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Denbury Inc. Fourth Quarter, Full Year 2021 Results

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Denbury Inc. provided its fourth quarter and full-year 2021 financial and operating results.

Full Year 2021 Highlights:

• Set a fifth consecutive Company annual record for employee and contractor safety, achieving a Total Recordable Incident Rate of 0.40. Over 600,000 man-hours were completed on the Cedar Creek Anticline ("CCA") CO₂ pipeline and EOR project without a recordable safety incident.
• Completed the 105-mile CCA CO₂ pipeline ahead of schedule and under budget, which made Denbury the largest operator of CO₂ pipelines in the U.S. by mileage.
• Received third-party verification of the negative Carbon Intensity ("CI") of Denbury's blue oil production at the West Hastings and Bell Creek CO₂ floods, resulting in a CI score ranging between -40 to -20 grams of CO₂ equivalent emitted per megajoule of energy.
• Acquired the Big Sand Draw and Beaver Creek EOR fields in Wyoming, including surface facilities and a 46-mile CO₂ transportation pipeline.
• Divested non-producing surface acreage in the Houston area for $15 million, and sold undeveloped deep mineral rights in Wyoming for $18 million.
• Generated more than $55 million of free cash flow⁽¹⁾ (a non-GAAP measure).
• Invested $252 million of development capital, at the low end of the Company's original development capital guidance range.
• Reduced the Company's total debt by $103 million over the last year, and exited 2021 with $532 million of financial liquidity (cash on hand and borrowing capacity under the Company's existing credit facility).

2021 CCUS Highlights:

• Established the Denbury Carbon Solutions team to drive the Company's CCUS strategy.
• Executed a term sheet with Mitsubishi Corporation for the transport and storage of CO₂ captured from Mitsubishi's proposed ammonia project along the U.S. Gulf Coast. The agreement covers a 20-year period, and Mitsubishi's project is targeted to produce associated CO₂ emissions of approximately 1.8 million metric tons per year, beginning in the latter half of the decade.
• Commenced a joint evaluation with Mitsui E&P USA LLC of potential opportunities across the U.S. Gulf Coast to develop carbon-negative oil assets utilizing industrial-sourced CO₂. As part of the evaluation, the parties seek to jointly pursue CO₂ offtake opportunities from Mitsui's potential projects along the Gulf Coast.
• Announced joint development of a Texas Gulf Coast sequestration site with Gulf Coast Midstream Partners, with the potential to store up to 400 million metric tons of CO₂. The EPA Class VI permitting process has been initiated and sequestration is estimated to be available by early 2025.

Chris Kendall, Denbury's President and CEO, commented, "I am incredibly proud of our dedicated employees' achievements throughout 2021 despite many challenges, including the ongoing pandemic and its impacts. First and foremost, we set another record on safety performance, the top priority for me and the entire Denbury leadership team. We further established the framework upon which we will execute our CCUS vision, placing Denbury as the leader in this evolving industry. Within our core operations, we completed the CCA CO₂ pipeline project on time and under budget, and I thank our employees and contractors for their exceptional efforts in achieving this great outcome. We successfully initiated the CCA CO₂ flood which we expect will be one of the largest CO₂ floods in the world, and I'm pleased to share that we started Phase 1 injection early this month. This important milestone will greatly enhance our EOR business and increase Denbury's production of carbon negative blue oil, which we believe will become a highly desired commodity. Further and importantly, our strong EOR business will provide significant cash flow with which to fund our CCUS investments.

As we enter 2022, we are extremely excited about what lies ahead for Denbury. Our expansive CO₂ pipeline network and proven track record in all aspects of CO₂ transportation and injection positions Denbury as the ideal partner to provide CCUS solutions. We demonstrate our expertise continuously by safely transporting and injecting the nearly ten thousand tons of CO₂ we receive daily from our industrial partners into underground formations. We built on these strengths in 2021 with the execution and establishment of several new CCUS agreements that further set the stage for even greater success in our CCUS operations. My aspiration is that all of Denbury's existing and future CCUS customers will recognize Denbury as the experienced and accountable partner upon whom they can rely to safely handle their captured CO₂ for decades to come."

