Cumulative CO2 transport & storage
agreements now total 20 MMTPA
Denbury Inc. (NYSE: DEN) (“Denbury” or the “Company”) today
provided its third quarter 2022 financial and operating
results.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
- Third quarter 2022 net cash flows provided by operating
activities totaled $156 million, and adjusted cash flows from
operations(1), excluding working capital changes, totaled $156
million.
- Generated $47 million of free cash flow(1) during the third
quarter and $153 million year-to-date.
- Repurchased $71 million of the Company’s outstanding shares in
the third quarter (total of $100 million of shares repurchased in
2022).
- Delivered sales volumes of 47,109 barrels of oil equivalent per
day (“BOE/d”), slightly above second quarter 2022 levels.
- Industrial-sourced CO2 represented 41% of CO2 utilized in
Denbury’s Enhanced Oil Recovery (“EOR”) operations, equivalent to
an average utilization of over 4 million metric tons per year
(“mmtpa”) of industrial CO2.
- Progressed the development of the Company’s Cedar Creek
Anticline (“CCA”) EOR project in Montana and North Dakota, with
production response anticipated in the second half of 2023.
RECENT CCUS HIGHLIGHTS
- Signed a definitive agreement for the transportation and
sequestration of CO2 captured from Clean Hydrogen Works’ planned
“blue” ammonia facilities. Captured CO2 volumes are expected to
total up to 12 mmtpa for the two-phase development. The project is
planned to be built in close proximity to the Company’s existing
CO2 pipeline infrastructure near Donaldsonville, Louisiana, with
Block 1 startup anticipated by the end of 2027.
- Executed a definitive agreement with Lake Charles Methanol to
provide CO2 transportation and sequestration in association with
their planned “blue” methanol project near Lake Charles, Louisiana.
Captured CO2 volumes are projected to total approximately 1 mmtpa,
and first operations are anticipated by the end of 2027.
(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.
EXECUTIVE COMMENT
Chris Kendall, the Company’s President and CEO, commented, “Our
great progress in both the EOR production and CCUS businesses
advanced significant value creation at Denbury during the third
quarter. Despite persistent supply chain challenges and
inflationary pressures, our teams have continued to execute safely
and efficiently across the Company. These efforts delivered better
than expected production in the third quarter, setting us up for a
strong exit to the year. This operational momentum, combined with
continued progress at the CCA EOR development, sets a great
foundation for our business for years into the future.”
“I continue to believe Denbury provides the industry’s premier
CO2 transportation and storage platform, which is demonstrated by
the multiple new agreements we have recently signed. Our successes
to date have significantly advanced our CCUS strategy and put us
well past our CCUS goals for 2022. We intend to build a
massive-scale CCUS business, leveraging our existing CO2 pipeline
system, targeted pipeline expansions, and strategically-located
sequestration sites along our network. In addition, the recently
approved enhancements to the 45Q tax incentives available for
carbon capture have significantly expanded the market opportunity
for our Company. Denbury’s combination of financial strength and
its deep technical and operational capabilities positions the
Company uniquely within the energy landscape, as we deliver the
energy the world needs today while also decarbonizing the
future.”
THIRD QUARTER RESULTS
3Q 2022
YTD 2022
(in thousands, except per-share and volume
data)
Total
Per Diluted Share
Total
Per Diluted Share
Net Income
$250,423
$4.66
$405,045
$7.43
Adjusted net income(1)(2) (non-GAAP)
102,219
1.90
288,342
5.29
Adjusted EBITDAX(1) (non-GAAP)
161,136
446,387
Net cash flows from operations
156,301
396,409
Adjusted cash flows from operations(1)
(non-GAAP)
155,824
431,594
Oil & gas development capital
expenditures
99,331
243,227
CCUS capital expenditures - storage sites
and related
8,200
32,100
Average daily sales volumes (BOE/d)
47,109
46,866
Blue Oil (% oil volumes using
industrial-sourced CO2)
28%
27%
Industrial-sourced CO2 injected (thousand
metric tons)
1,078
3,202
Industrial-sourced CO2 injected (% of
total CO2 used in EOR operations)
41%
39%
(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 53.7 million and 54.5 million for the three
and nine months ended September 30, 2022, respectively.
