou A2 phase 2 development.

CCUS capital expenditures for the fourth quarter of 2022 were $33 million and included, among other things, lease acquisitions of two planned CO₂ sequestration sites (one in Louisiana and one in Mississippi), costs associated with the preparation for the Company’s initial stratigraphic test well, and acquiring 3-D seismic data over multiple potential CO₂ sequestration sites. During the fourth quarter, the Company submitted its initial Class VI permit applications for 3 wells associated with its Orion site located in Alabama.

2022 PROVED RESERVES

The Company’s total estimated proved oil and natural gas reserves as of December 31, 2022, were 202 million barrels of oil equivalent (MMBOE), consisting of 197 million barrels of crude oil and 30 billion cubic feet of natural gas. Proved reserve revisions during 2022 were 28 MMBOE, primarily resulting from higher commodity prices utilized in determining economic reserves and, to a lesser degree, positive field performance revisions. As of the end of 2022, 98% of proved reserves were proved developed.

Year-end 2022 estimated proved reserves, the standardized measure of future net cash flows, and the pre-tax discounted net present value of Denbury’s proved reserves, using a 10% per annum discount rate ("PV-10 Value")⁽¹⁾, were computed using first-day-of-the-month 12-month average prices of $93.67 per Bbl for oil (based on NYMEX prices) and $6.36 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 2021 were $66.56 per Bbl of oil and $3.60 per MMBtu for natural gas, adjusted for prices received at the field. The tax-effected standardized measure of discounted future net cash flows (a GAAP measure) at year-end 2022 was nearly $3.5 billion. The PV-10 Value⁽¹⁾ of Denbury’s proved reserves (a non-GAAP measure) was nearly $4.5 billion at December 31, 2022, compared to $2.7 billion at December 31, 2021. These values are reconciled in the last two tables at the end of this release.

Denbury’s estimated proved CO₂ reserves at year-end 2022 were 4.8 trillion cubic feet ("Tcf"), including 3.8 Tcf at Jackson Dome in Mississippi (on a gross basis) and 1.0 Tcf at LaBarge Field in Wyoming (overriding royalty interest).

(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 53.9 million and 54.4 million for the quarter and year ended December 31, 2022, respectively.

WEBCAST INFORMATION

Denbury management will host a webcast to review and discuss fourth quarter and full-year 2022 financial and operating results, as well as its outlook for 2023, today, Thursday, February 23, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time). Denbury will post additional supporting materials on its website before market open today. The presentation webcast will be available, both live and for replay, on the Investors page of the Company’s website at www.denbury.com.

ABOUT DENBURY

Denbury is an independent energy company with operations and assets focused on Carbon Capture, Utilization, 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 CO_2.The Company currently injects over four million tons of captured industrial-sourced CO₂annually, with an objective to fully offset its Scope 1, 2, and 3 CO₂ emissions by 2030, primarily through increasing the amount of captured industrial-sourced CO₂ used in its operations. For more information about Denbury, visit www.denbury.com.

# # #

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 2022 Annual Report on Form 10-K to be filed with the SEC today. 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

The following tables include selected unaudited financial and operational information for the three month and annual periods ended December 31, 2022 and December 31, 2021, 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, 2022			December 31, 2021
Revenues and other income
Oil sales	$	341,734		$	329,308
Natural gas sales		4,844			4,040
CO₂ sales and transportation fees		15,952			12,576
Oil marketing revenues		17,368			12,204
Other income		1,259			3,770
Total revenues and other income		381,157			361,898
Expenses
Lease operating expenses		125,766			115,819
Transportation and marketing expenses		5,474			6,513
CO₂ operating and discovery expenses		1,910			2,191
Taxes other than income		30,015			25,891
Oil marketing purchases		17,335			11,971
General and administrative expenses		23,182			16,437
Interest, net of amounts capitalized of $1,060 and $1,085, respectively		933			690
Depletion, depreciation, and amortization		43,003			37,118
Commodity derivatives expense		38,419			22,832
Other expenses		4,825			903
Total expenses		290,862			240,365
Income before income taxes		90,295			121,533
Income tax provision (benefit)
Current income taxes		(1,000	)		504
Deferred income taxes		16,180			398
Net income	$	75,115		$	120,631

Net income per common share
Basic	$	1.47		$	2.35
Diluted	$	1.39		$	2.19

Weighted average common shares outstanding
Basic		51,173			51,247
Diluted		53,851			55,114

	Year Ended Dec. 31, 2022		Year Ended Dec. 31, 2021
In thousands, except per-share data	Year Ended Dec. 31, 2022		Year Ended Dec. 31, 2021
Revenues and other income
Oil sales	$	1,559,111	$	1,148,022
Natural gas sales		19,571		11,933
CO₂ sales and transportation fees		60,570		44,175
Oil marketing revenues		65,093		38,742
Other income		10,314		15,288
Total revenues and other income		1,714,659		1,258,160
Expenses
Lease operating expenses		502,409		424,550
Transportation and marketing expenses		20,112		28,817
CO₂ operating and discovery expenses		8,474		6,678
Taxes other than income		131,502		91,390
Oil marketing purchases		64,497		37,734
General and administrative expenses		82,180		79,258
Interest, net of amounts capitalized of $4,237 and $4,585, respectively		4,025		4,147
Depletion, depreciation, and amortization		151,428		150,640
Commodity derivatives expense		178,744		352,984
Write-down of oil and natural gas properties		—		14,377
Other expenses		16,284		10,816
Total expenses		1,159,655		1,201,391
Income before income taxes		555,004		56,769
Income tax provision
Current income taxes		5,363		403
Deferred income taxes		69,481		364
Net income	$	480,160	$	56,002

