Denbury Reports Third Quarter 2020 Results and Announces November 17th Third Quarter Conference Call

Denbury Inc.
·30 min read

PLANO, Texas, Nov. 16, 2020 (GLOBE NEWSWIRE) -- Denbury Inc. (NYSE: DEN) (Denbury or the Company) today announced its third quarter 2020 financial and operating results.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

  • Successfully completed financial restructuring and emerged from Chapter 11 reorganization on September 18, 2020, with a strong balance sheet and strong liquidity position:

    • Reduced bond debt by $2.1 billion, resulting in $165 million annual interest savings

    • Established a new $575 million senior secured bank credit facility, with $437 million of availability at September 30, 2020 after borrowings of $85 million and outstanding letters of credit

    • Relocated corporate headquarters, resulting in $9 million in annual savings

    • Appointed a new board of directors consisting of four new independent members and three continuing members

    • Commenced trading of new common stock on the NYSE under the ticker symbol DEN on September 21, 2020

  • Produced 49,686 barrels of oil equivalent (BOE) per day (BOE/d) during 3Q 2020, roughly flat with 2Q 2020

  • Revenues and other income were $194 million for 3Q 2020, excluding $18 million in hedging receipts

  • Adjusted EBITDAX (a non-GAAP measure) was $93 million for 3Q 2020

  • Received $25 million of proceeds from the sale of two parcels of marketed Houston area surface acreage, with proceeds of $14 million in July 2020 and $11 million in October 2020

  • Reacquired the NEJD and Free State CO 2 pipelines, reducing debt by $25 million and lowering interest expense while maximizing flexibility for future CCUS operations

Upon emergence from bankruptcy on September 18, 2020 (the Emergence Date), the Company applied fresh start accounting, which resulted in a new entity for financial reporting purposes. In applying fresh start accounting, the Companys assets and liabilities were recorded at fair value as of the Emergence Date, which differs materially from historical values reflected on the Companys balance sheet prior to the Emergence Date. As a result of the application of fresh start accounting and the effects of the Companys Chapter 11 restructuring, the consolidated financial statements of the Company after September 18, 2020 are not comparable with its consolidated financial statements on or prior to that date. References to Successor refer to the new Denbury reporting entity after the Emergence Date, and references to Successor Period refer to the period from September 19, 2020 through September 30, 2020. References to Predecessor refer to the Denbury entity prior to emergence from bankruptcy, and references to Predecessor Period refer to periods (as specified herein) prior to and through September 18, 2020. Under GAAP, Denbury is required to report the Companys financial results for the Successor Period separately from Predecessor Periods, making the information not comparable. In order to provide meaningful comparable results of certain information for the third quarter and year to date periods, the Company has combined the results for the third quarters Successor Period and Predecessor Period where appropriate, which the Company refers to as Combined.

SELECTED QUARTERLY COMPARATIVE DATA

Following are unaudited financial highlights for the Successor Period, certain Predecessor Periods and on a Combined basis for the third quarter ended September 30, 2020.

 

 

Combined (Non-GAAP) (1)

 

 

Successor

 

 

Predecessor

 

 

Quarter Ended

 

 

Period from Sept. 19, 2020 through

 

 

Period from July 1, 2020 through

 

Quarter Ended

 

Quarter Ended

(in millions, except per-share and per-unit data)

 

Sept. 30, 2020

 

 

Sept. 30, 2020

 

 

Sept. 18, 2020

 

June 30, 2020

 

Sept. 30, 2019

Net income (loss)

 

$

(806

)

 

 

$

3

 

 

 

$

(809

)

 

$

(697

)

 

$

73

 

Adjusted net income (loss) (2) (non-GAAP measure)

 

20

 

 

 

 

 

 

 

 

(32

)

 

41

 

Adjusted EBITDAX (2) (non-GAAP measure)

 

93

 

 

 

 

 

 

 

 

39

 

 

145

 

Net income (loss) per diluted share

 

 

 

 

0.06

 

 

 

(1.63

)

 

(1.41

)

 

0.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

Combined (Non-GAAP) (1)

 

 

Predecessor

 

 

Quarter Ended

 

 

Quarter Ended

 

Quarter Ended

(in millions)

 

Sept. 30, 2020

 

 

June 30, 2020

 

Sept. 30, 2019

Oil, natural gas, and related product sales

 

$

176

 

 

 

$

109

 

 

$

293

 

CO 2 , oil marketing sales and other

 

18

 

 

 

9

 

 

22

 

Total revenues and other income

 

$

194

 

 

 

$

118

 

 

$

315

 

 

 

 

 

 

 

 

 

Receipt on settlements of commodity derivatives

 

$

18

 

 

 

$

46

 

 

$

8

 

 

 

 

 

 

 

 

 

Cash flows from operations (1)

 

$

74

 

 

 

$

11

 

 

$

131

 

Adjusted cash flows from operations less special items (2) (non-GAAP measure)

 

68

 

 

 

9

 

 

126

 

Development capital expenditures

 

18

 

 

 

21

 

 

51

 

 

 

 

 

 

 

 

 

 

 

 

(1) Combined results for the three months ended September 30, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods.
(2) 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.

 

 

Quarter Ended

 

 

Sept. 30, 2020

 

June 30, 2020

 

Sept. 30, 2019

Average realized oil price per barrel (excluding derivative settlements)

 

$

39.23

 

 

$

24.39

 

 

$

57.64

 

Average realized oil price per barrel (including derivative settlements)

 

43.23

 

 

34.64

 

 

59.23

 

 

 

 

 

 

 

 

Total production (BOE/d)

 

49,686

 

 

50,190

 

 

56,441

 

Total continuing production (BOE/d) (1)

 

49,686

 

 

50,190

 

 

55,338

 

 

 

 

 

 

 

 

 

 

 

MANAGEMENT COMMENT

Chris Kendall, Denburys President and CEO, commented, In less than two months during the third quarter we entered and exited our Chapter 11 restructuring process. As a result of this process, Denbury emerged with a strong balance sheet, a solid liquidity position, and a significantly reduced cost structure providing us with a breakeven oil price near $30 per barrel. Denburys low base production decline and the flexible, low capital intensity nature of our assets are particularly well suited for todays environment. The industry-leading low carbon footprint of our CO 2 EOR-focused oil production sets us apart. Moreover, the potential of the emerging CCUS business presents a unique, exciting, and significant growth opportunity to leverage both our strategically advantaged asset base and our extensive CO 2 expertise developed during more than 20 years of CO 2 EOR operations.

I want to thank the Denbury team for their focus, care, and diligence throughout 2020. Even in this challenging environment, the team is setting Company records for safety and efficiency, which is a testament to our employees professionalism, dedication, quality and resilience.

Going forward, while ensuring a steadfast focus of building on our strong foundation of safety and operational excellence, our priorities will be to protect and maintain our balance sheet, to continue to invest within cash flow, to further build our EOR-focused business, and to continue to position the Company to be a leader in what we believe will be a high value CCUS business.

(1) Continuing production excludes production from the Gulf Coast Working Interests Sale completed on March 4, 2020.

