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Denbury Inc. First Quarter 2021 Results

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   |    Thursday,May 13,2021

Denbury Inc. reported its Q1 2021 results.

Q1 Highlights:

  • Net cash provided by operating activities was $53 million; Adjusted cash flow from operations(1) (non-GAAP measure) was $81 million.
  • Development capital expenditures totaled $20 million; Free cash flow(1) (non-GAAP measure) was $59 million.
  • Net loss totaled $70 million, or $1.38 per diluted share. Adjusted net income(1) (non-GAAP measure) was $22 million, or $0.44 per diluted share(1) (non-GAAP measure) and Adjusted EBITDAX(1) (non-GAAP measure) totaled $82 million.
  • Total production averaged 47,357 BOE/d, consistent with expectations. Severe winter weather reduced volumes for the quarter by approximately 1,400 BOE/d.
  • Approved the initial phase of the CO2 enhanced oil recovery (EOR) development at Cedar Creek Anticline (CCA), including the Greencore CO2 pipeline extension from Bell Creek to CCA.
  • Successfully closed the acquisition of the Big Sand Draw and Beaver Creek EOR fields in the Wind River Basin in early March 2021.
  • Announced Nikulas Wood as Senior Vice President to lead the Denbury Carbon Solutions team, focused on expanding the Company's leading Carbon Capture, Use and Storage (CCUS) position to drive future value.
  • Added Cindy Yeilding to the Denbury Board of Directors. Yeilding chaired the coordinating subcommittee of the 2019 National Petroleum Council study on CCUS.

Chris Kendall, the Company's President and CEO, commented, "I am pleased with our first quarter performance, and we are off to a great start to the year. Although severe winter weather temporarily impacted operations, Denbury's low-decline and low capital-intensity asset base nonetheless delivered meaningful free cash flow in the first quarter. Looking forward to the rest of the year, we are preparing to kick off construction on our CCA CO2 pipeline in the coming weeks. The CCA EOR development, which will produce low carbon-intensity blue oil through utilization of industrial-sourced CO2, provides the Company with a deep inventory of resource development opportunities and decades of free cash flow.

The Denbury Carbon Solutions team continues to progress multiple agreements that we expect will advance significant growth in Denbury's transport and storage of captured industrial-sourced CO2. Denbury's proven track record of partnership with industrial emitters in providing practical, reliable, and secure CO2 transportation and storage solutions is unmatched in the industry. Considering the Company's ideally positioned infrastructure and extensive CO2 experience, CCUS represents an incredible value creation opportunity for our Company."

Ops & Financials

Total revenues and other income in the first quarter of 2021 were $251 million, an increase of 27% from the fourth quarter 2020 and 4% from the prior-year first quarter. The quarterly increases were primarily a result of higher realized pre-hedge oil prices, despite lower production due to severe winter weather in the first quarter 2021, natural field decline, and Denbury's significant reduction in capital spending in 2020 related to the COVID-19 impact on global oil demand.

Denbury's oil and natural gas production averaged 47,357 BOE/d during first quarter 2021, consistent with expectations, considering the impact of severe winter weather (lowered first quarter 2021 volumes approximately 1,400 BOE/d), as well as the March 2021 acquisition of assets in the Wind River Basin (added 870 BOE/d for the first quarter 2021). Over 97 percent of the Company's first quarter 2021 production was oil, with two-thirds of total volumes coming from tertiary CO2 fields. Blue oil production, resulting from captured industrial-sourced CO2 injection, increased to approximately 25% of total oil volumes as of the end of the first quarter.

Denbury's first quarter 2021 average pre-hedge realized oil price was $56.28 per barrel ("Bbl"), representing a differential of $1.54 per Bbl below NYMEX WTI oil prices. The first quarter 2021 differential was on the favorable end of the Company's expectation of between $1.50 to $2.00 per Bbl discount to WTI.

