Denbury Inc.

Good day ladies and gentlemen and welcome to the Denbury third quarter 2020 results conference call. My name is Laura and I will be the operator for today's call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. To ask a question at that time please press star 1 on your telephone keypad. I would now like to turn this conference call over to your host for today's call, Mr. John Mayer, Denver's Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. With me on the call are Chris Kendall, our President and Chief Executive Officer, Mark Allen, our Executive Vice President and Chief Financial Officer, David Shepherd, our Senior Vice President of Operations, and Matthew Dahan, our Senior Vice President of Business Development and Technology. Before we begin, I want to point out that we have slides which will accompany today's discussion. Should you encounter any issues with slides advancing during the webcast portion of this presentation, please refresh your browser. For those of you that are not accessing the call via the webcast, these slides may be found on our homepage at denbury.com by clicking on the quarterly earnings center link under resources. I would also like to remind you that today's call will include forward-looking statements that are based on the best and most reasonable information we have today. There are numerous factors that could cause actual results to differ materially from what is discussed on today's call. You can read our full disclosure on forward-looking statements and the risk factors associated with our business in the slides accompanying today's presentation, our most recent SEC filings, and our quarterly earnings release all of which are posted on our website at denbury.com. Also, please note that during the course of today's call, we will reference certain non-GAAP measures. Reconciliation and disclosure relative to these measures are provided in our quarterly earnings release as well as on our website. With that, I will turn the call over to Chris.

Good morning, and thank you for joining us on today's call. 2020 has been an incredibly unique and challenging year for all of us, but I am highly optimistic about what the future holds for Denberry. Our quick emergence from a very efficient restructuring resulted in a dramatically improved capital structure, which clearly and uniquely positions Denberry for future success in the industry. Denberry is a company built to provide long-term value to our base EOR business, supported by our long-lived, low-decline, low-capital-intensity oil production. But Denberry is much more than that. We're also a company that is extraordinarily well positioned for the energy transition with a unique line of sight to significant growth in the coming years through the emerging business of carbon capture, use and storage, commonly referred to as CCUS. There is not another company in the E&P industry as well positioned as Denberry for continued relevance through this inevitable transition. Turning to slide six, I'd first like to highlight two changes in the company. Our board has been refreshed with four new board members who bring significant and relevant experience and perspective and who, together with the experience, continuity, and historical perspective of the two continuing independent directors, will be appropriately positioned to guide Denbury through this new phase. We have also simplified our name, retaining Denberry as our historical name is broadly recognized and respected as a leader in enhanced oil recovery, but dropping resources from the name of our parent entity as we believe that over time, the significant growth in the future value of this company will be based on more than traditional oil and gas resources. Many aspects of Denbury will not change. As in the past, we intend to invest within cash flow and to maintain our consistent focus on optimizing our business and reducing costs. We also remain excited about the long-term value in cash flow associated with the development of the large resource potential of the Cedar Creek Anticline EOR project, and we plan to move forward with this project as soon as practical. Our reorganization realigned the company for success across a wide range of oil prices. The elimination of all of our bond debt has resulted in a negligible leverage ratio and is a major factor in reducing our go-forward interest expense by about $170 million per year, or over $9 per BOE. Our bank group was fully supportive throughout the restructuring process, and we exited with a bank credit facility of $575 million, providing significant liquidity. We also recently relocated our corporate headquarters, entering into a commercial lease, which will result in significant savings of approximately $9 million per year, which translates to about $0.50 per BOE. Finally, we simplified our operations by reacquiring the NEJD and Free State CO2 pipelines, ensuring that we have complete control and ownership of the extensive Gulf Coast CO2 pipeline network. This significant transaction not only reduces our debt and further lowers our interest expense, it also enhances our flexibility to lead in a CCUS business that we expect to grow significantly in the coming years. all initiatives combined, our cash cost structure has been reduced by about $10 per BOE, significantly enhancing our cash margin, even in today's challenging oil price environment. Eliminating nearly $10 per BOE from our cash break-even cost structure is a game-changer for Denberry. Using the third quarter as an example, our total cash operating costs, excluding interest, will