Generates Cash Flow Well Above Plan; Authorizes Share Repurchase Program

Carbon Solutions Agreements Solidify CCUS Leadership Position

Denbury Inc. (NYSE: DEN) (“Denbury” or the “Company”) today provided its first quarter 2022 financial and operating results.

FIRST QUARTER AND RECENT HIGHLIGHTS

  • First quarter 2022 cash flows provided by operating activities totaled $90 million. Adjusted cash flows from operations(1) of nearly $131 million represent a 62% increase from the first quarter of 2021.
  • Generated $51 million in free cash flow(1) during the first quarter of 2022.
  • Commenced carbon dioxide (“CO2”) injection at the Cedar Creek Anticline (“CCA”) enhanced oil recovery (“EOR”) project, with 55 wells currently injecting more than 115 million cubic feet per day of industrial-sourced CO2.
  • Signed a new term sheet for transportation and dedicated storage of approximately 2 million metric tons per year (“mmtpa”) of CO2 captured from a chemicals facility to be constructed in southeast Louisiana. The facility is anticipated to be built in close proximity to Denbury’s CO2 infrastructure and the arrangement covers a 12-year period.
  • Amended the Company’s senior secured bank credit facility, increasing the borrowing base and lender commitments to $750 million, extending the maturity to 2027, and relaxing various covenants.
  • Authorized a $250 million share repurchase program.

(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 55.0 million and 51.2 million for the three months ended March 31, 2022 and 2021, respectively.

EXECUTIVE COMMENT

Chris Kendall, the Company’s President and CEO, commented, “Denbury made strong progress on our key 2022 objectives during the first quarter, with CO2 injection ahead of plan at the Cedar Creek Anticline EOR project and continued advancements in support of our CCUS business. The CCA EOR development, which will produce carbon-negative blue oil through 100% utilization of industrial-sourced CO2, provides the Company with a deep inventory of resource development opportunities and decades of significant cash flow.”

“I am extremely excited about our successes in the Carbon Solutions business so far this year, and I believe we are on track to substantially exceed our goals for CO2 offtake and storage agreements established at the beginning of the year. Denbury’s proven track record in providing highly reliable transportation and secure underground injection of CO2 emissions from our industrial partners, combined with our ideally positioned infrastructure, is unmatched in the industry and positions us well for continued success and growth in CCUS.”

“I am also pleased that Denbury’s Board of Directors has authorized a $250 million share repurchase program. At current oil price levels, we believe that our cash flow generation will be more than sufficient to meet our anticipated capital needs, providing the opportunity to return meaningful capital to shareholders in this manner.”

FIRST QUARTER FINANCIAL AND OPERATIONAL RESULTS

 

 

1Q 2022

(in thousands, except per-share and volume data)

 

Total

 

Per Diluted Share

Net loss

 

$(872)

 

$(0.02)

Adjusted net income(1)(2) (non-GAAP)

 

93,122

 

1.69

Adjusted EBITDAX(1) (non-GAAP)

 

130,847

 

 

Cash flows from operations

 

90,143

 

 

Adjusted cash flows from operations(1) (non-GAAP)

 

130,580

 

 

Development capital expenditures - Oil & Gas

 

57,606

 

 

Capital expenditures - CCUS storage sites and related assets

 

20,949

 

 

 

 

 

 

 

Average daily sales volumes (BOE/d)

 

46,925

 

 

Blue Oil (% oil volumes using industrial-sourced CO2)

 

25%

 

 

Industrial-sourced CO2 injected (thousand metric tons)

 

936

 

 

Total revenues and other income in the first quarter of 2022 were $412 million, a 64% increase over first quarter 2021 levels, supported predominantly by higher oil price realizations. Denbury’s first quarter 2022 average pre-hedge realized oil price was $93.17 per barrel (“Bbl”), which was $1.37 per Bbl below the daily average NYMEX WTI oil price for the period. The Company’s average oil price differential in both the Rocky Mountain and Gulf Coast regions has remained relatively consistent over the last several quarters, despite the significant increase in NYMEX oil prices.