REVIEW OF OPERATING AND FINANCIAL RESULTS

Denburys oil and natural gas production averaged 49,686 BOE/d during third quarter 2020, relatively flat with second quarter of 2020 (the prior quarter) production and a decrease of 10% compared to continuing production in the third quarter of 2019 (the prior-year third quarter), which is adjusted for production from assets sold in the first quarter of 2020. Production during the second and third quarters of 2020 was impacted by approximately 4,300 BOE/d and 1,700 BOE/d, respectively, of production that was shut-in due to wells that were uneconomic to produce or repair. In addition to shut-in production, the year-over-year production decline was primarily due to production declines at Delhi Field which were mainly associated with the suspension of CO 2 purchases since late-February 2020 as a result of the Delta-Tinsley CO 2 pipeline being out of service for repairs, as well as reduced levels of workovers and capital investment due to actions taken by the Company to reduce costs in response to the significant decline in oil prices earlier in 2020. In late October 2020, repairs to the Delta-Tinsley pipeline were completed and the pipeline was brought back into service, allowing CO 2 purchases to resume at Delhi Field. Further production information is provided on page 18 of this press release.

Denburys third quarter 2020 average realized oil price, including derivative settlements, was $43.23 per barrel (Bbl), an increase of 25% from the prior quarter and a decrease of 27% from the prior-year third quarter. Denburys NYMEX differential for the third quarter 2020 was $1.64 per Bbl below NYMEX WTI oil prices, compared to $4.03 per Bbl below NYMEX WTI in the prior quarter and $1.30 per Bbl above NYMEX WTI in the prior-year third quarter.

Total revenues and other income in the third quarter of 2020 were $194 million, an increase of 64% from the prior quarter and a decrease of 39% from the prior-year third quarter. The sequential quarterly increase was primarily due to higher realized oil prices, and the decrease from the prior-year third quarter was primarily due to lower oil prices and to a lesser degree lower oil production levels.

Total lease operating expenses in third quarter 2020 were $71 million, or $15.57 per BOE, a decrease of $10 million, or 12%, compared to the prior quarter due primarily to a $15 million insurance reimbursement received in the current quarter related to a 2013 incident at Delhi Field, partially offset by higher workover expense during the current quarter as the Company resumed some repairs and maintenance activity. Compared to the prior-year third quarter, lease operating expenses decreased $47 million, or 40%, due primarily to reductions in all expense categories, with the largest decreases in workover expense, labor, and power and fuel costs, as well as the insurance reimbursement noted above.

Taxes other than income, which includes ad valorem, production and franchise taxes, increased $5 million, or 50%, from the prior quarter and decreased $6 million, or 29%, from the prior-year third quarter, generally due to changes in oil and natural gas revenues.

General and administrative (G&A) expenses were $17 million in third quarter 2020, a $7 million decrease from the prior quarter, primarily due to the prior quarter including higher than normal compensation-related expenses related to modifications of the Companys 2020 employee compensation programs. During the prior quarter, the Company reinstated a bonus program for 2020 which had previously been suspended in the first quarter, resulting in a higher than normal bonus accrual in the second quarter. Compared to the prior-year third quarter, G&A expenses decreased $2 million, or 8%, due to lower overall employee compensation and related costs due to reduced headcount.

Interest expense, net of capitalized interest, totaled $8 million in third quarter 2020, a $13 million decrease from the prior quarter and a $15 million decrease from the prior-year third quarter. The decreases in both comparative periods were primarily due to the approximate $2.1 billion reduction in bond debt associated with the Companys Chapter 11 restructuring during the third quarter of 2020. A schedule detailing the components of interest expense is included on page 20 of this press release.

The Company recognized a full cost pool ceiling test write-down of $262 million for the Predecessor Period from July 1, 2020 through September 18, 2020 as a result of the continued decline in first-day-of-the-month oil prices for the preceding 12 months. This write-down compares to full cost pool ceiling test write-downs of $662 million during the prior quarter and $73 million during the first quarter of 2020. As a result of fresh start accounting, oil and gas properties were recorded at fair value as of September 18, 2020, and there was no full cost pool ceiling test write-down for the Successor Period.

Depletion, depreciation, and amortization (DD&A) was $42 million during third quarter 2020, compared to $55 million in both the prior quarter and the prior-year third quarter. The decreases from the prior quarter and the prior-year third quarter were primarily due to the application of fresh start accounting resulting in lower asset balances.

Denburys effective tax rate for the Predecessor Period from January 1, 2020 through September 18, 2020 was 23%, slightly lower than the Companys estimated statutory rate of 25%, due primarily to the establishment of a valuation allowance on the Companys federal and state deferred tax assets after the application of fresh start accounting. Given the Companys cumulative loss position and the continued low oil price environment, management recorded a total valuation allowance of $129 million on its underlying deferred tax assets as of September 18, 2020. For the Successor Period, the Company continues to offset its deferred tax assets with a valuation allowance. Thus, the income tax expense associated with the Successors pre-tax book income was offset by a change in valuation allowance.

BANK CREDIT FACILITY

In connection with the emergence from Chapter 11 bankruptcy proceedings, the Company entered into a new $575 million senior secured bank credit facility due January 30, 2024, with the lending group remaining consistent with that of the Predecessors bank credit facility. As of September 30, 2020, the Company had $85 million of outstanding borrowings on the senior secured bank credit facility, leaving $437 million of borrowing base availability after consideration of $53 million of outstanding letters of credit.

RECENT PIPELINE TRANSACTIONS

In late October 2020, the Company restructured its CO 2 pipeline financing arrangements with Genesis Energy, L.P. (Genesis), whereby (1) Denbury reacquired the NEJD Pipeline system from Genesis in exchange for $70 million to be paid in four equal payments during 2021, representing full settlement of all remaining obligations under the NEJD secured financing lease; and (2) Denbury reacquired the Free State Pipeline from Genesis in exchange for a one-time payment of $23 million made on October 30, 2020.

HEDGING UPDATE

Details of the Companys hedging positions as of November 13, 2020 are included below.

 

 

 

4Q 2020

 

2021

 

1H 2022

WTI NYMEX

Volumes Hedged (Bbls/d)

 

 

13,500

 

 

24,000

 

 

8,500

Fixed-Price Swaps

Swap Price (1)

 

$

40.52

 

$

42.22

 

$

43.55

Argus LLS

Volumes Hedged (Bbls/d)

 

 

7,500

 

 

 

 

Fixed-Price Swaps

Swap Price (1)

 

$

51.67

 

 

 

 

WTI NYMEX

Volumes Hedged (Bbls/d)

 

 

9,500

 

 

 

 

3-Way Collars

Sold Put Price / Floor / Ceiling Price (1)(2)

 

$47.93 / $57.00 / $63.25

 

 

 

 

Argus LLS

Volumes Hedged (Bbls/d)

 

 

5,000

 

 

 

 

3-Way Collars

Sold Put Price / Floor / Ceiling Price (1)(2)

 

$52.80 / $61.63 / $70.35

 

 

 

 

 

Total Volumes Hedged (Bbls/d)

 

 

35,500

 

 

24,000

 

 

8,500

 

 

 

 

 

 

 

 

 

 

 

(1) Averages are volume weighted.
(2) If oil prices were to average less than the sold put, receipts on settlement would be limited to the difference between the floor price and the sold put price.