Lease operating expenses ("LOE") in first quarter 2021 totaled $82 million, or $19.23 per BOE. LOE was lower than anticipated in the first quarter primarily due to a favorable adjustment to power costs associated with winter storm Uri, which caused significant power outages and disrupted the Company's operations. Under certain of Denbury's power agreements, the Company is provided compensation for reduced power usage, which resulted in a benefit of $15 million for the quarter. The net impact to Denbury from lost production and revenues due to the storm, incremental costs incurred for recovery, and the reduced power usage benefit was estimated to be a positive $6 million for the first quarter 2021.

General and administrative ("G&A") expenses were $32 million in first quarter 2021, in line with expectations. G&A included $18 million of non-cash expense for stock-based compensation, of which $15 million is non-recurring as the performance measures underlying those awards were achieved in the first quarter.

Commodity derivatives expense was $116 million in the first quarter of 2021, a result of the strengthening of oil prices during the period. Cash payments on hedges that settled in the first quarter totaled $38 million (representing $9.28 per Bbl), with the remaining amount representing the mark-to-market change in the value of the Company's hedging portfolio.

Adjustments to net loss for the quarter included the $77 million mark-to-market change on hedging and a $14 million full-cost ceiling test impairment. The full-cost ceiling test impairment resulted primarily from the difference in recording the book value of acquired properties at a higher oil price than the 12-month look-back oil price used in the ceiling test.

Depletion, depreciation, and amortization was $39 million during first quarter 2021, or $9.26 per BOE. The Company's effective tax rate for the first quarter 2021 was negligible, due primarily to a valuation allowance on its federal and state deferred tax assets which offsets the tax benefit generated from the pre-tax loss.

Capital Expenditures

First quarter 2021 development capital expenditures, which excluded acquisitions and capitalized interest, totaled $20 million, less than eight percent of the Company's annual capital budget. Acquisitions of oil & natural gas properties totaled nearly $11 million for the first quarter 2021, primarily representing the net purchase price of the Big Sand Draw and Beaver Creek fields in the Wind River Basin.

Financial Strength

The Company's total debt balance as of the end of the first quarter 2021 was $126 million, down $12 million from the end of 2020. Denbury had $75 million of outstanding borrowings drawn on its senior secured bank credit facility at the end of the quarter. Including unrestricted cash, total liquidity at the end of the first quarter was $483 million, after consideration of outstanding letters of credit.

The borrowing base for the Company's $575 million senior secured bank credit facility was reaffirmed with its lending group at the end of April 2021.


The Company has added new oil hedges for 2022, including certain swaps and collars to secure additional cash flows at improved prices. Details of the Company's current hedging positions are included below:

    2Q - 4Q 2021   1H 2022   2H 2022
WTI NYMEX Volumes Hedged (Bbls/d) 29,000   15,500   8,000
Fixed-Price Swaps Swap Price(1) $43.86   $49.01   $55.85
WTI NYMEX Volumes Hedged (Bbls/d) 4,000   8,000   7,000
Collars Floor - Ceiling Price(1) $46.25 - 53.04   $49.69 - 62.16   $49.64 - 61.66
  Total Volumes Hedged (Bbls/d) 33,000   23,500   15,000

Reaffirmed Guidance

As expected, first quarter 2021 capital spending and production were low relative to annual guidance levels. The Company's production outlook for the year remains unchanged at a range of 47,500 to 51,500 BOE/d. Considering a full quarter's production impact from the asset acquisition and recovery from first quarter 2021 winter storms, Denbury anticipates quarterly production volumes will increase in the second quarter 2021.

Development capital expenditures for 2021 are still expected to range from $250 million to $270 million. Second quarter capital expenditures should step up meaningfully with tertiary field work at the Oyster Bayou and Tinsley fields, as well as initial spending for construction of the extension of the Greencore CO2 pipeline and EOR development at CCA. Capital levels are expected to increase throughout the year in line with planned development activities.

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