Total revenues and other income in the third quarter of 2022
were $439 million, down from second quarter 2022 levels as a result
of lower oil prices, offset by a slight increase in quarterly sales
volumes. West Texas Intermediate (“NYMEX WTI”) posted prices were
down approximately 16% as compared to the second quarter 2022.
Denbury’s third quarter 2022 average pre-hedge realized oil price
was $92.77 per barrel (“Bbl”), which was $0.82 per Bbl above the
average NYMEX WTI oil price for the period. The Company’s average
oil price differential improved by $0.73 per Bbl from the second
quarter of 2022, driven by improved pricing in both the Company’s
Gulf Coast and Rocky Mountain regions.
Denbury’s sales volumes averaged 47,109 BOE/d during the third
quarter of 2022, slightly better than expectations and 548 BOE/d
higher than second quarter 2022 levels. Oil represented 97% of the
Company’s third quarter 2022 volumes, and 28% of the Company’s oil
was attributable to the injection of industrial-sourced CO2 in its
EOR operations, resulting in carbon-negative or “blue” oil. Third
quarter sales volumes in the Gulf Coast region were up nearly 2%
from the second quarter 2022 as multiple projects added incremental
production, including the Rodessa development at Soso. In the Rocky
Mountain region, sales volumes were up slightly as compared to the
second quarter 2022 driven primarily by continued positive CO2
flood response at Grieve and development at Beaver Creek, partially
offset by workover activities and downtime at CCA.
CO2 sales and transportation revenue in the third quarter of
2022 was higher than in previous periods and better than expected
primarily due to a short-term CO2 sales agreement that is expected
to continue through a portion of the fourth quarter of 2022.
Lease operating expenses (“LOE”) in the third quarter of 2022
totaled $134 million, or $31.03 per BOE, up from the second quarter
of 2022 primarily as a result of service cost inflation, seasonally
higher workover and preventative maintenance activity levels, and
increased power and fuel costs which are driven heavily by natural
gas pricing. Second quarter 2022 LOE included a nonrecurring
benefit of approximately $7 million as a result of a settlement of
a 2013 insurance claim.
On a pre-hedge basis, per barrel operating margins (oil &
natural gas revenues less LOE, production and ad valorem taxes,
transportation and marketing expenses, and general &
administrative and interest costs) were $46.26 per BOE for the
third quarter of 2022. General & administrative expenses were
up from the second quarter of 2022 primarily due to higher employee
costs and professional services, largely driven by continued
expansion in CCUS business activity.
Commodity derivatives income in the third quarter of 2022 was
$109 million, comprised of a non-cash mark-to-market fair value
gain of $165 million offset by cash payments of $56 million on
hedges that settled in the quarter. The non-cash fair value gain
primarily represented the expiration of hedge contracts during the
third quarter of 2022, as well as a reduction in anticipated future
cash hedge losses as forward oil pricing weakened during the
quarter. Depletion, depreciation, and amortization was $38 million,
or $8.69 per BOE for the quarter, up slightly from the second
quarter of 2022.
The Company’s third quarter 2022 effective income tax rate was
approximately 14%, consistent with expectations and lower than the
Company’s 25% statutory rate due to a $29 million valuation
allowance release during the third quarter of 2022. Current taxes
totaled $4 million for the third quarter of 2022, or 10% of total
income taxes.
CAPITAL EXPENDITURES
Third quarter 2022 capital expenditures, excluding capitalized
interest, totaled $108 million, with 92% related to oil & gas
development and 8% related to CCUS business activities. The third
quarter 2022 total was lower than expected as supply chain
disruptions delayed some third quarter activities into the fourth
quarter of the year. Capital expenditures at the CCA EOR project
increased from the second quarter 2022 primarily as a result of the
procurement and installation of compression and dehydration
equipment associated with CO2 recycle facilities for Phase 1
development. In addition, drilling and facility construction at the
Company’s Pennel CO2 pilot, in advance of Phase 2 development of
CCA, commenced during the third quarter. Non-CCA oil & gas
development capital reflected continued focus on expansion of
existing EOR assets, including Beaver Creek, Cranfield, Heidelberg
and Soso field activities.
Third quarter 2022 CCUS capital expenditures were $8 million and
included lease acquisition costs associated with a planned CO2
storage site near Donaldsonville, Louisiana (previously announced)
and additional seismic and other costs to progress development of
the Company’s sequestration sites.