4Q21 Results

Denbury's fourth quarter 2021 total revenues and other income totaled $362 million, a five percent increase over third quarter 2021 levels, driven primarily by an improvement in underlying commodity prices and improved oil price differentials. The Company's fourth quarter 2021 average pre-hedge realized oil price was $75.68 per barrel ("Bbl"), which was $1.22 per Bbl below NYMEX WTI oil prices. Denbury's average differential improved more than 50 cents per Bbl from the third quarter of 2021 as values for the Company's Gulf Coast and Rocky Mountain region sales volumes both improved relative to WTI.

Oil and natural gas sales volumes averaged 48,882 BOE/d during the fourth quarter of 2021, down modestly from the third quarter of 2021 and lower than expectations primarily as a result of unplanned downtime in December. In addition, lower volumes at CCA were attributed to increased oil prices and profitability resulting in more volumes allocated to the third-party net profits interest in that field. Oil represented 97% of the Company's fourth quarter 2021 volumes, with 25% of the Company's oil produced through the injection of industrial-sourced CO₂, resulting in carbon-negative blue oil.

Lease operating expense in the fourth quarter of 2021 was $116 million, or $25.75 per BOE, consistent with the Company's expectation. The slight increase on a per BOE basis from the third quarter 2021 was primarily related to higher commodity prices as higher oil prices increase the Company's CO₂ costs and higher natural gas prices increase power expenses. Transportation and marketing expenses for the quarter totaled $7 million, consistent with the third quarter of 2021 and reflecting improved contractual arrangements for certain of the Company's Rocky Mountain region oil volumes.

General and administrative expenses were $16 million in the fourth quarter of 2021, in line with expectations and relatively consistent with the third quarter of the year. Depletion, depreciation, and amortization ("DD&A") expense was $37 million during the fourth quarter of 2021, or $8.25 per BOE, essentially flat with the third quarter of the year.

Commodity derivatives expense totaled $23 million in the final quarter of 2021, comprised of cash payments on hedges that settled in the quarter of $98 million, offset by a $75 million non-cash gain representing mark-to-market changes in the value of the Company's hedging portfolio. The Company's effective tax rate for the fourth quarter of 2021 was negligible, as virtually all of the tax expense/benefit generated is currently fully offset by a change in valuation allowance on its federal and state deferred tax assets.

Capital Expenditures

Fourth quarter 2021 development capital expenditures totaled $78 million, bringing full-year 2021 capital expenditures to a total of $252 million, close to the low end of the Company's original annual guidance range of $250 million to $270 million. Nearly 60% of the fourth quarter total was dedicated to the CCA EOR project, including the completion of the 105-mile CO₂ pipeline from Bell Creek to CCA, the booster station install, and the infield distribution system to prepare for CO₂ injection. The CCA CO₂ Pipeline was completed ahead of schedule and under budget. Line fill of CO₂ was also completed in 2021, and CO₂ injection into the Cedar Hills South and East Lookout Butte fields commenced in early February 2022. Tertiary oil production response is anticipated in the second half of 2023.

2021 Proved Reserves

The Company's total estimated proved oil and natural gas reserves as of December 31, 2021, were 192 million barrels of oil equivalent (MMBOE), consisting of 189 million barrels of crude oil and 17 billion cubic feet of natural gas. Proved reserves increased by 49 MMBOE during 2021, primarily resulting from increased commodity pricing utilized in determining economic reserves. As of the end of 2021, 95% of proved reserves were proved developed.

Year-end 2021 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 $66.56 per Bbl for oil (based on NYMEX prices) and $3.60 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 2020 were $39.57 per Bbl of oil and $1.99 per MMBtu for natural gas, adjusted for prices received at the field. The PV-10 Value⁽¹⁾ of Denbury's proved reserves was $2.7 billion at December 31, 2021, compared to $0.7 billion at December 31, 2020.

Denbury's estimated proved CO₂ reserves at year-end 2021 were 5.5 trillion cubic feet ("Tcf"), including 4.5 Tcf at Jackson Dome in Mississippi (on a gross basis) and 1.0 Tcf at LaBarge Field in Wyoming (overriding royalty interest). Total CO₂ reserves reflected a slight reduction from year-end 2020 due to 2021 production.