2020 CAPITAL BUDGET AND ESTIMATED PRODUCTION

The Companys 2020 estimated development capital budget, excluding acquisitions and capitalized interest, remains unchanged from its previously estimated range of $95 million to $105 million. The capital budget consists of approximately $70 million for tertiary and non-tertiary field investments and CO 2 supply, plus approximately $30 million of estimated capitalized costs (including capitalized internal acquisition, exploration and development costs and pre-production tertiary startup costs). Of this combined capital expenditure amount, $78 million (78%) has been incurred through the first nine months of 2020. Based upon this capital spending level, Denburys estimated full-year 2020 production is currently expected to be within a range of 50,900 51,400 BOE/d.

THIRD QUARTER CONFERENCE CALL INFORMATION

Denbury management will host a conference call to review and discuss third quarter 2020 financial and operating results tomorrow, Tuesday, November 17, at 10:00 A.M. (Central). Additionally, Denbury will post presentation materials on its website which will be referenced during the conference call. Individuals who would like to participate should dial 877.705.6003 or 201.493.6725 ten minutes before the scheduled start time. To access a live webcast of the conference call and accompanying slide presentation, please visit the investor relations section of the Companys website at www.denbury.com. The webcast will be archived on the website and a telephonic replay will be accessible for approximately one month after the call by dialing 844.512.2921 or 412.317.6671 and entering confirmation number 13696085.

Denbury is an independent oil and natural gas company with operations focused in two key operating areas: the Gulf Coast and Rocky Mountain regions. The Companys goal is to increase the value of its properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis relating to CO 2 enhanced oil recovery operations. For more information about Denbury, please visit www.denbury.com.

This press release, other than historical information, contains forward-looking statements that involve risks and uncertainties including estimated 2020 production and capital expenditures, and other risks and uncertainties detailed in the Companys filings with the Securities and Exchange Commission, including Denburys 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, managements assumptions and the Companys 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 Companys 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 Successor Period, Predecessor Periods from July 1, 2020 through September 18, 2020 and January 1, 2020 through September 18, 2020, and certain Combined information for the three and nine months ended September 30, 2020, in order to assist investors in understanding the comparability of the Companys financial and operational results for the applicable periods. All production 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)

 

 

Combined (Non-GAAP) (1)

 

 

Successor

 

 

Predecessor

 

 

Quarter Ended

 

 

Period from Sept. 19, 2020 through

 

 

Period from July 1, 2020 through

 

Quarter Ended

 

Quarter Ended

In thousands, except per-share data

 

Sept. 30, 2020

 

 

Sept. 30, 2020

 

 

Sept. 18, 2020

 

Sept. 30, 2019

 

June 30, 2020

Revenues and other income

 

 

 

 

 

 

 

 

 

 

 

 

Oil sales

 

$

174,447

 

 

 

$

22,311

 

 

 

$

152,136

 

 

$

292,100

 

 

$

108,538

 

Natural gas sales

 

964

 

 

 

10

 

 

 

954

 

 

1,092

 

 

849

 

CO 2 sales and transportation fees

 

7,484

 

 

 

967

 

 

 

6,517

 

 

8,976

 

 

6,504

 

Oil marketing sales

 

3,483

 

 

 

151

 

 

 

3,332

 

 

5,468

 

 

1,490

 

Other income

 

7,191

 

 

 

94

 

 

 

7,097

 

 

7,817

 

 

494

 

Total revenues and other income

 

193,569

 

 

 

23,533

 

 

 

170,036

 

 

315,453

 

 

117,875

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

71,192

 

 

 

11,484

 

 

 

59,708

 

 

117,850

 

 

81,293

 

Transportation and marketing expenses

 

9,499

 

 

 

1,344

 

 

 

8,155

 

 

10,067

 

 

9,388

 

CO 2 operating and discovery expenses

 

1,197

 

 

 

242

 

 

 

955

 

 

879

 

 

885

 

Taxes other than income

 

15,546

 

 

 

2,073

 

 

 

13,473

 

 

22,010

 

 

10,372

 

Oil marketing expenses

 

3,427

 

 

 

139

 

 

 

3,288

 

 

5,436

 

 

1,450

 

General and administrative expenses

 

16,748

 

 

 

1,735

 

 

 

15,013

 

 

18,266

 

 

23,776

 

Interest, net of amounts capitalized of $4,887, $183, $4,704, $8,773 and $8,729, respectively

 

8,038

 

 

 

334

 

 

 

7,704

 

 

22,858

 

 

20,617

 

Depletion, depreciation, and amortization

 

41,600

 

 

 

5,283

 

 

 

36,317

 

 

55,064

 

 

55,414

 

Commodity derivatives expense (income)

 

574

 

 

 

(4,035

)

 

 

4,609

 

 

(43,155

)

 

40,130

 

Gain on debt extinguishment

 

 

 

 

 

 

 

 

 

(5,874

)

 

 

Write-down of oil and natural gas properties

 

261,677

 

 

 

 

 

 

261,677

 

 

 

 

662,440

 

Restructuring items, net

 

849,980

 

 

 

 

 

 

849,980

 

 

 

 

 

Other expenses

 

24,248

 

 

 

2,164

 

 

 

22,084

 

 

2,140

 

 

11,290

 

Total expenses

 

1,303,726

 

 

 

20,763

 

 

 

1,282,963

 

 

205,541

 

 

917,055

 

Income (loss) before income taxes

 

(1,110,157

)

 

 

2,770

 

 

 

(1,112,927

)

 

109,912

 

 

(799,180

)

Income tax provision (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

Current income taxes

 

(1,445

)

 

 

6

 

 

 

(1,451

)

 

(859

)

 

598

 

Deferred income taxes

 

(302,350

)

 

 

6

 

 

 

(302,356

)

 

37,909

 

 

(102,304

)

Net income (loss)

 

$

(806,362

)

 

 

$

2,758

 

 

 

$

(809,120

)

 

$

72,862

 

 

$

(697,474

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

$

0.06

 

 

 

$

(1.63

)

 

$

0.16

 

 

$

(1.41

)

Diluted

 

 

 

 

$

0.06

 

 

 

$

(1.63

)

 

$

0.14

 

 

$

(1.41

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

50,000

 

 

 

497,398

 

 

455,487

 

 

495,245

 

Diluted

 

 

 

 

50,000

 

 

 

497,398

 

 

547,205

 

 

495,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Combined results for the quarter ended September 30, 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 Companys 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 quarter reported in accordance with GAAP.