During the third quarter, the Company invested $10 million into
a “blue” ammonia project through an investment in Clean Hydrogen
Works, the developer of the project proposed near Donaldsonville,
Louisiana. This investment amount is outside of the Company’s
planned capital expenditure guidance and comparative actual
amounts. Denbury has committed to invest another $10 million when
certain project milestones are achieved.
FINANCIAL POSITION AND SHARE REPURCHASES
Denbury ended the third quarter 2022 with $724 million of
financial liquidity (including cash on hand and borrowing capacity
under the Company’s bank credit facility) and only $15 million
borrowed on the Company’s bank credit facility. The Company’s bank
credit facility commitments of $750 million were recently
reaffirmed by the bank facility group.
The Company repurchased $71 million of its common stock during
the third quarter 2022 for a total of $100 million, or 1.6 million
shares year-to-date. In August 2022, Denbury’s Board of Directors
authorized a $100 million increase in the share repurchase program
such that $250 million is available for repurchase under the
plan.
OUTLOOK
Capital expenditures for the fourth quarter 2022 are anticipated
to be higher than in the third quarter driven by oil development
activities, particularly at the CCA EOR project. The Company
anticipates approximately $135 million for total fourth quarter
2022 capital expenditures.
Fourth quarter 2022 sales volumes are expected in a range of
47,500 to 49,000 BOE/d, with the midpoint up nearly two and a half
percent from the third quarter as a result of incremental
production from multiple projects in the Company’s 2022 capital
program. These predicted fourth quarter 2022 sales volumes are
slightly lower than original expectations due to timing associated
with equipment and materials delays, which should benefit
production in early 2023.
Additional guidance details are available in supplemental
materials provided on the Company’s website.
CONFERENCE CALL AND WEBCAST
Denbury management will host a conference call and webcast to
review third quarter 2022 financial and operating results, today,
Thursday, November 3, 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 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:
844.200.6205 or 929.526.1599 with access code 931886.
ABOUT DENBURY
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 four
million tons of captured industrial-sourced CO2 annually, 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 and updated supporting materials, other than
historical information, contains forward-looking statements that
involve risks and uncertainties including: expectations as to
future oil prices, operating costs, production levels and cash
flows; anticipated levels of 2022 capital expenditures and
production, along with other financial forecasts; the expected
timing of first tertiary production at CCA; statements or
predictions related to the ultimate economics of proposed carbon
capture, use and storage arrangements and the CO2 volumes covered
by such arrangements; and other 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 oil pricing,
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,
especially in light of the Russian war against Ukraine, changes in
European energy supplies, rising levels of economic uncertainty due
to inflation, rising interest rates, and the continuing impact of
COVID-19. 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 comparative three and nine-month
periods ended September 30, 2022 and 2021. 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
reporting earnings (along with additional required disclosures)
included or to be included in the Company’s periodic reports:
Quarter Ended
Nine Months Ended
September 30,
September 30,
In thousands, except per-share data
2022
2021
2022
2021
Revenues and other income
Oil sales
$
389,543
$
305,093
$
1,217,377
$
818,714
Natural gas sales
5,680
3,361
14,727
7,893
CO2 sales and transportation fees
18,586
12,237
44,618
31,599
Oil marketing revenues
17,663
12,593
47,725
26,538
Other income