reduce to approximately $27.50 per BOE, about $10 per BOE below our pre-reorganization cost structure. Importantly, we continue to demonstrate our ability to flex LOE lower in a challenging price environment to below $19 per BOE, and David will share more details on our significant achievements there in a few minutes. So, with our realized price of $42.27 per BOE for the quarter, including hedges, we generated a cash operating margin in the third quarter of about $14.70 per BOE, or approximately 35%. This high cash operating margin positions Denberry to both manage through market cycles and to generate significant free cash flow across a wide range of oil prices. We continue our initiatives and focus on strong governance that led to Denbury receiving ISS's highest governance rating. In addition to the four new directors that I mentioned earlier, we've established a new sustainability committee led by Caroline and Gorley, which will ensure broad oversight and perspective with respect to a range of sustainability issues, including health and safety, climate change, and social and community matters. An area of focus for the company that has not changed is our emphasis on building a foundation of safe and responsible operations, and we have continued along that path in 2020. As I've mentioned before, we believe that this foundation is vital to everything else we do as a company. I'm proud of our employees for their continued focus and perseverance, especially in a year as challenging as 2020 has been. The aspect of our business that most distinguishes and differentiates Denberry is the important role we currently play in reducing CO2 emissions and the potential for this role and our impact to increase greatly in the coming years. With increasing awareness of the risks associated with growing levels of carbon dioxide in the Earth's atmosphere, it is imperative for all of us to find paths to reduce and even reverse emissions. Denberry's base business is built to do just that. Through our significant emphasis on using CO2 for enhanced oil recovery, we already have a negative emissions footprint, considering the direct and indirect emissions associated with our business. Denver injects over 3 million tons of industrial source CO2 into the ground every year, and essentially all of this CO2 that would otherwise be emitted into the atmosphere remains securely underground as a result of our process. This represents the equivalent emissions of 700,000 cars, and we firmly believe that we can increase this amount significantly over time. CCUS has been in many headlines in recent months. With the worldwide emphasis on reducing the concentration of CO2 in the atmosphere, CCUS is a proven, low-cost method that has the potential to annually reduce hundreds of millions of tons of industrial CO2 emissions. Denbigh's EOR method is a form of CCUS where the process of producing oil results in the associated secure underground storage of nearly a ton of CO2 for each barrel of oil produced. In fact, CO2 EOR is the only form of CCUS that is currently operating at significant scale. Another form of CCUS is the direct injection of CO2 into secure underground formations where it is not necessarily associated with oil production, and I believe that growth in this area will be essential to meet emissions goals in the future. Denver is in an ideal position to lead in this emerging CCUS business. In particular, our Gulf Coast assets are strategically located through an industrial corridor that today accounts for about 140 million tons per year of point source CO2 emissions. We believe that about 40% of those emissions could be captured at a cost of less than $50 per ton. Additional industrial development in this quarter in the coming years will only increase the amount of CO2 that can be captured. Denver's broad infrastructure, with over 800 miles of CO2 pipelines in this region, provides the capability and flexibility to transport significant volumes of CO2 to multiple destinations. Our ability to adjust CO2 and supply and demand within our existing system provides an important level of redundancy that will be needed to minimize interruptions to the steady operations of the industrial facilities where the CO2 is captured. Beyond our strategically located assets, Denberry's extensive experience provides for the safe, secure, and reliable handling and injection of CO2. Through our 21 years of CO2 EOR experience, we have built a great platform of reliable, safe, and secure transportation, processing, and injection practices. From sophisticated geological modeling and analysis, to wellboard design and monitoring, to surface CO2 facility construction and operation, and ultimately to subsurface 4D seismic imaging Denbury has the knowledge, experience, and systems to provide a high level of public confidence in the security of CO2 injection. This will be vital as we seek to significantly expand the use of CCUS in the United States. We are more excited than ever about our vision for Denbury. We are perfectly aligned for a world that will require oil for many decades, and with the increasing use of industrial source CO2, EOR has the potential to produce oil with the lowest carbon footprint on the planet. We believe that growth in the CCUS business will be remarkable in the coming years, and our path to leading in CCUS is direct. We have the assets, the infrastructure, the focus, the experience, and the expertise to make this happen. I'll now pass the call over to David Shepherd, who will give us an update on operations. Thank you, Chris, and good morning, everyone.