 

 

Combined (Non-GAAP) (1)

 

 

Successor

 

 

Predecessor

 

 

Nine Months Ended

 

 

Period from Sept. 19, 2020 through

 

 

Period from Jan. 1, 2020 through

 

Nine Months Ended

In thousands, except per-share data

 

Sept. 30, 2020

 

 

Sept. 30, 2020

 

 

Sept. 18, 2020

 

Sept. 30, 2019

Revenues and other income

 

 

 

 

 

 

 

 

 

 

Oil sales

 

$

511,562

 

 

 

$

22,311

 

 

 

$

489,251

 

 

$

912,636

 

Natural gas sales

 

2,860

 

 

 

10

 

 

 

2,850

 

 

5,554

 

CO 2 sales and transportation fees

 

22,016

 

 

 

967

 

 

 

21,049

 

 

25,532

 

Oil marketing sales

 

8,694

 

 

 

151

 

 

 

8,543

 

 

8,274

 

Other income

 

8,513

 

 

 

94

 

 

 

8,419

 

 

12,274

 

Total revenues and other income

 

553,645

 

 

 

23,533

 

 

 

530,112

 

 

964,270

 

Expenses

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

261,755

 

 

 

11,484

 

 

 

250,271

 

 

361,205

 

Transportation and marketing expenses

 

28,508

 

 

 

1,344

 

 

 

27,164

 

 

32,076

 

CO 2 operating and discovery expenses

 

2,834

 

 

 

242

 

 

 

2,592

 

 

2,016

 

Taxes other than income

 

45,604

 

 

 

2,073

 

 

 

43,531

 

 

71,312

 

Oil marketing expenses

 

8,538

 

 

 

139

 

 

 

8,399

 

 

8,213

 

General and administrative expenses

 

50,257

 

 

 

1,735

 

 

 

48,522

 

 

54,697

 

Interest, net of amounts capitalized of $23,068, $183, $22,885 and $27,545, respectively

 

48,601

 

 

 

334

 

 

 

48,267

 

 

60,672

 

Depletion, depreciation, and amortization

 

193,876

 

 

 

5,283

 

 

 

188,593

 

 

170,625

 

Commodity derivatives expense (income)

 

(106,067

)

 

 

(4,035

)

 

 

(102,032

)

 

15,462

 

Gain on debt extinguishment

 

(18,994

)

 

 

 

 

 

(18,994

)

 

(106,220

)

Write-down of oil and natural gas properties

 

996,658

 

 

 

 

 

 

996,658

 

 

 

Restructuring items, net

 

849,980

 

 

 

 

 

 

849,980

 

 

 

Other expenses

 

38,032

 

 

 

2,164

 

 

 

35,868

 

 

8,664

 

Total expenses

 

2,399,582

 

 

 

20,763

 

 

 

2,378,819

 

 

678,722

 

Income (loss) before income taxes

 

(1,845,937

)

 

 

2,770

 

 

 

(1,848,707

)

 

285,548

 

Income tax provision (benefit)

 

 

 

 

 

 

 

 

 

 

Current income taxes

 

(7,254

)

 

 

6

 

 

 

(7,260

)

 

1,214

 

Deferred income taxes

 

(408,863

)

 

 

6

 

 

 

(408,869

)

 

90,454

 

Net income (loss)

 

$

(1,429,820

)

 

 

$

2,758

 

 

 

$

(1,432,578

)

 

$

193,880

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

$

0.06

 

 

 

$

(2.89

)

 

$

0.43

 

Diluted

 

 

 

 

$

0.06

 

 

 

$

(2.89

)

 

$

0.41

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

50,000

 

 

 

495,560

 

 

453,287

 

Diluted

 

 

 

 

50,000

 

 

 

495,560

 

 

490,054

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Combined results for the nine months ended September 30, 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 Companys 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 nine months ended reported in accordance with GAAP.

DENBURY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

Combined (Non-GAAP) (1)

 

 

Successor

 

 

Predecessor

 

 

Nine Months Ended

 

 

Period from Sept. 19, 2020 through

 

 

Period from Jan. 1, 2020 through

 

Nine Months Ended

In thousands

 

Sept. 30, 2020

 

 

Sept. 30, 2020

 

 

Sept. 18, 2020

 

Sept. 30, 2019

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,429,820

)

 

 

$

2,758

 

 

 

$

(1,432,578

)

 

$

193,880

 

Adjustments to reconcile net income (loss) to cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Noncash reorganization items, net

 

810,909

 

 

 

 

 

 

810,909

 

 

 

Depletion, depreciation, and amortization

 

193,876

 

 

 

5,283

 

 

 

188,593

 

 

170,625

 

Write-down of oil and natural gas properties

 

996,658

 

 

 

 

 

 

996,658

 

 

 

Deferred income taxes

 

(408,863

)

 

 

6

 

 

 

(408,869

)

 

90,454

 

Stock-based compensation

 

4,111

 

 

 

 

 

 

4,111

 

 

9,866

 

Commodity derivatives expense (income)

 

(106,067

)

 

 

(4,035

)

 

 

(102,032

)

 

15,462

 

Receipt on settlements of commodity derivatives

 

88,056

 

 

 

6,660

 

 

 

81,396

 

 

14,714

 

Gain on debt extinguishment

 

(18,994

)

 

 

 

 

 

(18,994

)

 

(106,220

)

Debt issuance costs and discounts

 

11,685

 

 

 

114

 

 

 

11,571

 

 

7,607

 

Other, net

 

1,028

 

 

 

589

 

 

 

439

 

 

(6,862

)

Changes in assets and liabilities, net of effects from acquisitions

 

 

 

 

 

 

 

 

 

 

Accrued production receivable

 

65,112

 

 

 

38,537

 

 

 

26,575

 

 

(1,428

)

Trade and other receivables

 

(20,977

)

 

 

1,366

 

 

 

(22,343

)

 

(147

)

Other current and long-term assets

 

1,448

 

 

 

705

 

 

 

743

 

 

27

 

Accounts payable and accrued liabilities

 

(24,082

)

 

 

(7,980

)

 

 

(16,102

)

 

(33,167

)

Oil and natural gas production payable

 

(17,856

)

 

 

(11,064

)

 

 

(6,792

)

 

(1,819

)

Other liabilities

 

94

 

 

 

(29

)

 

 

123

 

 

(9,414

)

Net cash provided by operating activities

 

146,318

 

 

 

32,910

 

 

 

113,408

 

 

343,578

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Oil and natural gas capital expenditures

 

(101,707

)

 

 

(2,125

)

 

 

(99,582

)

 

(204,904

)

Pipelines and plants capital expenditures

 

(11,607

)

 

 

(6

)

 

 

(11,601

)

 

(25,965

)

Net proceeds from sales of oil and natural gas properties and equipment

 

42,202

 

 

 

880

 

 

 

41,322

 

 

10,494

 

Other

 

12,438

 

 

 

(309

)

 

 

12,747

 

 

5,797

 

Net cash used in investing activities

 

(58,674

)

 

 

(1,560

)

 

 

(57,114

)

 

(214,578

)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Bank repayments

 

(606,000

)

 

 

(55,000

)

 

 

(551,000

)

 

(641,000

)

Bank borrowings

 

691,000

 

 

 

 

 

 

691,000

 

 

691,000

 

Interest payments treated as a reduction of debt

 

(46,417

)

 

 

 

 

 

(46,417

)

 