8,015
10,451
9,055
11,518
Total revenues and other income
439,487
343,735
1,333,502
896,262
Expenses
Lease operating expenses
134,464
116,536
376,643
308,731
Transportation and marketing expenses
5,191
5,985
14,638
22,304
CO2 operating and discovery expenses
2,066
1,963
6,564
4,487
Taxes other than income
33,789
24,154
101,487
65,499
Oil marketing purchases
19,095
11,940
47,162
25,763
General and administrative expenses
21,071
15,388
58,998
62,821
Interest, net of amounts capitalized of
$1,044, $1,249, $3,177 and $3,500, respectively
909
669
3,092
3,457
Depletion, depreciation, and
amortization
37,680
37,691
108,425
113,522
Commodity derivatives expense (income)
(109,248
)
41,745
140,325
330,152
Write-down of oil and natural gas
properties
—
—
—
14,377
Other expenses
2,726
4,553
11,459
9,913
Total expenses
147,743
260,624
868,793
961,026
Income (loss) before income
taxes
291,744
83,111
464,709
(64,764
)
Income tax provision (benefit)
Current income taxes
4,012
350
6,363
(101
)
Deferred income taxes
37,309
53
53,301
(34
)
Net income (loss)
$
250,423
$
82,708
$
405,045
$
(64,629
)
Net income (loss) per common
share
Basic
$
4.89
$
1.62
$
7.86
$
(1.27
)
Diluted
$
4.66
$
1.51
$
7.43
$
(1.27
)
Weighted average common shares
outstanding
Basic
51,182
51,094
51,512
50,807
Diluted
53,715
54,714
54,524
50,807
DENBURY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended
Nine Months Ended
September 30,
September 30,
In thousands
2022
2021
2022
2021
Cash flows from operating
activities
Net income (loss)
$
250,423
$
82,708
$
405,045
$
(64,629
)
Adjustments to reconcile net income (loss)
to cash flows from operating activities
Depletion, depreciation, and
amortization
37,680
37,691
108,425
113,522
Write-down of oil and natural gas
properties
—
—
—
14,377
Deferred income taxes
37,309
53
53,301
(34
)
Stock-based compensation
4,416
2,556
11,491
22,788
Commodity derivatives expense
(109,248
)
41,745
140,325
330,152
Payment on settlements of commodity
derivatives
(55,780
)
(77,670
)
(276,796
)
(179,466
)
Debt issuance costs
531
685
2,465
2,055
Gain on asset sales and other
(950
)
(7,055
)
(1,119
)
(7,026
)
Other, net
(8,557
)
(3,163
)
(11,543
)
(2,448
)
Changes in assets and liabilities, net of
effects from acquisitions
Accrued production receivable
52,902
(4,067
)
(32,884
)
(52,948
)
Trade and other receivables
11,849
3,769
66
(1,809
)
Other current and long-term assets
(9,554
)
6,043
(21,729
)
7,337
Accounts payable and accrued
liabilities
(23,651
)
20,192
28,359
47,484
Oil and natural gas production payable
(19,917
)
2,944
13,412
23,168
Asset retirement obligations and other
liabilities
(11,152
)
(2,412
)
(22,409
)
(4,966
)
Net cash provided by operating
activities
156,301
104,019
396,409
247,557
Cash flows from investing
activities
Oil and natural gas capital
expenditures
(78,312
)
(59,630
)
(217,834
)
(113,041
)
CCUS storage sites and related capital
expenditures
(9,760
)
—
(27,518
)
—
Acquisitions of oil and natural gas
properties
(500
)
(116
)
(874
)
(10,927
)
Pipelines and plants capital
expenditures
(1,995
)
(14,272
)
(22,259
)
(19,123
)
Net proceeds from sales of oil and natural
gas properties and equipment
—
597
237
19,053
Investment in third-party CCUS
projects
(10,000
)
—
(10,000
)
—
Other
(4,123
)
9,956
(9,746
)
5,797
Net cash used in investing
activities
(104,690
)
(63,465
)
(287,994
)
(118,241
)
Cash flows from financing
activities
Bank repayments
(284,000
)
(212,000
)
(808,000
)
(697,000
)
Bank borrowings
299,000
177,000
788,000
627,000
Pipeline financing repayments
—
(17,166
)
—
(50,676
)
Common stock repurchase program
(76,654
)
—
(100,028
)
—
Other
10,809
309
9,421
(2,426
)
Net cash used in financing
activities
(50,845
)
(51,857
)
(110,607
)
(123,102
)
Net increase (decrease) in cash, cash
equivalents, and restricted cash
766
(11,303
)
(2,192
)
6,214
Cash, cash equivalents, and restricted
cash at beginning of period
47,386
59,765
50,344
42,248
Cash, cash equivalents, and restricted
cash at end of period
$
48,152
$
48,462
$
48,152
$
48,462
DENBURY INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousands, except par value and share
data