Net income per common share
Basic	$	9.34	$	1.10
Diluted	$	8.83	$	1.04

Weighted average common shares outstanding
Basic		51,427		50,918
Diluted		54,355		53,818

DENBURY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
	Quarter Ended
In thousands	December 31, 2022			December 31, 2021
Cash flows from operating activities
Net income	$	75,115		$	120,631
Adjustments to reconcile net income to cash flows from operating activities
Depletion, depreciation, and amortization		43,003			37,118
Deferred income taxes		16,180			398
Stock-based compensation		4,564			2,534
Commodity derivatives expense		38,419			22,832
Payment on settlements of commodity derivatives		(38,956	)		(97,774	)
Debt issuance costs and discounts		531			685
Gain from asset sales and other		(113	)		(3,583	)
Other, net		(1,655	)		(17	)
Changes in assets and liabilities, net of effects from acquisitions
Accrued production receivable		31,973			1,004
Trade and other receivables		(8,307	)		1,525
Other current and long-term assets		12,070			3,053
Accounts payable and accrued liabilities		(27,395	)		(18,984	)
Oil and natural gas production payable		(8,943	)		6,183
Asset retirement obligation settlements		(12,106	)		(4,152	)
Other liabilities		(44	)		(1,852	)
Net cash provided by operating activities		124,336			69,601

Cash flows from investing activities
Oil and natural gas capital expenditures		(99,260	)		(37,870	)
CCUS storage sites and related capital expenditures		(32,362	)		—
Acquisitions of oil and natural gas properties		(102	)		(52	)
Pipeline capital expenditures		(1,219	)		(50,100	)
Net proceeds from sales of oil and natural gas properties and equipment		—			—
Equity investment		(218	)		—
Other		(6,775	)		3,331
Net cash used in investing activities		(139,936	)		(84,691	)

Cash flows from financing activities
Bank repayments		(207,000	)		(236,000	)
Bank borrowings		221,000			271,000
Pipeline financing repayments		—			(17,332	)
Other		1,328			(696	)
Net cash provided by financing activities		15,328			16,972
Net increase (decrease) in cash, cash equivalents, and restricted cash		(272	)		1,882
Cash, cash equivalents, and restricted cash at beginning of period		48,152			48,462
Cash, cash equivalents, and restricted cash at end of period	$	47,880		$	50,344

In thousands	Year Ended Dec. 31, 2022			Year Ended Dec. 31, 2021
Cash flows from operating activities
Net income	$	480,160		$	56,002
Adjustments to reconcile net income to cash flows from operating activities
Noncash reorganization items, net		—			—
Depletion, depreciation, and amortization		151,428			150,640
Write-down of oil and natural gas properties		—			14,377
Deferred income taxes		69,481			364
Stock-based compensation		16,055			25,322
Commodity derivatives expense		178,744			352,984
Payment on settlements of commodity derivatives		(315,752	)		(277,240	)
Gain on debt extinguishment		—			—
Debt issuance costs and discounts		2,996			2,740
Gain from asset sales and other		(1,232	)		(10,609	)
Other, net		(13,198	)		(2,465	)
Changes in assets and liabilities, net of effects from acquisitions
Accrued production receivable		(911	)		(51,944	)
Trade and other receivables		(8,241	)		(284	)
Other current and long-term assets		(9,659	)		10,390
Accounts payable and accrued liabilities		964			28,500
Oil and natural gas production payable		4,469			29,351
Asset retirement obligation settlements		(34,260	)		(10,185	)
Other liabilities		(299	)		(785	)
Net cash provided by operating activities		520,745			317,158

Cash flows from investing activities
Oil and natural gas capital expenditures		(317,094	)		(150,911	)
CCUS storage sites and related capital expenditures		(59,880	)		—
Acquisitions of oil and natural gas properties		(976	)		(10,979	)
Pipeline capital expenditures		(23,478	)		(69,223	)
Net proceeds from sales of oil and natural gas properties and equipment		237			19,053
Equity investment		(10,218	)		—
Other		(16,521	)		9,128
Net cash used in investing activities		(427,930	)		(202,932	)

Cash flows from financing activities
Bank repayments		(1,015,000	)		(933,000	)
Bank borrowings		1,009,000			898,000
Common stock repurchase program		(100,028	)		—
Pipeline financing repayments		—			(68,008	)
Other		10,749			(3,122	)
Net cash used in financing activities		(95,279	)		(106,130	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		(2,464	)		8,096
Cash, cash equivalents, and restricted cash at beginning of period		50,344			42,248
Cash, cash equivalents, and restricted cash at end of period	$	47,880		$	50,344

DENBURY INC. CONSOLIDATED BALANCE SHEETS

In thousands, except par value and share data	December 31, 2022			December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	521		$	3,671
Accrued production receivable		144,277			143,365
Trade and other receivables, net		27,343			19,270
Derivative assets		15,517			—
Prepaids		18,572			9,099
Total current assets		206,230			175,405
Property and equipment
Oil and natural gas properties (using full cost accounting)
Proved properties		1,414,779			1,109,011
Unevaluated properties		240,435			112,169
CO₂ properties		190,985			183,369
Pipelines		220,125			224,394
CCUS storage sites and related assets		64,971			—
Other property and equipment		107,133			93,950
Less accumulated depletion, depreciation, amortization and impairment		(306,743	)		(181,393	)
Net property and equipment		1,931,685			1,541,500
Operating lease right-of-use assets		18,017			19,502
Intangible assets, net		79,128			88,248
Restricted cash for future asset retirement obligations		47,359			46,673
Other assets		45,080			31,625
Total assets