(59,808

)

Cash paid in conjunction with debt repurchases

 

(14,171

)

 

 

 

 

 

(14,171

)

 

 

Cash paid in conjunction with debt exchange

 

 

 

 

 

 

 

 

 

(125,268

)

Costs of debt financing

 

(12,482

)

 

 

 

 

 

(12,482

)

 

(11,017

)

Pipeline financing and capital lease debt repayments

 

(51,846

)

 

 

(54

)

 

 

(51,792

)

 

(10,279

)

Other

 

(9,363

)

 

 

 

 

 

(9,363

)

 

5,470

 

Net cash provided by (used in) financing activities

 

(49,279

)

 

 

(55,054

)

 

 

5,775

 

 

(150,902

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

38,365

 

 

 

(23,704

)

 

 

62,069

 

 

(21,902

)

Cash, cash equivalents, and restricted cash at beginning of period

 

33,045

 

 

 

95,114

 

 

 

33,045

 

 

54,949

 

Cash, cash equivalents, and restricted cash at end of period

 

$

71,410

 

 

 

$

71,410

 

 

 

$

95,114

 

 

$

33,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Combined results for the nine months ended September 30, 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 Companys 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 nine months ended reported in accordance with GAAP.

DENBURY INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of net income (loss) (GAAP measure) to adjusted net income (loss) (non-GAAP measure)

Adjusted net income (loss) is a non-GAAP measure provided as a supplement to present an alternative net income (loss) measure which excludes expense and income items (and their related tax effects) not directly related to the Companys ongoing operations. Management believes that adjusted net income (loss) may be helpful to investors by eliminating the impact of noncash and/or special or unusual items not indicative of the Companys performance from period to period, and is widely used by the investment community, while also being used by management, in evaluating the comparability of the Companys ongoing operational results and trends. Adjusted net income (loss) should not be considered in isolation, as a substitute for, or more meaningful than, net income (loss) or any other measure reported in accordance with GAAP, but rather to provide additional information useful in evaluating the Companys operational trends and performance.

 

 

Combined (Non-GAAP) (1)

 

 

Predecessor

 

 

Quarter Ended

 

 

Quarter Ended

 

Quarter Ended

 

 

Sept. 30, 2020

 

 

Sept. 30, 2019

 

June 30, 2020

In thousands, except per-share data

 

Amount

 

 

Amount

 

Per Diluted Share

 

Amount

 

Per Diluted Share

Net income (loss) (GAAP measure) (2)

 

$

(806,362

)

 

 

$

72,862

 

 

$

0.14

 

 

$

(697,474

)

 

$

(1.41

)

Adjustments to reconcile to adjusted net income (loss) (non-GAAP measure)

 

 

 

 

 

 

 

 

 

 

 

Noncash fair value losses (gains) on commodity derivatives (3)

 

18,363

 

 

 

(35,098

)

 

(0.06

)

 

85,759

 

 

0.17

 

Reorganization items, net (4)

 

849,980

 

 

 

 

 

 

 

 

 

 

Write-down of oil and natural gas properties (5)

 

261,677

 

 

 

 

 

 

 

662,440

 

 

1.34

 

Accelerated depreciation charge (6)

 

1,791

 

 

 

 

 

 

 

 

 

 

Gain on debt extinguishment (7)

 

 

 

 

(5,874

)

 

(0.01

)

 

 

 

 

Severance-related expense included in general and administrative expenses (8)

 

 

 

 

 

 

 

 

2,361

 

 

0.00

 

Expense associated with restructuring (9)

 

16,232

 

 

 

 

 

 

 

7,875

 

 

0.02

 

Delhi Field insurance reimbursements (10)

 

(15,402

)

 

 

 

 

 

 

 

 

 

Other (11)

 

1,013

 

 

 

(5,247

)

 

(0.01

)

 

1,206

 

 

0.00

 

Estimated income taxes on above adjustments to net income (loss) and other discrete tax items (12)

 

(307,344

)

 

 

14,499

 

 

0.02

 

 

(94,529

)

 

(0.19

)

Adjusted net income (loss) (non-GAAP measure)

 

$

19,948

 

 

 

$

41,142

 

 

$

0.08

 

 

$

(32,362

)

 

$

(0.07

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

Combined (Non-GAAP) (1)

 

 

Predecessor

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

Sept. 30, 2020

 

 

Sept. 30, 2019

In thousands, except per-share data

 

Amount

 

 

Amount

 

Per Diluted Share

Net income (loss) (GAAP measure) (2)

 

$

(1,429,820

)

 

 

$

193,880

 

 

$

0.41

 

Adjustments to reconcile to adjusted net income (loss) (non-GAAP measure)

 

 

 

 

 

 

 

Noncash fair value losses (gains) on commodity derivatives (3)

 

(18,011

)

 

 

30,176

 

 

0.06

 

Reorganization items, net (4)

 

849,980

 

 

 

 

 

 

Write-down of oil and natural gas properties (5)

 

996,658

 

 

 

 

 

 

Accelerated depreciation charge (6)

 

39,159

 

 

 

 

 

 

Gain on debt extinguishment (7)

 

(18,994

)

 

 

(106,220

)

 

(0.22

)

Severance-related expense included in general and administrative expenses (8)

 

2,361

 

 

 

 

 

 

Expense associated with restructuring (9)

 

24,107

 

 

 

 

 

 

Delhi Field insurance reimbursements (10)

 

(15,402

)

 

 

 

 

 

Other (11)

 

3,623

 

 

 

(793

)

 

0.00

 

Estimated income taxes on above adjustments to net income (loss) and other discrete tax items (12)

 

(418,655

)

 

 

28,483

 

 

0.06

 

Adjusted net income (loss) (non-GAAP measure)

 

$

15,006

 

 

 

$

145,526

 

 

