Denbury Inc. announced its fourth quarter and full-year 2020 financial and operating results, along with its 2021 capital budget and projected 2021 production.
2020 FOURTH QUARTER AND FULL-YEAR HIGHLIGHTS
2021 CAPITAL BUDGET AND PRODUCTION GUIDANCE
The Company’s 2021 capital budget has been set in a range of $250 million to $270 million, excluding acquisitions and capitalized interest. The capital budget includes approximately $150 million allocated to the development of the Company’s strategic CO2 enhanced oil recovery (EOR) project at Cedar Creek Anticline (“CCA”), including the 105-mile extension of the Greencore CO2 Pipeline from Bell Creek Field to CCA. The Company currently expects the bulk of the pipeline construction to take place in the second half of 2021 with injection of CO2 into CCA expected to begin in early 2022.
(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) Subject to two contingent cash payments of $4 million each in 2021 and 2022 if NYMEX WTI oil prices average at least $50 per Bbl during the respective calendar years.
A breakdown of the 2021 capital budget is set forth below:
In addition to Denbury’s 2021 capital budget, in early-March 2021, the Company expects to complete the acquisition of its previously announced purchase of the Big Sand Draw and Beaver Creek tertiary oil fields in Wyoming for approximately $12 million. At current oil prices, the Company expects that its cash flow will be more than adequate to fund its capital budget and this pending acquisition. At December 31, 2020, the Company had $70 million of borrowings and $482 million of availability under its bank credit facility, providing significant liquidity. The expansion of the Greencore CO2 Pipeline to CCA is a strategic long-term capital investment needed to unlock the development of over 400 million barrels of tertiary oil potential at CCA. The Company plans to evaluate other potential external funding sources for all or a portion of that expenditure.
Based on these capital spending plans, the Company currently anticipates 2021 average daily production of between 47,500 and 51,500 BOE/d, including anticipated production from the Big Sand Draw and Beaver Creek oil fields beginning in early March 2021.
MANAGEMENT COMMENT
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.”
FRESH START ACCOUNTING AND PREDECESSOR & SUCCESSOR PERIODS
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 FOURTH QUARTER RESULTS
Certain sequential and year-over-year comparisons of selected quarterly information for the Successor Periods, certain Predecessor Periods and on a Combined basis are shown in the following tables:
Successor | Predecessor | ||||||
(in millions, except per-share data) | Quarter Ended Dec. 31, 2020 | Quarter Ended Dec. 31, 2019 | |||||
Net income (loss) | $ | (53 | ) | $ | 23 | ||
Adjusted net income(2) (non-GAAP measure) | 29 | 47 | |||||
Adjusted EBITDAX(2) (non-GAAP measure) | 77 | 155 | |||||
Net income (loss) per diluted share | (1.07 | ) | 0.05 | ||||
Adjusted net income per diluted share(2)(3) (non-GAAP measure) | 0.58 | 0.09 |
Successor | Combined (Non-GAAP)(1) |
Predecessor | |||||||
(in millions) | Quarter Ended Dec. 31, 2020 | Quarter Ended Sept. 30, 2020 | Quarter Ended Dec. 31, 2019 | ||||||
Oil, natural gas, and related product sales | $ | 179 | $ | 176 | $ | 294 | |||
CO2 sales, oil marketing revenues and other | 18 | 18 | 17 | ||||||
Total revenues and other income | $ | 197 | $ | 194 | $ | 311 | |||
Receipt on settlements of commodity derivatives | $ | 14 | $ | 18 | $ | 9 | |||
Cash flows from operations | $ | 7 | $ | 74 | $ | 151 | |||
Adjusted cash flows from operations less special items(2) (non-GAAP measure) | 72 | 68 | 134 | ||||||
Development capital expenditures | 18 | 18 | 47 |
Quarter Ended | |||||||||
Dec. 31, 2020 | Sept. 30, 2020 | Dec. 31, 2019 | |||||||
Average realized oil price per barrel (excluding derivative settlements) | $ | 40.63 | $ | 39.23 | $ | 56.58 | |||
Average realized oil price per barrel (including derivative settlements) | 43.94 | 43.23 | 58.30 | ||||||
Total production (BOE/d) | 48,805 | 49,686 | 57,511 | ||||||
Total continuing production (BOE/d)(4) | 48,805 | 49,686 | 56,341 |
(1) Combined results for the quarter ended September 30, 2020 and year ended December 31, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods.
(2) 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.
(3) Calculated using average diluted shares outstanding of 50.0 million for the quarter ended December 31, 2020, 571.0 million for the three months ended December 31, 2019, and 510.3 million for the year ended December 31, 2019.
(4) Continuing production excludes production from the sale of a 50% working interest in four Gulf Coast properties completed on March 4, 2020.