Sept. 30, 2022
Dec. 31, 2021
Assets
Current assets
Cash and cash equivalents
$
519
$
3,671
Accrued production receivable
176,249
143,365
Trade and other receivables, net
19,035
19,270
Derivative assets
26,782
—
Prepaids
27,060
9,099
Total current assets
249,645
175,405
Property and equipment
Oil and natural gas properties (using full
cost accounting)
Proved properties
1,325,866
1,109,011
Unevaluated properties
192,784
112,169
CO2 properties
187,690
183,369
Pipelines
219,090
224,394
CCUS storage sites and related assets
32,348
—
Other property and equipment
102,627
93,950
Less accumulated depletion, depreciation,
amortization and impairment
(270,593
)
(181,393
)
Net property and equipment
1,789,812
1,541,500
Operating lease right-of-use assets
17,065
19,502
Derivative assets
9,048
—
Intangible assets, net
81,410
88,248
Restricted cash for future asset
retirement obligations
47,633
46,673
Other assets
48,718
31,625
Total assets
$
2,243,331
$
1,902,953
Liabilities and Stockholders’
Equity
Current liabilities
Accounts payable and accrued
liabilities
$
259,015
$
191,598
Oil and gas production payable
89,311
75,899
Derivative liabilities
33,868
134,509
Operating lease liabilities
4,392
4,677
Total current liabilities
386,586
406,683
Long-term liabilities
Long-term debt, net of current portion
15,000
35,000
Asset retirement obligations
301,764
284,238
Derivative liabilities
—
—
Deferred tax liabilities, net
54,940
1,638
Operating lease liabilities
14,726
17,094
Other liabilities
17,438
22,910
Total long-term liabilities
403,868
360,880
Commitments and contingencies
Stockholders’ equity
Preferred stock, $.001 par value,
50,000,000 shares authorized, none issued and outstanding
—
—
Common stock, $.001 par value, 250,000,000
shares authorized; 49,793,270 and 50,193,656 shares issued,
respectively
50
50
Paid-in capital in excess of par
1,042,438
1,129,996
Retained earnings
410,389
5,344
Treasury stock, at cost
—
—
Total stockholders’ equity
1,452,877
1,135,390
Total liabilities and stockholders’
equity
$
2,243,331
$
1,902,953
DENBURY INC.
OPERATING HIGHLIGHTS
(UNAUDITED)
All sales volumes and dollars are
expressed on a net revenue interest basis with gas volumes
converted to equivalent barrels at 6:1.
Quarter Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Average daily sales (BOE/d)
Tertiary
Gulf Coast region
22,503
24,336
22,573
24,432
Rocky Mountain region
9,855
9,033
9,423
8,337
Total tertiary sales
32,358
33,369
31,996
32,769
Non-tertiary
Gulf Coast region
3,727
3,763
3,641
3,600
Rocky Mountain region
11,024
12,550
11,229
12,363
Total non-tertiary sales
14,751
16,313
14,870
15,963
Total Company
Oil (Bbls/d)
45,639
48,145
45,404
47,276
Natural gas (Mcf/d)
8,815
9,222
8,770
8,739
BOE/d (6:1)
47,109
49,682
46,866
48,732
Unit sales price (excluding derivative
settlements)
Gulf Coast region
Oil (per Bbl)
$
92.62
$
68.86
$
98.13
$
63.47
Natural gas (per mcf)
8.28
4.45
6.76
3.59
Rocky Mountain region
Oil (per Bbl)
$
92.98
$
68.91
$
98.32
$
63.39
Natural gas (per mcf)
6.32
3.64
5.80
3.11
Total Company
Oil (per Bbl)(1)
$
92.77
$
68.88
$
98.21
$
63.44
Natural gas (per mcf)
7.00
3.96
6.15
3.31
BOE (6:1)
91.19
67.48
96.30
62.13
(1)
Total Company realized oil prices
including derivative settlements were $79.49 per Bbl and $51.35 per
Bbl during the three months ended September 30, 2022 and 2021,
respectively, and $75.88 per Bbl and $49.53 per Bbl during the nine
months ended September 30, 2022 and 2021, respectively.
DENBURY INC.
SUPPLEMENTAL NON-GAAP FINANCIAL
MEASURES (UNAUDITED)
Reconciliation of net income (loss)
(GAAP measure) to adjusted net income (non-GAAP measure)
Adjusted net income 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 Company’s ongoing
operations. Management believes that adjusted net income may be
helpful to investors by eliminating the impact of noncash and/or
special items not indicative of the Company’s 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 Company’s ongoing operational results and
trends. Adjusted net income 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 Company’s
operational trends and performance.