Denbury’s oil and natural gas sales volumes averaged 46,925 barrels of oil equivalent per day (“BOE/d”) during the first quarter of 2022, generally in line with expectations. Oil represented 97% of the Company’s first quarter 2022 volumes, and approximately 25% 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. As compared to the fourth quarter of 2021, sales volumes were lower as a result of natural production declines due to lower levels of capital spending in prior years and severe winter weather impacts. In addition, the conversion of wells from water injection to CO2 injection as part of the CCA tertiary EOR project impacted first quarter 2022 volumes.

Lease operating expenses (“LOE”) in the first quarter of 2022 totaled $118 million, or $27.90 per BOE, within the Company’s annual guidance range. LOE per BOE increased slightly from the fourth quarter of 2021 as service costs and crude oil and natural gas prices have increased, which have raised power and fuel, CO2, and workover costs. The increase in LOE from the first quarter 2021 was more significant as first quarter 2021 LOE included a $15 million benefit resulting from a favorable adjustment for reduced power usage during winter storm Uri.

Transportation and marketing expenses totaled $5 million, and General and administrative expenses were $19 million in the first quarter of 2022, both in line with expectations. Depletion, depreciation, and amortization was $35 million, or $8.37 per BOE for the quarter.

Commodity derivatives expense totaled $193 million in the first quarter of the year, driven by the significant increase in the crude oil price outlook from the end of 2021 to March 31, 2022. Cash payments on hedges that settled in the first quarter of 2022 totaled $93 million.

The Company’s first quarter 2022 income tax benefit of $7 million is primarily related to the release of a valuation allowance on certain state tax benefits that the Company now expects to realize based on the outlook for higher commodity prices. As a result of the unique nature of the first quarter valuation allowance release, the Company has adjusted out of earnings the first quarter 2022 valuation allowance reversal in its net loss (GAAP) to adjusted net income (non-GAAP) reconciliation.

INVESTING ACTIVITIES

First quarter 2022 oil & gas development capital expenditures totaled $58 million. Approximately 35% of the first quarter total was incurred on the CCA EOR project, including field work to convert water wells to CO2 injection and pre-production tertiary injection costs. First tertiary production response at CCA is expected during the second half of 2023. Non-CCA oil & gas development capital during the first quarter included tertiary projects at the Beaver Creek and Soso fields, among others. During the first quarter, the Company also incurred $21 million in capital expenditures related to its CCUS business, primarily consisting of lease acquisition costs and other storage-related expenditures.

FINANCIAL POSITION AND LIQUIDITY

Denbury’s total debt at the end of the first quarter 2022 was $35 million, consistent with year-end 2021. The Company had $529 million of financial liquidity (cash on hand and borrowing capacity under the Company’s credit facility) at the end of the period. Denbury’s leverage ratio is less than 0.1X.

On May 4, 2022, the Company amended its bank credit agreement, which among other things: (i) increased the borrowing base and lender commitments from $575 million to $750 million, (ii) extended the maturity date from January 30, 2024, to May 4, 2027, and (iii) relaxed certain covenants, such as permitting the Company to pay dividends on its common stock and make other unlimited restricted payments and investments so long as certain leverage and availability requirements are met. Financial liquidity, including the Company’s increased credit facility capacity, would have been $704 million at the end of the first quarter 2022.

As separately announced today, Denbury’s Board of Directors has authorized a share repurchase program under which the Company may repurchase up to $250 million of its outstanding shares of common stock (which represent more than 7% of Denbury’s current market capitalization). The timing and amount of any share repurchases will be determined by Denbury’s management at its discretion based on ongoing assessments of the capital needs of the business, the market price of Denbury’s common stock and general market conditions.

RECENT CCUS HIGHLIGHTS

Inclusive of the new term sheet announced today, Denbury has now executed various agreements or term sheets in 2022 for CO2 transportation, storage and/or utilization covering a total of approximately 5 mmtpa. Cumulative CO2 volumes under transportation, storage and utilization agreements now total approximately 7 mmtpa (2022 goal - cumulative 10 mmtpa). In addition, the Company has previously announced the acquisition of multiple potential CO2 sequestration sites along the U.S. Gulf Coast in Texas, Louisiana, and Alabama. Cumulative potential CO2 sequestration capacity is more than 1.4 billion metric tons (2022 goal - in excess of 1.2 billion metric tons). The Company has commenced the Class VI permitting process on all of its operated potential CO2 sequestration sites.

