Denbury 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 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.

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.”

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.

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.

KeyFacts Energy: Denbury Resources US country profile