Quarter Ended
Quarter Ended
September 30, 2022
September 30, 2021
In thousands, except per-share data
Amount
Per Diluted Share(1)
Amount
Per Diluted Share(1)
Net income (loss) (GAAP
measure)
$
250,423
$
4.66
$
82,708
$
1.51
Adjustments to reconcile to adjusted net
income (non-GAAP measure)
Noncash fair value gains on commodity
derivatives(2)
(165,028
)
(3.07
)
(35,925
)
(0.66
)
Contract contingency reversal(5)
(7,763
)
(0.14
)
—
—
Noncash fair value adjustment - contingent
consideration(8)
59
0.00
436
0.01
Other(9)
—
—
(6,859
)
(0.12
)
Estimated income taxes on above
adjustments to net income (loss) and other discrete tax
items(11)
24,528
0.45
—
—
Adjusted net income (non-GAAP
measure)
$
102,219
$
1.90
$
40,360
$
0.74
Nine Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
In thousands, except per-share data
Amount
Per Diluted Share(1)
Amount
Per Diluted Share(1)
Net income (loss) (GAAP
measure)
$
405,045
$
7.43
$
(64,629
)
$
(1.27
)
Adjustments to reconcile to adjusted net
income (non-GAAP measure)
Noncash fair value losses (gains) on
commodity derivatives(2)
(136,471
)
(2.50
)
150,686
2.82
Delhi Field insurance
reimbursements(3)
(6,692
)
(0.12
)
—
—
Delta pipeline incident costs (included in
other expenses)(4)
3,867
0.07
—
—
Contract contingency reversal(5)
(7,763
)
(0.14
)
—
—
Litigation expense(6)
1,444
0.03
—
—
Write-down of oil and natural gas
properties(7)
—
—
14,377
0.27
Noncash fair value adjustment - contingent
consideration(8)
232
0.00
2,076
0.04
Other(9)
—
—
(6,534
)
(0.12
)
Adjustments to reconcile effect of
dilutive securities(10)
—
—
—
0.06
Estimated income taxes on above
adjustments to net income (loss) and other discrete tax
items(11)
28,680
0.52
—
—
Adjusted net income (non-GAAP
measure)
$
288,342
$
5.29
$
95,976
$
1.80
(1)
Includes the impact of potentially
dilutive securities including nonvested restricted stock,
restricted stock units, performance stock units, shares to be
issued under the employee stock purchase plan and warrants.
(2)
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.
(3)
Insurance reimbursements associated with a
2013 insurance claim related to property damage at Delhi Field.
(4)
Represents an accrual for a preliminarily
assessed civil penalty proposed in May 2022 by the U.S. Department
of Transportation’s Pipeline and Hazardous Materials Safety
Administration related to the Company’s February 2020 Delta-Tinsley
pipeline incident.
(5)
Represents the reversal of a contract
contingency primarily established in fresh start accounting which
is no longer considered necessary.
(6)
Represents litigation expense, including
$1 million recorded in other expenses and $0.4 million recorded in
lease operating expenses during the nine months ended September 30,
2022.
(7)
Full cost pool ceiling test write-downs
related to the Company’s oil and natural gas properties.
(8)
Expense related to the change in fair
value of the contingent consideration payments related to the
Company’s March 2021 Wind River Basin CO2 EOR field
acquisition.
(9)
Other adjustments primarily include a $7.0
million gain on land sales for the three months ended September 30,
2021. The nine months ended September 30, 2021 also reflect a $0.3
million write-off of trade receivables during the three months
ended March 31, 2021.
(10)
Represents the impact to the per-share
calculation using weighted average dilutive shares of 53.4 million
during the nine months ended September 30, 2021 as a result of the
adjustments to the Company’s net loss (GAAP measure) to derive
adjusted net income (non-GAAP measure).
(11)
Represents the estimated income tax
impacts on pre-tax adjustments to net income which incorporates
discrete tax adjustments primarily related to the release of the
valuation allowance on certain of the Company’s federal and state
deferred tax assets. The valuation allowance release was $29.2
million and $53.9 million during the three and nine months ended
September 30, 2022, respectively. The Company expects to reverse an
additional $11 million of its valuation allowance during the fourth
quarter of 2022.