OUTLOOK

As a result of the increased outlook for commodity prices and recent inflationary pressures (in comparison to the Company’s originally-provided guidance at $70 per barrel WTI), Denbury anticipates full-year 2022 oil & gas capital expenditures, lease operating expense, and G&A to be in the upper half to upper end of their respective annual ranges for the year. The Company’s full-year 2022 production guidance range is unchanged.

For the second quarter, the Company anticipates sales volumes to be slightly lower than the first quarter of 2022 as a result of the timing of workover and development activities, with production volumes anticipated to grow through the second half of 2022. LOE per BOE is anticipated to increase in the second quarter primarily as a result of higher commodity prices and increased seasonal workover operations. Oil & gas development capital expenditures are anticipated to increase in the second quarter over the first quarter, driven by continued activity at CCA, including purchase of equipment for the EOR recycle facilities, as well as additional drilling and development activities across the Company’s Rocky Mountain and Gulf Coast regions.

The Company has determined that it expects to fully utilize all of its federal and certain of its state tax benefits and therefore a valuation allowance against these tax benefits is no longer necessary. Approximately $6 million of the valuation allowance was reversed in the first quarter of 2022 and the remaining portion of the valuation allowance reversal will occur over the remaining quarters in 2022, resulting in an estimated effective tax rate for the second through fourth quarters of approximately 15% based on the Company’s currently anticipated 2022 level of pre-tax income. Future increases or decreases in the Company’s anticipated income level will likely increase or decrease the Company’s effective tax rate for the year. In addition, with the anticipated higher levels of income, the Company now expects approximately 30% of its total taxes will be current, or cash taxes.

Further details on the Company’s 2022 guidance can be found in the supporting materials on Denbury’s website.

CONFERENCE CALL AND WEBCAST

Denbury management will host a conference call to review and discuss first quarter 2022 financial and operating results and its outlook for future periods, today, Thursday, May 5, 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 presentation 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 328081.

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, 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, lease operating expenses and general and administrative expenses, along with other financial forecasts; future tax benefits and tax rates; 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 and rising levels of economic uncertainty due to inflation 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-month periods ended March 31, 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

 

 

March 31,

In thousands, except per-share data

 

2022

 

2021

Revenues and other income

 

 

 

 

Oil sales

 

$

381,242

 

 

$

233,044

 

Natural gas sales

 

 

3,669

 

 

 

2,401

 

CO2 sales and transportation fees

 

 

13,422

 

 

 

9,228

 

Oil marketing revenues

 

 

13,276

 

 

 

6,126

 

Other income

 

 

250

 

 

 

360

 

Total revenues and other income

 

 

411,859

 

 

 

251,159

 

Expenses

 

 

 

 

Lease operating expenses

 

 

117,828

 

 

 

81,970

 

Transportation and marketing expenses

 

 

4,645

 

 

 

7,797

 

CO2 operating and discovery expenses

 

 

2,817

 

 

 

993

 

Taxes other than income

 

 

31,381

 

 

 

18,963

 

Oil marketing purchases

 

 

13,040

 

 

 

6,085

 

General and administrative expenses

 

 

18,692

 

 

 

31,983

 

Interest, net of amounts capitalized of $1,158 and $1,083, respectively

 

 

657

 

 

 

1,536

 

Depletion, depreciation, and amortization

 

 

35,345

 

 

 

39,450

 

Commodity derivatives expense

 

 

192,719

 

 

 

115,743

 

Write-down of oil and natural gas properties

 

 

 

 

 

14,377

 

Other expenses

 

 

2,112

 

 

 

2,146

 

Total expenses

 

 

419,236

 

 

 

321,043

 

Loss before income taxes

 

 

(7,377

)

 

 

(69,884

)

Income tax benefit

 

 

 

 

Current income taxes

 

 

(561

)

 

 

(191

)

Deferred income taxes

 

 

(5,944

)

 

 

(51

)

Net loss

 

$

(872

)

 

$

(69,642

)

 

 

 

 

 

Net loss per common share

 

 

 

 

Basic

 

$

(0.02

)

 

$

(1.38

)

Diluted

 

$

(0.02

)

 

$

(1.38

)

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

Basic

 

 

51,602

 

 

 

50,319

 

Diluted

 

 

51,602

 

 

 

50,319

 

DENBURY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Quarter Ended

 

 

March 31,

In thousands

 

2022

 