2020 FULL-YEAR RESULTS
Year-over-year comparisons of selected annual information are shown in the following tables:
Combined (Non-GAAP)(1) |
Predecessor | Successor | Predecessor | ||||||||||||
(in millions, except per-share data) | Year Ended Dec. 31, 2020 |
Year Ended Dec. 31, 2019 |
Period from Sept. 19, 2020 through Dec. 31, 2020 |
Period from Jan. 1, 2020 through Sept. 18, 2020 |
|||||||||||
Net income (loss) | $ | (1,483 | ) | $ | 217 | $ | (51 | ) | $ | (1,433 | ) | ||||
Adjusted net income(2) (non-GAAP measure) | 44 | 192 | |||||||||||||
Adjusted EBITDAX(2) (non-GAAP measure) | 326 | 607 | |||||||||||||
Net income (loss) per diluted share | 0.45 | (1.01 | ) | (2.89 | ) | ||||||||||
Adjusted net income per diluted share(2)(3) (non-GAAP measure) | 0.40 |
Combined (Non-GAAP)(1) |
Predecessor | |||||
(in millions) | Year Ended Dec. 31, 2020 |
Year Ended Dec. 31, 2019 |
||||
Oil, natural gas, and related product sales | $ | 693 | $ | 1,212 | ||
CO2 sales, oil marketing revenues and other | 58 | 63 | ||||
Total revenues and other income | $ | 751 | $ | 1,275 | ||
Receipt on settlements of commodity derivatives | $ | 102 | $ | 24 | ||
Cash flows from operations | $ | 154 | $ | 494 | ||
Adjusted cash flows from operations less special items(2) (non-GAAP measure) | 254 | 524 | ||||
Development capital expenditures | 95 | 237 |
Year Ended | ||||||
Dec. 31, 2020 | Dec. 31, 2019 | |||||
Average realized oil price per barrel (excluding derivative settlements) | $ | 37.78 | $ | 58.26 | ||
Average realized oil price per barrel (including derivative settlements) | 43.40 | 59.40 | ||||
Total production (BOE/d) | 51,151 | 58,213 | ||||
Total continuing production (BOE/d)(4) | 50,957 | 56,914 |
(1) Combined results for the quarter ended September 30, 2020 and year ended December 31, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods.
(2) 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.
(3) Calculated using average diluted shares outstanding of 50.0 million for the quarter ended December 31, 2020, 571.0 million for the three months ended December 31, 2019, and 510.3 million for the year ended December 31, 2019.
(4) Continuing production excludes production from the sale of a 50% working interest in four Gulf Coast properties completed on March 4, 2020.
REVIEW OF OPERATING AND FINANCIAL 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.
2020 PROVED RESERVES
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:
Oil (MMBbl) |
Gas (Bcf) |
MMBOE |
PV-10 Value(1) |
||||||||||
Balance at December 31, 2019 (Predecessor) | 226 | 24 | 230 | $ | 2.6 billion | ||||||||
Revisions of previous estimates, principally due to changes in oil price | (64 | ) | (5 | ) | (64 | ) | |||||||
2020 production | (18 | ) | (3 | ) | (19 | ) | |||||||
Sales of minerals in place | (4 | ) | — | (4 | ) | ||||||||
Balance at December 31, 2020 (Successor) | 140 | 16 | 143 | $ | 0.7 billion |
(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.
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.
FOURTH QUARTER AND FULL-YEAR 2020 RESULTS CONFERENCE CALL INFORMATION
Denbury management will host a conference call to review and discuss fourth quarter and full-year 2020 financial and operating results, together with its financial and operating outlook for 2021, today, Thursday, February 25, at 10:00 A.M. (Central). Additionally, Denbury will post presentation materials on its website which will be referenced during the conference call. Individuals who would like to participate should dial 877.705.6003 or 201.493.6725 ten minutes before the scheduled start time. To access a live webcast of the conference call and accompanying slide presentation, please visit the investor relations section of the Company’s website at www.denbury.com. The webcast will be archived on the website, and a telephonic replay will be accessible for approximately one month after the call by dialing 844.512.2921 or 412.317.6671 and entering confirmation number 13696086.
Denbury is an independent energy company with operations focused on producing oil from mature oil fields in the Gulf Coast and Rocky Mountain regions. The Company is differentiated by its focus on CO2 Enhanced Oil Recovery (EOR) and the emerging Carbon Capture, Use, and Storage (CCUS) industry, supported by the Company’s CO2 EOR technical and operational expertise and its extensive CO2 pipeline infrastructure. The utilization of captured industrial-sourced CO2 in EOR significantly reduces the carbon footprint of the oil that Denbury produces, underpinning the Company’s goal to fully offset its Scope 1, 2, and 3 CO2 emissions within the decade. For more information about Denbury, please visit www.denbury.com.