$

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Combined results for the three and nine months ended September 30, 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 Companys 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 quarter and nine months ended reported in accordance with GAAP.
(2) Diluted net income (loss) per common share includes the impact of potentially dilutive securities including nonvested restricted stock, nonvested performance-based equity awards, warrants, and shares into which the Companys previous convertible senior notes were convertible. Basic and diluted earnings per share calculations for the GAAP reporting periods are included on page 13.
(3) The net change between periods of the fair market values of open commodity derivative positions, excluding the impact of settlements on commodity derivatives during the period.
(4) Reorganization items, net represent (a) expenses incurred subsequent to the filing petition for Chapter 11 as a direct result of the prepackaged joint plan of reorganization, (b) gains or losses from liabilities settled, and (c) fresh start accounting adjustments.
(5) Full cost pool ceiling test write-downs related to the Companys oil and natural gas properties.
(6) Accelerated depreciation for an asset impairment during the three months ended September 30, 2020, and impaired unevaluated properties during the three months ended March 31, 2020.
(7) Gain on debt extinguishment related to the Companys 2020 open market repurchases and June 2019 debt exchange.
(8) Severance-related expense associated with the Companys May-2020 involuntary workforce reduction.
(9) Expenses incurred before the petition date and after the Emergence Date related to advisor and professional fees associated with review of strategic alternatives and comprehensive restructuring of the Companys indebtedness.
(10) Insurance reimbursements associated with a 2013 incident at Delhi Field.
(11) Other includes the following adjustments: (a) for the three months ended September 20, 2020, $5.9 million gain on land sales, $4.2 million write-off of trade receivables, $2.2 million of expense associated with the Delta-Tinsley CO 2 pipeline incident and $0.5 million of expense associated with the helium supply contract trial court ruling, (b) for the three months ended September 30, 2019, a $6 million gain on land sales, <$1 million of transaction costs related to the Companys privately negotiated debt exchanges, and <$1 million of expense associated with the helium supply contract trial court ruling, (c) for the three months ended June 30, 2020, $0.5 million of costs associated with the helium supply contract trial court ruling and $0.7 million of expense associated with the Delta-Tinsley CO 2 pipeline incident, (d) for the nine months ended September 30, 2020, $0.5 million of expense associated with the helium supply contract trial court ruling and $0.9 million of expense associated with the Delta-Tinsley CO 2 pipeline incident, and (e) for the nine months ended September 30, 2019, $1 million of expense related to an impairment of assets, $1 million of transaction costs related to the Companys privately negotiated debt exchanges, and an additional $0.8 million of expense associated with the helium supply contract trial court ruling.
(12) The estimated income tax impacts on adjustments to net income for the nine months ended September 30, 2020 are computed based upon a rate of 25% applied to income before tax, which incorporates discrete tax adjustments primarily comprised of the tax effect of the ceiling test and accelerated depreciation, impacts of the CARES Act, valuation allowances, and the periodic tax impacts of a shortfall (benefit) on the stock-based compensation deduction.

DENBURY INC.
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

 

 

Successor

 

 

Predecessor

 

 

Period from Sept. 19, 2020 through

 

 

Period from July 1, 2020 through

 

Quarter Ended

 

Quarter Ended

 

 

Sept. 30, 2020

 

 

Sept. 18, 2020

 

Sept. 30, 2019

 

June 30, 2020

In thousands, except per-share data

 

Amount

 

Per Share

 

 

Amount

 

Per Share

 

Amount

 

Per Share

 

Amount

 

Per Share

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) – basic $2,758 $0.06 $(809,120) $(1.63) $72,862 $0.16 $(697,474) $(1.41)Effect of potentially dilutive securities Interest on convertible senior notes, net of tax — — 5,101 — Net income (loss) – diluted $2,758 $0.06 $(809,120) $(1.63) $77,963 $0.14 $(697,474) $(1.41) Denominator Weighted average common shares outstanding – basic 50,000 497,398 455,487 495,245 Effect of potentially dilutive securities Restricted stock and performance-based equity awards — — 865 — Convertible senior notes — — 90,853 — Weighted average common shares outstanding – diluted 50,000 497,398 547,205 495,245


Successor

Predecessor

Period from Sept. 19, 2020 through

Period from Jan. 1, 2020 through

Nine Months Ended

Sept. 30, 2020

Sept. 18, 2020

Sept. 30, 2019

In thousands, except per-share data

Amount

Per Share

Amount

Per Share

Amount

Per Share

Numerator

Net income (loss) – basic

$

2,758

$

0.06

$

(1,432,578

)

$

(2.89

)

$

193,880

$

0.43

Effect of potentially dilutive securities

Interest on convertible senior notes, net of tax

5,649

Net income (loss) – diluted

$

2,758

$

0.06

$

(1,432,578

)

$

(2.89

)

$

199,529

$

0.41

Denominator

Weighted average common shares outstanding – basic

50,000

495,560

453,287

Effect of potentially dilutive securities

Restricted stock and performance-based equity awards

2,489

Convertible senior notes

34,278

Weighted average common shares outstanding – diluted

50,000

495,560

490,054

DENBURY INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of cash flows from operations (GAAP measure) to adjusted cash flows from operations (non-GAAP measure) and free cash flow (non-GAAP measure)

Adjusted cash flows from operations is a non-GAAP measure that represents cash flows provided by operations before changes in assets and liabilities, as summarized from the Company’s Unaudited Condensed Consolidated Statements of Cash Flows. Adjusted cash flows from operations measures the cash flows earned or incurred from operating activities without regard to the collection or payment of associated receivables or payables. Adjusted cash flows from operations less special items is an additional non-GAAP measure that removes other special items. Free cash flow is a non-GAAP measure that represents adjusted cash flows from operations less special items and interest treated as debt reduction, development capital expenditures and capitalized interest, but before acquisitions. Management believes that it is important to consider these additional measures, along with cash flows from operations, as it believes the non-GAAP measures can often be a better way to discuss changes in operating trends in its business caused by changes in production, prices, operating costs and related factors, without regard to whether the earned or incurred item was collected or paid during that period.

Combined (Non-GAAP)(1)

Predecessor

Combined (Non-GAAP)(1)

Predecessor

Quarter Ended

Quarter Ended

Quarter Ended

Nine Months Ended

Nine Months Ended

In thousands

Sept. 30, 2020

Sept. 30, 2019

June 30, 2020

Sept. 30, 2020

Sept. 30, 2019

Net income (loss) (GAAP measure)

$

(806,362

)

$

72,862

$

(697,474

)

$

(1,429,820

)

$

193,880

Adjustments to reconcile to adjusted cash flows from operations

Depletion, depreciation, and amortization

41,600

55,064

55,414

193,876

170,625

Deferred income taxes

(302,350

)

37,909

(102,304

)

(408,863

)

90,454

Stock-based compensation

571

3,001

1,087

4,111

9,866

Noncash fair value losses (gains) on commodity derivatives

18,363

(35,098

)

85,759

(18,011

)

30,176

Gain on debt extinguishment

(5,874

)

(18,994

)

(106,220

)

Write-down of oil and natural gas properties

261,677

662,440

996,658

Noncash reorganization items, net

810,909

810,909

Other

4,434

(2,099

)

4,026

12,713

745

Adjusted cash flows from operations (non-GAAP measure)

28,842

125,765

8,948

142,579

389,526

Net change in assets and liabilities relating to operations

44,665

4,813

2,021

3,739

(45,948

)

Cash flows from operations (GAAP measure)

$

73,507

$

130,578

$

10,969

$

146,318

$

343,578

Adjusted cash flows from operations (non-GAAP measure)

$

28,842

$

125,765

$

8,948

$

142,579

$

389,526

Reorganization items settled in cash

39,071

39,071

Adjusted cash flows from operations less special items (non-GAAP measure)

67,913

125,765

8,948

181,650

389,526

Interest on notes treated as debt reduction

(3,911

)

(21,372

)

(20,912

)

(46,417

)

(64,006

)

Development capital expenditures

(17,522

)

(51,420

)

(21,259

)

(77,566

)

(189,439

)

Capitalized interest

(4,887

)

(8,773

)

(8,729

)

(23,068

)

(27,545

)

Free cash flow (deficit) (non-GAAP measure)

$

41,593

$

44,200

$

(41,952

)

$

34,599

$

108,536

(1) Combined results for the three and nine months ended September 30, 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 quarter and nine months ended reported in accordance with GAAP.

