Denbury Inc. has released its second quarter 2023 results.

KEY 2Q HIGHLIGHTS

• Second quarter 2023 net cash provided by operating activities totaled $142 million, and adjusted cash flows from operations(1) totaled $129 million.
• Capital expenditures, excluding capitalized interest, totaled $132 million, and equity investments totaled $12 million. Total debt at the end of the second quarter was $85 million.
• Net income(2) for the quarter was $67 million, or $1.25 per diluted share, and adjusted net income(1)(2) was $57 million, or $1.06 per diluted share.
• Commenced Enhanced Oil Recovery (“EOR”) production at the Cedar Creek Anticline (“CCA”) tertiary project, with second quarter tertiary production at CCA averaging 574 Bbl/d.
• Added four dedicated CO2 sequestration sites to the Company’s portfolio, including one in Texas, two in Louisiana, and one in Wyoming. In addition, executed agreement to transport and sequester 1 million metric tons of CO2 per year for a blue methanol project in Louisiana.

(1) A non-GAAP measure. 
(2) Calculated using weighted average diluted shares outstanding of 54.0 million for the quarter ended June 30, 2023.

Chris Kendall, Denbury’s President and CEO, commented, 
“I am extremely proud of our team and our accomplishments through the first half of the year. During the second quarter, we commenced initial tertiary production at our flagship CCA CO2 EOR project and early results from the flood are encouraging. We also continued to advance our CCUS business, adding four new storage sites and an additional contract for transportation and storage. On July 13th, we announced an agreement to combine with ExxonMobil, and we expect to close the transaction in the fourth quarter of this year, subject to stockholder and regulatory approvals. We look forward to bringing our assets and expertise together to accelerate the development of the CCUS industry.”

Approximately 54% of second quarter sales volumes were from the Company’s Gulf Coast assets, with the remaining 46% from the Rocky Mountain region. As compared to the first quarter of the year, Gulf Coast production was lower by 4%, driven primarily by a planned facility turnaround at Delhi and lower crude inventory sales at Tinsley, as expected. Rocky Mountain region sales volumes were slightly higher than in the first quarter of the year, driven by initial tertiary production and higher non-tertiary production at CCA, which more than offset unexpected facility downtime at Bell Creek.

The Company’s average oil price differential per barrel of oil (“Bbl”) in the second quarter of 2023 was $1.14 below the West Texas Intermediate (“WTI”) average, a modest improvement from the $1.28 below the WTI average in the first quarter of 2023, driven by Gulf Coast region realizations. Second quarter 2023 commodity hedging receipts totaled $5 million, or $1.24 per Bbl.

Lease operating expenses (“LOE”) in second quarter 2023 totaled $130 million, or $30.48 per barrel of oil equivalent (“BOE”). As compared to the first quarter of the year, higher per unit labor, workover and other costs offset reduced power and utilities expenses. CO2 costs, as part of LOE, were also modestly higher than in the first quarter as the Company began recording a portion of the CO2 injection at CCA as LOE rather than as capital expenditures following EOR production startup. General and administrative expenses totaled nearly $27 million, higher than first quarter levels driven primarily by employee-related costs, including salaries, bonus accrual, and stock compensation expense related to annual equity grants. Depletion, depreciation, and amortization was $50 million, or $11.63 per BOE for the quarter, higher than first quarter levels as the Company commenced the recording of proved reserves associated with the CCA CO2 EOR project.

Nearly half of second quarter 2023 oil & gas development capital expenditures were spent on the CCA CO2 EOR project, primarily focused on the construction of CO2 recycle facilities and well conversions from secondary to tertiary production. Also in the Rocky Mountain region, capital expenditures included multiple CO2 flood expansion projects, including drilling activity in the Beaver Creek and Grieve fields. Second quarter capital spend in the Gulf Coast region included the completion of well conversions at the Soso Rodessa Phase 2 EOR development, a heat exchanger project at Delhi, and various other small development projects.

Denbury ended the second quarter with $85 million borrowed on the Company’s bank credit facility, up $56 million from the end of 2022. Financial liquidity as of June 30, 2023 was $655 million, including cash on hand and borrowing capacity under the Company’s credit facility.

Cedar Creek Anticline EOR Development

Tertiary production response at CCA initiated in April 2023, following commissioning of the first CO2 recycle facility at the end of the first quarter. Second quarter EOR production averaged 574 barrels of oil per day, which includes both incremental response from the CO2 flood and production associated with the waterflood in responding units. A second CO2 recycle facility was commissioned in June 2023, and two additional CO2 recycle facilities are currently being constructed and are anticipated to be commissioned in the fourth quarter of 2023. CCA EOR production is anticipated to continue to increase throughout the remainder of 2023 and through 2024.

Asset Divestment

On June 30, 2023, the Company closed on a transaction whereby it exchanged its 49% non-operated interest in the West Yellow Creek field in Mississippi for a term overriding royalty interest in the field (7% for the first eight years and 3.4% for the next five years). The Company also amended its CO2 sales contract as part of the transaction to continue selling CO2 to the West Yellow Creek field operator for a fee. Average production from the West Yellow Creek field was 443 Bbl/d for Denbury in the second quarter of 2023.

Carbon Capture, Utilization, and Storage (“CCUS”) Results

During the second quarter, Denbury executed an agreement with SunGas Renewables Inc. (“SunGas”) to provide CO2 transportation and storage services associated with SunGas’ low-carbon methanol facility to be constructed in Pineville, Louisiana. SunGas’ project is planned to commence operation in 2027 with an estimated one million metric tons per year of associated CO2.

Second quarter 2023 capital expenditures for CCUS primarily represented costs associated with dedicated CO2 sequestration sites, including lease acquisition bonus, seismic imaging, and land and legal costs. The Company expanded its sequestration portfolio by four sites, including one in Texas, two in Louisiana, and one in Wyoming. The Texas and Louisiana additions, which were previously announced, bring the Company’s Gulf Coast dedicated sequestration portfolio to a total of nine sites and nearly two billion metric tons of CO2 storage potential. In Wyoming, the Company finalized a definitive agreement for the rights to develop a dedicated CO2 sequestration site on approximately 19,000 acres in Campbell County, directly underneath the Company’s Greencore CO2 Pipeline. Denbury estimates potential CO2 sequestration capacity of the site to be 40 million metric tons, bringing total sequestration capacity for Denbury in the Rocky Mountain region to 80 million metric tons of CO2 from two sites.

During the second quarter of 2023, the Company submitted an application to the U.S. Environmental Protection Agency (“EPA”) for six Class VI well permits for the Company’s Leo CO2 sequestration site in Mississippi. Subsequent to quarter-end, the Company submitted an additional application to the EPA for six Class VI injection well permits associated with the Draco CO2 sequestration site in Louisiana, bringing the Company’s total number of submitted Class VI injection permits to 15.

In April 2023, based on the achievement of certain project milestones, the Company invested its remaining $10 million commitment for a total $20 million equity investment into Clean Hydrogen Works, the development company of a blue hydrogen/ammonia project planned in Louisiana.

Outlook

As a result of the Company’s pending merger with ExxonMobil, Denbury’s prior guidance should no longer be relied upon. Denbury will not be providing or updating quarterly or full-year guidance in this or future earnings releases or in quarterly supplemental materials that previously had accompanied quarterly releases. Information regarding known or expected trends may be addressed in Denbury’s or ExxonMobil’s future filings with the Securities and Exchange Commission (“SEC”).