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 measure
which management uses and 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.
In thousands
Quarter Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Net income (loss) (GAAP
measure)
$
250,423
$
82,708
$
405,045
$
(64,629
)
Adjustments to reconcile to Adjusted
EBITDAX
Interest expense
909
669
3,092
3,457
Income tax expense (benefit)
41,321
403
59,664
(135
)
Depletion, depreciation, and
amortization
37,680
37,691
108,425
113,522
Noncash fair value losses (gains) on
commodity derivatives
(165,028
)
(35,925
)
(136,471
)
150,686
Stock-based compensation
4,416
2,556
11,491
22,788
Write-down of oil and natural gas
properties
—
—
—
14,377
Severance-related expense
—
—
—
476
Noncash, non-recurring and other
(8,585
)
(7,515
)
(4,859
)
(5,586
)
Adjusted EBITDAX (non-GAAP
measure)
$
161,136
$
80,587
$
446,387
$
234,956
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. Free
cash flow is a non-GAAP measure that represents adjusted cash flows
from operations less oil and gas development expenditures, CCUS
asset capital 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
sales volumes, prices, operating costs and related factors, without
regard to whether the earned or incurred item was collected or paid
during that period. Adjusted cash flows from operations and free
cash flow are not measures of financial performance under GAAP and
should not be considered as alternatives to cash flows from
operations, investing, or financing activities, nor as a liquidity
measure or indicator of cash flows.
In thousands
Quarter Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Cash flows from operations (GAAP
measure)
$
156,301
$
104,019
$
396,409
$
247,557
Net change in assets and liabilities
relating to operations
(477
)
(26,469
)
35,185
(18,266
)
Adjusted cash flows from operations
(non-GAAP measure)
155,824
77,550
431,594
229,291
Oil & gas development expenditures
(99,331
)
(99,640
)
(243,227
)
(173,821
)
CCUS storage sites and related capital
expenditures
(8,200
)
—
(32,100
)
—
Capitalized interest
(1,044
)
(1,249
)
(3,177
)
(3,500
)
Free cash flow (deficit) (non-GAAP
measure)
$
47,249
$
(23,339
)
$
153,090
$
51,970
DENBURY INC.
CAPITAL EXPENDITURE SUMMARY
(UNAUDITED)(1)
Quarter Ended
Nine Months Ended
September 30,
September 30,
In thousands
2022
2021
2022
2021
Capital expenditure summary(1)
CCA EOR field expenditures(2)
$
34,620
$
9,991
$
73,825
$
19,091
CCA CO2 pipelines
487
49,546
1,728
59,545
CCA tertiary development
35,107
59,537
75,553
78,636
Non-CCA tertiary and non-tertiary
fields
52,473
31,861
138,910
71,507
CO2 sources and other CO2 pipelines
4,014
388
6,124
1,039
Capitalized internal costs(3)
7,737
7,854
22,640
22,639
Oil & gas development capital
expenditures
99,331
99,640
243,227
173,821
CCUS storage sites and related capital
expenditures
8,200
—
32,100
—
Oil and gas and CCUS development
capital expenditures
107,531
99,640
275,327
173,821
Capitalized interest
1,044
1,249
3,177
3,500
Acquisitions of oil and natural gas
properties(4)
500
116
874
10,927
Investment in Clean Hydrogen Works
10,000
—
10,000
—
Total capital expenditures
$
119,075
$
101,005
$
289,378
$
188,248
(1)
Capital expenditure amounts incurred
during the period, including accrued capital costs.
(2)
Includes pre-production CO2 costs
associated with the CCA EOR development project totaling $7.2
million and $17.9 million during the three and nine months ended
September 30, 2022.
(3)
Includes capitalized internal acquisition,
exploration and development costs and pre-production tertiary
startup costs.
(4)
Primarily consists of working interest
positions in the Wind River Basin enhanced oil recovery fields
acquired on March 3, 2021.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221103005293/en/
DENBURY IR CONTACTS: Brad Whitmarsh, 972.673.2020,
brad.whitmarsh@denbury.com Beth Bierhaus, 972.673.2554,
beth.bierhaus@denbury.com
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