DENBURY INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of commodity derivatives income (expense) (GAAP measure) to noncash fair value gains (losses) on commodity derivatives (non-GAAP measure)

Noncash fair value adjustments on commodity derivatives is a non-GAAP measure and is different from “Commodity derivatives expense (income)” in the Unaudited Condensed Consolidated Statements of Operations in that the noncash fair value gains (losses) on commodity derivatives represents only the net change between periods of the fair market values of open commodity derivative positions, and excludes the impact of settlements on commodity derivatives during the period. Management believes that noncash fair value gains (losses) on commodity derivatives is a useful supplemental disclosure to “Commodity derivatives expense (income)” because the GAAP measure also includes settlements on commodity derivatives during the period; the non-GAAP measure is widely used within the industry and by securities analysts, banks and credit rating agencies in calculating EBITDA and in adjusting net income (loss) to present those measures on a comparative basis across companies, as well as to assess compliance with certain debt covenants.

Combined (Non-GAAP)(1)

Predecessor

Combined (Non-GAAP)(1)

Predecessor

Quarter Ended

Quarter Ended

Quarter Ended

Nine Months Ended

Nine Months Ended

In thousands

Sept. 30, 2020

Sept. 30, 2019

June 30, 2020

Sept. 30, 2020

Sept. 30, 2019

Receipt on settlements of commodity derivatives

$

17,789

$

8,057

$

45,629

$

88,056

$

14,714

Noncash fair value gains (losses) on commodity derivatives (non-GAAP measure)

(18,363

)

35,098

(85,759

)

18,011

(30,176

)

Commodity derivatives income (expense) (GAAP measure)

$

(574

)

$

43,155

$

(40,130

)

$

106,067

$

(15,462

)

(1) Combined results for the three and nine months ended September 30, 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 quarter and nine months ended reported in accordance with GAAP.

DENBURY INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of net income (loss) (GAAP measure) to Adjusted EBITDAX (non-GAAP measure)

Adjusted EBITDAX is a non-GAAP financial measure which management uses and is calculated based upon (but not identical to) a financial covenant related to “Consolidated EBITDAX” in the Company’s senior secured bank credit facility, which excludes certain items that are included in net income (loss), the most directly comparable GAAP financial measure. Items excluded include interest, income taxes, depletion, depreciation, and amortization, and items that the Company believes affect the comparability of operating results such as items whose timing and/or amount cannot be reasonably estimated or are nonrecurring. Management believes Adjusted EBITDAX may be helpful to investors in order to assess the Company’s operating performance as compared to that of other companies in the industry, without regard to financing methods, capital structure or historical costs basis. It is also commonly used by third parties to assess leverage and the Company’s ability to incur and service debt and fund capital expenditures. Adjusted EBITDAX should not be considered in isolation, as a substitute for, or more meaningful than, net income (loss), cash flow from operations, or any other measure reported in accordance with GAAP. The Company’s Adjusted EBITDAX may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDAX, EBITDAX or EBITDA in the same manner. The following table presents a reconciliation of the Company’s net income (loss) to Adjusted EBITDAX.

Combined (Non-GAAP)(1)

Predecessor

Combined (Non-GAAP)(1)

Predecessor

Quarter Ended

Quarter Ended

Quarter Ended

Nine Months Ended

Nine Months Ended

In thousands

Sept. 30, 2020

Sept. 30, 2019

June 30, 2020

Sept. 30, 2020

Sept. 30, 2019

Net income (loss) (GAAP measure)

$

(806,362

)

$

72,862

$

(697,474

)

$

(1,429,820

)

$

193,880

Adjustments to reconcile to Adjusted EBITDAX

Interest expense

8,038

22,858

20,617

48,601

60,672

Income tax expense (benefit)

(303,795

)

37,050

(101,706

)

(416,117

)

91,668

Depletion, depreciation, and amortization

41,600

55,064

55,414

193,876

170,625

Noncash fair value losses (gains) on commodity derivatives

18,363

(35,098

)

85,759

(18,011

)

30,176

Stock-based compensation

571

3,001

1,087

4,111

9,866

Gain on debt extinguishment

(5,874

)

(18,994

)

(106,220

)

Write-down of oil and natural gas properties

261,677

662,440

996,658

Reorganization items, net

849,980

849,980

Severance-related expense

954

2,361

3,315

Noncash, non-recurring and other(2)

22,419

(4,744

)

10,231

35,014

1,459

Adjusted EBITDAX (non-GAAP measure)(3)

$

93,445

$

145,119

$

38,729

$

248,613

$

452,126

(1) Combined results for the three and nine months ended September 30, 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 quarter and nine months ended reported in accordance with GAAP.
(2) Includes expenses incurred before the petition date and after the Emergence Date related to advisor and professional fees associated with review of strategic alternatives and comprehensive restructuring of the Company’s indebtedness of $16 million and $8 million during the three months ended September 30, 2020 and June 30, 2020, respectively.
(3) Excludes pro forma adjustments related to qualified acquisitions or dispositions under the Company’s senior secured bank credit facility. Third quarter of 2020 adjusted EBITDAX includes an insurance reimbursement of $15 million, as EBITDAX was not adjusted for the related expenses when originally incurred, and second quarter of 2020 adjusted EBITDAX includes $12 million of expense in connection with cash retention and incentive compensation resulting from modification of compensation arrangements for 21 of the Company’s executives and senior managers (See Note 6, Stock Compensation, in the Company’s Form 10-Q for the period ended June 30, 2020).

DENBURY INC.
OPERATING HIGHLIGHTS (UNAUDITED)

Quarter Ended

Nine Months Ended

September 30,

June 30,

September 30,

2020

2019

2020

2020

2019

Production (daily – net of royalties)

Oil (barrels)

48,334

55,085

48,900

50,619

56,836

Gas (mcf)

8,110

8,135

7,737

7,916

9,681

BOE (6:1)

49,686

56,441

50,190

51,939

58,449

Unit sales price (excluding derivative settlements)

Oil (per barrel)

$

39.23

$

57.64

$

24.39

$

36.88

$

58.82

Gas (per mcf)

1.29

1.46

1.21

1.32

2.10

BOE (6:1)

38.37

56.46

23.95

36.15

57.54

Unit sales price (including derivative settlements)

Oil (per barrel)

$

43.23

$

59.23

$

34.64

$

43.23

$

59.77

Gas (per mcf)

1.29

1.46

1.21

1.32

2.10

BOE (6:1)

42.27

58.02

33.94

42.34

58.46

NYMEX differentials

Gulf Coast region

Oil (per barrel)

$

(1.38

)

$

3.11

$

(3.59

)

$

(0.86

)

$

4.08

Gas (per mcf)

(0.06

)

(0.24

)

(0.09

)

(0.07

)

(0.06

)

Rocky Mountain region

Oil (per barrel)

$

(2.03

)

$

(1.65

)

$

(4.68

)

$

(2.89

)

$

(1.85

)

Gas (per mcf)

(1.74

)

(1.61

)

(1.04

)

