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Denbury Inc. 2021 Capital Plan; Fourth Quarter, Full Year 2020 Results

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   |    Tuesday,March 02,2021

Denbury Inc. announced its fourth quarter and full-year 2020 financial and operating results, along with its 2021 capital budget and projected 2021 production.

2021 Capital Plan

- Capex: $250-270 million - down 11% at the midpoint vs. 2020 levels

  • $100 million for the 105-mile extension of the Greencore CO2 Pipeline to CCA
  • $50 million for CCA CO2 tertiary well work, facilities, and field development
  • $50 million for other CO2 tertiary oil field development
  • $35 million for non-tertiary oil field development
  • $25 million for other capital items such as capitalized internal acquisition, exploration and development costs and pre-production tertiary startup costs

- Production: 47.5-51.5 MBOEPD


Q4 / Full Year Highlights:

  • Adjusted EBITDAX(1) (a non-GAAP measure) of $77 million for 4Q 2020 and $326 million for 2020
  • Generated $88 million of free cash flow(1) (a non-GAAP measure) in 2020
  • Invested $95 million of development capital in 2020, at the low end of the revised capital budget range and 60% lower than in 2019
  • Received $15 million of proceeds from the sale of Houston area surface acreage in 4Q 2020, bringing total 2020 surface acreage sale proceeds to $29 million
  • Produced 48,805 barrels of oil equivalent ("BOE") per day ("BOE/d") for 4Q 2020 and 51,151 BOE/d for full-year 2020, in line with the Company's revised production guidance
  • Total debt at December 31, 2020 was $138 million, with $482 million of liquidity under the Company's bank credit facility
  • Entered into a definitive agreement in 4Q 2020 to acquire a nearly 100% working interest in the Big Sand Draw and Beaver Creek oil fields located in Wyoming for approximately $12 million cash(2), including surface facilities and a 46-mile CO2 transportation pipeline to the acquired fields. The acquisition is expected to close in early March 2021.

Chris Kendall, Denbury's President and CEO, commented, "We are thrilled to continue progress on our Cedar Creek Anticline EOR project in 2021. This will be one of the largest EOR projects ever undertaken in the United States, using 100% industrial-sourced CO2 to recover over 400 million barrels of oil. Additionally, the oil produced will be Scope 3 carbon negative, as the amount of industrial-sourced CO2 that will be permanently injected to produce each barrel of oil will be greater than the combined emissions associated with the development and operation of the field, including the refining and combustion of the finished petroleum products. We believe that this carbon negative oil, which we have labeled "blue oil," will ultimately be a preferred commodity as it assists end users in reducing their own carbon footprint. Today, approximately 20% of Denbury's production is blue oil, and we expect that proportion to increase to 25% once the Beaver Creek and Big Sand Draw acquisition closes in March. We are committed to increasing the proportion of industrial-sourced CO2 used in our EOR operations, with the objective of reaching an overall Company Scope 3 carbon negative position by the end of this decade.

"We are also extremely excited about the great potential we see for Denbury to lead in the emerging CCUS industry. Denbury's extensive, highly reliable, high-capacity CO2 transmission infrastructure is perfectly located in the heart of the Gulf Coast industrial corridor, with significant available capacity and expansion potential. With the final rules on the IRS 45Q tax credit issued in mid-January, the stage is now set for a new era of carbon capture, and we believe that multiple new capture projects could be sanctioned beginning this year. Coupled with over twenty years of experience in designing, building, and operating CO2 transportation, processing, and injection systems, we believe that Denbury is in a strong position to make a significant impact in this emerging and important industry.

"Going forward, we will continue our fundamental focus on safety and operational excellence. As underscored by our decision to move forward with the CCA EOR development, we will continue to invest in EOR operations, while positioning the Company to be a leader in what we believe will be a high value, high growth CCUS business. We believe that Denbury's strategic focus and asset base uniquely position us for strong performance through the energy transition."


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 Company's assets and liabilities were recorded at fair value as of the Emergence Date, which differs materially from historical values reflected on the Company's balance sheet prior to the Emergence Date. As a result of the application of fresh start accounting and the effects of the Company's 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 periods subsequent to September 18, 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 Company's financial results for Successor Periods separately from Predecessor Periods. In order to provide meaningful comparability of certain results for the third quarter and year ended December 31, 2020, the Company has combined the results for the Successor Period and Predecessor Period where appropriate, labeled below as "Combined".

2020 Q4 Results

Denbury's oil and natural gas production averaged 48,805 BOE/d during fourth quarter 2020, a decrease of 2% from production in the third quarter of 2020 (the "prior quarter") and a decrease of 13% compared to continuing production in the fourth quarter of 2019 (the "prior-year fourth quarter"). The decrease in production from the prior-year fourth quarter was generally due to the impact of cost reduction measures taken by the Company during 2020 to reduce capital expenditures, workovers, well repairs and other lease operating expenses as a result of the significantly lower oil price environment in 2020. In addition, production at the Company's Delhi Field was lower in 2020 due to the lack of CO2 injections between late-February and late-October 2020 as a result of the Delta-Tinsley CO2 pipeline being out of service for repair during that period. On an annual basis, Denbury's 2020 total production averaged 51,151 BOE/d, on target with the midpoint of the Company's revised 2020 production guidance range. Further production information is provided on page 21 of this press release.