2021

Cash flows from operating activities

 

 

 

 

Net loss

 

$

(872

)

 

$

(69,642

)

Adjustments to reconcile net loss to cash flows from operating activities

 

 

 

 

Depletion, depreciation, and amortization

 

 

35,345

 

 

 

39,450

 

Write-down of oil and natural gas properties

 

 

 

 

 

14,377

 

Deferred income taxes

 

 

(5,944

)

 

 

(51

)

Stock-based compensation

 

 

2,971

 

 

 

17,680

 

Commodity derivatives expense

 

 

192,719

 

 

 

115,743

 

Payment on settlements of commodity derivatives

 

 

(93,057

)

 

 

(38,453

)

Debt issuance costs

 

 

685

 

 

 

685

 

Other, net

 

 

(1,267

)

 

 

727

 

Changes in assets and liabilities, net of effects from acquisitions

 

 

 

 

Accrued production receivable

 

 

(72,795

)

 

 

(36,750

)

Trade and other receivables

 

 

1,644

 

 

 

865

 

Other current and long-term assets

 

 

189

 

 

 

(2,542

)

Accounts payable and accrued liabilities

 

 

11,410

 

 

 

(1,402

)

Oil and natural gas production payable

 

 

23,348

 

 

 

12,795

 

Other liabilities

 

 

(4,233

)

 

 

(826

)

Net cash provided by operating activities

 

 

90,143

 

 

 

52,656

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Oil and natural gas capital expenditures

 

 

(58,707

)

 

 

(19,627

)

CCUS storage sites and related capital expenditures

 

 

(14,900

)

 

 

 

Acquisitions of oil and natural gas properties

 

 

 

 

 

(10,665

)

Pipelines and plants capital expenditures

 

 

(15,204

)

 

 

(458

)

Other

 

 

(1,396

)

 

 

(2,913

)

Net cash used in investing activities

 

 

(90,207

)

 

 

(33,663

)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Bank repayments

 

 

(274,000

)

 

 

(202,000

)

Bank borrowings

 

 

274,000

 

 

 

207,000

 

Pipeline financing repayments

 

 

 

 

 

(16,509

)

Other

 

 

(3,068

)

 

 

(3,013

)

Net cash used in financing activities

 

 

(3,068

)

 

 

(14,522

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(3,132

)

 

 

4,471

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

50,344

 

 

 

42,248

 

Cash, cash equivalents, and restricted cash at end of period

 

$

47,212

 

 

$

46,719

 

DENBURY INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

In thousands, except par value and share data

 

March 31, 2022

 

Dec. 31, 2021

Assets

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

517

 

 

$

3,671

 

Accrued production receivable

 

 

216,161

 

 

 

143,365

 

Trade and other receivables, net

 

 

17,571

 

 

 

19,270

 

Prepaids

 

 

10,175

 

 

 

9,099

 

Total current assets

 

 

244,424

 

 

 

175,405

 

Property and equipment

 

 

 

 

Oil and natural gas properties (using full cost accounting)

 

 

 

 

Proved properties

 

 

1,149,762

 

 

 

1,109,011

 

Unevaluated properties

 

 

131,677

 

 

 

112,169

 

CO2 properties

 

 

184,043

 

 

 

183,369

 

Pipelines

 

 

226,766

 

 

 

224,394

 

CCUS storage sites and related assets

 

 

20,949

 

 

 

 

Other property and equipment

 

 

94,993

 

 

 

93,950

 

Less accumulated depletion, depreciation, amortization and impairment

 

 

(210,537

)

 

 

(181,393

)

Net property and equipment

 

 

1,597,653

 

 

 

1,541,500

 

Operating lease right-of-use assets

 

 

18,595

 

 

 

19,502

 

Derivative assets

 

 

265

 

 

 

 

Deferred tax assets, net

 

 

4,306

 

 

 

 

Intangible assets, net

 

 

85,966

 

 

 

88,248

 

Cash restricted for future asset retirement obligations

 

 

46,695

 

 

 

46,673

 

Other assets

 

 

33,445

 

 

 

31,625

 

Total assets

 

$

2,031,349

 

 

$

1,902,953

 

Liabilities and Stockholders’ Equity

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable and accrued liabilities

 

$

201,598

 

 

$

191,598

 

Oil and gas production payable

 