(1.25

)

(0.90

)

Total company

Oil (per barrel)

$

(1.64

)

$

1.30

$

(4.03

)

$

(1.67

)

$

1.79

Gas (per mcf)

(0.83

)

(0.87

)

(0.54

)

(0.60

)

(0.47

)

DENBURY INC.
OPERATING HIGHLIGHTS (UNAUDITED)

Quarter Ended

Nine Months Ended

September 30,

June 30,

September 30,

Average Daily Volumes (BOE/d) (6:1)

2020

2019

2020

2020

2019

Tertiary oil production

Gulf Coast region

Delhi

3,208

4,256

3,529

3,515

4,405

Hastings

4,473

5,513

4,722

4,808

5,506

Heidelberg

4,256

4,297

4,366

4,331

4,123

Oyster Bayou

3,526

3,995

3,871

3,798

4,373

Tinsley

4,042

4,541

3,788

4,061

4,697

West Yellow Creek

588

728

695

686

584

Mature properties(1)

5,683

6,415

5,249

5,772

6,448

Total Gulf Coast region

25,776

29,745

26,220

26,971

30,136

Rocky Mountain region

Bell Creek

5,551

4,686

5,715

5,665

5,096

Salt Creek

2,167

2,213

1,386

1,902

2,116

Other

58

7

19

50

Total Rocky Mountain region

7,718

6,957

7,108

7,586

7,262

Total tertiary oil production

33,494

36,702

33,328

34,557

37,398

Non-tertiary oil and gas production

Gulf Coast region

Mississippi

629

873

713

696

977

Texas

3,095

3,165

3,087

3,200

3,228

Other

4

6

5

6

7

Total Gulf Coast region

3,728

4,044

3,805

3,902

4,212

Rocky Mountain region

Cedar Creek Anticline

11,485

13,354

11,988

12,170

14,211

Other

979

1,238

1,069

1,051

1,285

Total Rocky Mountain region

12,464

14,592

13,057

13,221

15,496

Total non-tertiary production

16,192

18,636

16,862

17,123

19,708

Total continuing production

49,686

55,338

50,190

51,680

57,106

Property sales

Gulf Coast Working Interests Sale(2)

1,103

259

1,057

Citronelle(3)

286

Total production

49,686

56,441

50,190

51,939

58,449

(1) Mature properties include Brookhaven, Cranfield, Eucutta, Little Creek, Mallalieu, Martinville, McComb and Soso fields.
(2) Includes non-tertiary production related to the sale of 50% of our working interests in Webster, Thompson, Manvel, and East Hastings fields, sold in March 2020.
(3) Includes production from Citronelle Field sold in July 2019.

DENBURY INC.
PER-BOE DATA (UNAUDITED)

Quarter Ended

Nine Months Ended

September 30,

June 30,

September 30,

2020

2019

2020

2020

2019

Oil and natural gas revenues

$

38.37

$

56.46

$

23.95

$

36.15

$

57.54

Receipt on settlements of commodity derivatives

3.90

1.56

9.99

6.19

0.92

Lease operating expenses

(15.57

)

(22.70

)

(17.80

)

(18.39

)

(22.64

)

Production and ad valorem taxes

(3.00

)

(3.89

)

(1.92

)

(2.84

)

(4.12

)

Transportation and marketing expenses

(2.08

)

(1.94

)

(2.06

)

(2.00

)

(2.01

)

Production netback

21.62

29.49

12.16

19.11

29.69

CO2 sales, net of operating and discovery expenses

1.38

1.56

1.23

1.35

1.47

General and administrative expenses

(3.66

)

(3.52

)

(5.21

)

(3.53

)

(3.43

)

Interest expense, net

(1.76

)

(4.40

)

(4.51

)

(3.42

)

(3.80

)

Reorganization items settled in cash

(8.55

)

(2.75

)

Other

(2.72

)

1.09

(1.71

)

(0.74

)

0.48

Changes in assets and liabilities relating to operations

9.77

0.93

0.44

0.26

(2.88

)

Cash flows from operations

16.08

25.15

2.40

10.28

21.53

DD&A – excluding accelerated depreciation charge

(8.71

)

(10.60

)

(12.13

)

(10.87

)

(10.69

)

DD&A – accelerated depreciation charge(1)

(0.39

)

(2.75

)

Write-down of oil and natural gas properties

(57.25

)

(145.04

)

(70.03

)

Deferred income taxes

66.14

(7.30

)

22.40

28.73

(5.67

)

Gain on debt extinguishment

1.13

1.33

6.66

Noncash fair value gains (losses) on commodity derivatives

(4.03

)

6.75

(18.78

)

1.26

(1.89

)

Noncash reorganization items, net

(177.40

)

(56.98

)

Other noncash items

(10.85

)

(1.10

)

(1.56

)

(1.44

)

2.21

Net income (loss)

$

(176.41

)

$

14.03

$

(152.71

)

$

(100.47

)

$

12.15

(1) Represents an accelerated depreciation charge related to assets associated with impaired unevaluated properties that were transferred to the full cost pool during the three months ended March 31, 2020.

CAPITAL EXPENDITURE SUMMARY (UNAUDITED)(1)

Quarter Ended

Nine Months Ended

September 30,

June 30,

September 30,

In thousands

2020

2019

2020

2020

2019

Capital expenditure summary

Tertiary oil fields

$

2,644

$

17,547

$

5,194

$

22,564

$

72,333

Non-tertiary fields

5,867

19,385

2,294

19,115

55,939

Capitalized internal costs(2)

8,351

11,175

9,463

26,695

35,389

Oil and natural gas capital expenditures

16,862

48,107

16,951

68,374

163,661

CO2 pipelines, sources and other

660

3,313

4,308

9,192

25,778

Capital expenditures, before acquisitions and capitalized interest

17,522

51,420

21,259

77,566

189,439

Acquisitions of oil and natural gas properties

15

25

38

95

122

Capital expenditures, before capitalized interest

17,537

51,445

21,297

77,661

189,561

Capitalized interest

4,887

8,773

8,729

23,068

27,545

Capital expenditures, total

$

22,424

$

60,218

$

30,026

$

100,729

$

217,106

(1) Capital expenditure amounts include accrued capital.
(2) Includes capitalized internal acquisition, exploration and development costs and pre-production tertiary startup costs.

DENBURY INC.
INTEREST AND FINANCING EXPENSES (UNAUDITED)

Successor

Predecessor

Period from Sept. 19, 2020 through

Period from July 1, 2020 through

Quarter Ended

Quarter Ended

In thousands

Sept. 30, 2020

Sept. 18, 2020

Sept. 30, 2019

June 30, 2020

Cash interest(1)

$

403

$

17,734

$

48,297

$

45,263

Interest not reflected as expense for financial reporting purposes(1)

(6,976

)

(21,372

)

(20,912

)

Noncash interest expense

114

347

1,060

1,061

Amortization of debt discount(2)

1,303

3,646

3,934

Less: capitalized interest

(183

)

(4,704

)

(8,773

)

(8,729

)

Interest expense, net

$

334

$

7,704

$

22,858