Denbury's fourth quarter 2020 average realized oil price, including derivative contracts, was $43.94 per barrel ("Bbl"), a 2% increase from the prior quarter and a 25% decrease from the prior-year fourth quarter. Denbury's realized oil price relative to NYMEX WTI oil prices for the fourth quarter 2020 was $2.03 per Bbl below NYMEX, compared to $1.64 per Bbl below NYMEX in the prior quarter and $0.44 per Bbl below NYMEX in the prior-year fourth quarter.

Total revenues and other income in the fourth quarter of 2020 were $197 million, an increase of 2% from the prior quarter and a decrease of 37% from the prior-year fourth quarter. The sequential quarterly increase was primarily due to higher realized oil prices, and the decrease from the prior-year fourth quarter was primarily due to lower oil prices and a decrease in production levels.

Total lease operating expenses in fourth quarter 2020 were $90 million, an increase of $3 million, or 4%, on a sequential-quarter basis (after adjusting prior quarter operating expenses for a non-recurring $15 million insurance reimbursement), and a decrease of $26 million, or 23%, compared to the prior-year fourth quarter. The sequential quarterly increase was primarily due to higher CO2 costs, power and fuel costs, and higher workover activity, while the year-over-year quarterly decrease was due to reductions across all expense categories, with the primary drivers being labor costs, power and fuel, workover expense, and CO2 costs. For full-year 2020, lease operating expenses averaged $18.78 per BOE, compared to $22.46 in 2019.

Taxes other than income, which includes ad valorem, production and franchise taxes, decreased $1 million, or 7%, from the prior quarter and decreased $8 million, or 35%, from the prior-year fourth quarter, generally due to changes in oil and natural gas revenues.

General and administrative ("G&A") expenses were $18 million in fourth quarter 2020 and $68 million for full-year 2020, with fourth quarter 2020 G&A including $8 million of net stock-based compensation expense primarily associated with performance-based equity awards issued in December 2020. These G&A expense amounts represent a $1 million increase compared to the prior quarter and a decrease of $15 million, or 18%, compared to full-year 2019, primarily due to the change in severance expense between 2019 and 2020.

Depletion, depreciation, and amortization ("DD&A") expense was $41 million during the fourth quarter of 2020, a decrease of $23 million, or 36%, compared to the prior-year fourth quarter due primarily to lower asset values resulting from the application of fresh start accounting.

Other expenses were $6 million in the fourth quarter of 2020, primarily associated with costs related to the Company's Chapter 11 restructuring.

Denbury's effective tax rates for the fourth quarter and full-year 2020 were 5% and 22%, respectively, lower than the Company's statutory rate of 25%, due primarily to the establishment of a valuation allowance on the Company's federal and state deferred tax assets after the application of fresh start accounting. For the Successor Period, the Company continues to offset its deferred tax assets with a valuation allowance. Thus, any income tax expense or benefit associated with the Successor's pre-tax book income or loss will be offset with a change in valuation allowance.


The Company's total estimated proved oil and natural gas reserves at December 31, 2020 were 143 million BOE, consisting of 140 million barrels of crude oil, condensate and natural gas liquids (together, "liquids"), and 16 billion cubic feet (3 million BOE) of natural gas. Reserves were 98% liquids and 97% proved developed, with 57% of total proved reserves attributable to Denbury's CO2 tertiary operations. Total proved reserves declined by a net 87 million BOE during 2020 primarily due to the factors shown below:


Year-end 2020 estimated proved reserves and the discounted net present value of Denbury's proved reserves, using a 10% per annum discount rate ("PV-10 Value")(1) (a non-GAAP measure), were computed using first-day-of-the-month 12-month average prices of $39.57 per Bbl for oil (based on NYMEX prices) and $1.99 per million British thermal unit ("MMBtu") for natural gas (based on Henry Hub cash prices), adjusted for prices received at the field. Comparative prices for 2019 were $55.69 per Bbl of oil and $2.58 per MMBtu for natural gas, adjusted for prices received at the field. The PV-10 Value(1) of Denbury's proved reserves was $703 million at December 31, 2020, compared to $2.6 billion at December 31, 2019. The standardized measure of discounted estimated future net cash flows after income taxes of Denbury's proved reserves at December 31, 2020 ("Standardized Measure") was $655 million compared to $2.3 billion at December 31, 2019. See the accompanying schedules for an explanation of the difference between PV-10 Value(1) and the Standardized Measure and the uses of this information.

Denbury's estimated proved CO2 reserves at Jackson Dome at year-end 2020, on a gross or 8/8th's basis for operated fields, together with its overriding royalty interest in LaBarge Field in Wyoming, totaled 5.7 trillion cubic feet ("Tcf"), slightly lower than CO2 reserves of 5.9 Tcf as of December 31, 2019 due to 2020 production. Of these total CO2 reserves, 4.6 Tcf are located in the Gulf Coast region and 1.1 Tcf in the Rocky Mountain region.

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