 

99,247

 

 

 

75,899

 

Derivative liabilities

 

 

223,598

 

 

 

134,509

 

Operating lease liabilities

 

 

4,683

 

 

 

4,677

 

Total current liabilities

 

 

529,126

 

 

 

406,683

 

Long-term liabilities

 

 

 

 

Long-term debt, net of current portion

 

 

35,000

 

 

 

35,000

 

Asset retirement obligations

 

 

282,792

 

 

 

284,238

 

Derivative liabilities

 

 

10,837

 

 

 

 

Deferred tax liabilities, net

 

 

 

 

 

1,638

 

Operating lease liabilities

 

 

16,095

 

 

 

17,094

 

Other liabilities

 

 

19,850

 

 

 

22,910

 

Total long-term liabilities

 

 

364,574

 

 

 

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; 50,349,390 and 50,193,656 shares issued, respectively

 

 

50

 

 

 

50

 

Paid-in capital in excess of par

 

 

1,133,127

 

 

 

1,129,996

 

Retained earnings

 

 

4,472

 

 

 

5,344

 

Total stockholders equity

 

 

1,137,649

 

 

 

1,135,390

 

Total liabilities and stockholders’ equity

 

$

2,031,349

 

 

$

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

 

 

March 31,

 

 

2022

 

2021

Average daily sales (BOE/d)

 

 

 

 

Tertiary

 

 

 

 

Gulf Coast region

 

 

23,016

 

 

24,281

Rocky Mountain region

 

 

9,220

 

 

 

7,187

 

Total tertiary sales

 

 

32,236

 

 

 

31,468

 

 

 

 

 

 

Non-tertiary

 

 

 

 

Gulf Coast region

 

 

3,630

 

 

 

3,621

 

Rocky Mountain region

 

 

11,059

 

 

 

12,268

 

Total non-tertiary sales

 

 

14,689

 

 

 

15,889

 

 

 

 

 

 

Total Company

 

 

 

 

Oil (Bbls/d)

 

 

45,466

 

 

 

46,007

 

Natural gas (Mcf/d)

 

 

8,753

 

 

 

8,102

 

BOE/d (6:1)

 

 

46,925

 

 

 

47,357

 

 

 

 

 

 

Unit sales price (excluding derivative settlements)

 

 

 

 

Gulf Coast region

 

 

 

 

Oil (per Bbl)

 

$

93.17

 

 

$

56.46

 

Natural gas (per mcf)

 

 

4.71

 

 

 

3.39

 

 

 

 

 

 

Rocky Mountain region

 

 

 

 

Oil (per Bbl)

 

$

93.16

 

 

$

56.03

 

Natural gas (per mcf)

 

 

4.62

 

 

 

3.20

 

 

 

 

 

 

Total Company

 

 

 

 

Oil (per Bbl)(1)

 

$

93.17

 

 

$

56.28

 

Natural gas (per mcf)

 

 

4.66

 

 

 

3.29

 

BOE (6:1)

 

 

91.14

 

 

 

55.24

 

(1)

Total company realized oil prices including derivative settlements were $70.43 per Bbl and $47.00 per Bbl during the three months ended March 31, 2022 and 2021, respectively.

DENBURY INC.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

 

Reconciliation of net 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

 

 

March 31, 2022

 

March 31, 2021

In thousands, except per-share data

 

Amount

 

Per Diluted Share

 

Amount

 

Per Diluted Share

Net loss (GAAP measure)(1)

 

$

(872

)

 

$

(0.02

)

 

 

(69,642

)

 

$

(1.38

)

Adjustments to reconcile to adjusted net income (non-GAAP measure)

 

 

 

 

 

 

 

 

Noncash fair value losses on commodity derivatives(2)

 

 

99,662

 

 

 

1.81

 

 

 

77,290

 

 

 

1.51

 

Write-down of oil and natural gas properties(3)

 

 

 

 

 

 

 

 

14,377

 

 

 

0.28

 

Noncash fair value adjustment - contingent consideration(4)

 

 

185

 

 

 

0.01

 

 

 

 

 

 

 

Other(5)

 

 

 

 

 

 

 

 

325

 

 

 

0.03

 

Income taxes - valuation allowance reversal(6)

 

 

(5,853

)

 

 

(0.11

)

 

 

 

 

 

 

Adjusted net income (non-GAAP measure)

 

$

93,122

 

 

$

1.69

 

 

$

22,350

 

 

$

0.44

 

(1)

Diluted net income (loss) per common share includes the impact of potentially dilutive securities including nonvested restricted stock, restricted stock units, performance stock units 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)

Full cost pool ceiling test write-downs related to the Company’s oil and natural gas properties.

(4)

Expense related to the change in fair value of the contingent consideration payments related to our March 2021 Wind River Basin CO2 EOR field acquisition.

(5)

Other adjustments primarily include <$1 million write-off of trade receivables during the three months ended March 31, 2021.

(6)

The income tax adjustment removes the impact of the valuation allowance reversed during the three months ended March 31, 2022. During the three months ended March 31, 2022, largely due to the significant increase in worldwide oil prices, the Company determined that it was no longer appropriate to carry a valuation allowance against certain of its federal and state deferred tax assets, as we now consider it more likely than not that we will realize those deferred tax assets. Accordingly, during the three months ended March 31, 2022, we reversed $5.9 million of the valuation allowance, which lowered our deferred tax expense. In addition, we expect to reverse an additional $59.0 million of valuation allowance during the second through fourth quarters of 2022.

DENBURY INC.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

 

Reconciliation of net 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 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 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 loss to Adjusted EBITDAX.

 

In thousands

 

Quarter Ended

 

March 31,

 

2022

 

2021

Net loss (GAAP measure)

 

$

(872

)

 

$

(69,642

)

Adjustments to reconcile to Adjusted EBITDAX

 

 

 

 

Interest expense

 

 

657

 

 

 

1,536

 

Income tax expense (benefit)

 

 

(6,505

)

 

 

(242

)

Depletion, depreciation, and amortization

 

 

35,345

 

 

 

39,450

 

Noncash fair value losses on commodity derivatives

 

 

99,662

 

 

 

77,290

 

Stock-based compensation

 

 

2,971

 

 

 

17,680

 

Write-down of oil and natural gas properties

 

 

 

 

 

14,377

 

Noncash, non-recurring and other

 

 

(411

)

 

 

1,467

 

Adjusted EBITDAX (non-GAAP measure)

 

$

130,847

 

 

$

81,916

 

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

 

March 31,

 

2022

 

2021

Cash flows from operations (GAAP measure)

 

$

90,143

 

 

$

52,656

 

Net change in assets and liabilities relating to operations

 

 

40,437

 

 

 

27,860

 

Adjusted cash flows from operations (non-GAAP measure)(2)

 

 

130,580

 

 

 

80,516

 

Oil & gas development expenditures

 

 

(57,606

)

 

 

(20,079

)

CCUS storage sites and related capital expenditures

 

 

(20,949

)

 

 

 

Capitalized interest

 

 

(1,158

)

 

 

(1,083

)

Free cash flow (non-GAAP measure)

 

$

50,867

 

 

$

59,354

 

DENBURY INC.

CAPITAL EXPENDITURE SUMMARY (UNAUDITED)(1)

 

 

 

Quarter Ended

 

 

March 31,

In thousands

 

2022

 

2021

Capital expenditure summary

 

 

 

 

CCA EOR field expenditures(2)

 

$

17,722

 

$

9

CCA CO2 pipelines

 

 

2,191

 

 

 

48

 

CCA tertiary development

 

 

19,913

 

 

 

57

 

Non-CCA tertiary and non-tertiary fields

 

 

29,363

 

 

 

12,422

 

CO2 sources and other CO2 pipelines

 

 

730

 

 

 

 

Capitalized internal costs(3)

 

 

7,600

 

 

 

7,600

 

Oil & gas development capital expenditures

 

 

57,606

 

 

 

20,079

 

CCUS storage sites and related capital expenditures

 

 

20,949

 

 

 

 

Acquisitions of oil and gas properties(4)

 

 

371

 

 

 

10,665

 

Capitalized interest

 

 

1,158

 

 

 

1,083

 

Total capital expenditures

 

$

80,084

 

 

$

31,827

 

(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 $2.8 million during the first quarter of 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.

 

Brad Whitmarsh, 972.673.2020, brad.whitmarsh@denbury.com Beth Bierhaus, 972.673.2554, beth.bierhaus@denbury.com

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