As we reach the final quarter of the year, capital spend remains on track to be near the midpoint of our full year guidance at approximately $100 million. As you'll recall, we reduced our 2020 capital program by $80 million earlier this year in response to oil price volatility due to the COVID-19 pandemic and OPEC supply pressures. As the reduction in capital spending was announced in late March, spending during the first half of the year was greater than in the second half due to ongoing projects already in progress, including final calls to prepare and store the CCA pipeline pipe for installation and the A2 development project in our oyster value field. Our third quarter spend of $18 million in planned fourth quarter capital is primarily dedicated to essential capital required to continue to safely operate our fields. Production for the third quarter was relatively flat with the second quarter at just under 50,000 DOE per day. During the second quarter, we shut in production that was uneconomic to produce or repair while taking our rig count down to zero. With a moderate increase in oil prices during the third quarter, we identified economic barrels using a conservative oil price threshold and began to bring certain production back online. By the end of the third quarter, approximately 1,800 BOE per day remains shut in, with approximately one-third of its production being economic to repair at current pricing. We continue to evaluate currently uneconomic production and will make active decisions to bring additional wells back online, depending on oil prices. During the quarter, we resume work over operations ramping up to a rig count optimized to safely and reliably reduce the backlog of economic to repair wells, while being mindful of cash flow and maintaining a reasonable LOE spend rate. We are currently running between 14 to 16 rigs across our operations and expect to work through approximately half of the remaining economic to repair well inventory by the end of the year. Although we reactivated a significant portion of our shut-in production throughout the third quarter, production was negatively impacted by typical seasonal summertime temperature effects across certain EOR fields in the Gulf Coast region, along with approximately 350 BLE per day from Hurricane Laura and other seasonal Gulf Coast tropical storm activity. And finally, lower production at Delhi while repairs were ongoing to the field's CO2 supply pipeline. I am pleased to say that we have completed repairs to the Delta pipeline in late October and have safely resumed CO2 purchase at Del High. We currently expect our full year 2020 production to average between 50,900 and 51,400 BOE per day, which is about 3,350 BOE per day lower than our original budget announced in February 2020. This decrease is primarily related to the $80 million reduction in our capital program in response to substantially lower oil prices, which impacted production by approximately 1,200 BLE per day, with a remainder of the impact due to shut-in production, weather, and other events. We continue to focus on optimizing our business to improve operations and actively manage spend. Total operating costs were up a little over $1 per BOE in the second quarter, primarily due to increased work over activity as we returned economic wells to production and repaired routine well failures. Speaking of well failures, we're on track this year to see a 20% reduction in rod failures as compared to 2019 due to improvements in our rod pump operations. Our overall CO2 purchase was lower during the third quarter, primarily due to downtime at one of our Gulf Coast industrial CO2 supply sources. Compared to the third quarter of 2019, we have driven operating costs lower as a direct result of our strategic investment in digital transformation technology, along with the organizational realignments to streamline supply chain efforts. Furthermore, the teams are evaluating operating expense decisions as discrete investments, where we evaluate the cost, benefits, and economics. This level of evaluation provides a framework to flex our operating cost structure downward in a low oil price environment while continuing to safely operate our assets. And as prices rise, we can make deliberate decisions to spend in areas that increase overall profitability. In our oyster value field, we completed capital spend and started injection in the A2 development expansion project during the second quarter. This project activated a new pattern in the A2 reservoir with four new producers and three injectors. We also added 30 million cubic feet per day and increased CO2 compression capacity, which not only benefited this new expansion pattern, but also provided increased capacity benefiting full field performance. The first production response in the new pattern at the end of the second quarter, we are now seeing approximately 420 BOE per day from two of the four producers, which is in line with our expectations. There are additional development opportunities in the A1 and A2 reservoirs in Orchard Bayou that we continue to evaluate during our 2021 budgeting process. During 2020, we have continued to progress the sale of our valuable surface land in the Houston area. From July through October 2020, we have closed on $25 million of land sales, and we expect to close an additional $4 million in sales by the end of the year, bringing our aggregate land sales to $49 million over the last three years. We continue to market additional acreage, which we estimate has a future potential value range of between $30 to $50 million. Next, I'll turn it over to Mark for a financial update.

Thank you, David. My comments today will highlight some of the financial items in our release, primarily focusing on the sequential changes from the second quarter of 2020. I'll also provide some forward-looking guidance for the remainder of this year to help you update your financial models post restructuring. Before I begin to review the quarterly highlights, I want to provide a baseline with respect to the significant changes in our financial statements resulting from the company's recent restructuring. Upon emergence from bankruptcy on September 18th, we were required to adopt fresh start accounting, which resulted in a new entity for financial reporting purposes, with our operating results split between pre- and post-emergence periods. Fresh start accounting requires that new fair values be established for the company's assets, liabilities, and equity as of the date of emergence, and therefore certain values and operational results will not be comparable pre- and post-emergence from bankruptcy. The specific valuation approaches and key assumptions used to arrive at the reorganization value, as well as the value of discrete assets and liabilities, are described in greater detail in our Form 10-Q. I will start by discussing the impact of our recent restructuring on our debt profile, which has changed dramatically since last quarter. On the Emergent State, and pursuant to the terms of our plan of reorganization, All remaining obligations under our then outstanding senior secured secondly notes, convertible senior notes, and senior subordinated notes were fully extinguished, relieving the company of approximately $2.1 billion of debt through the issuance of a combination of equity and warrants in the new entity to the holders of that debt. As I will more fully discuss in a moment, in conjunction with the company's reorganization process, we also restructured our pipeline financing arrangements with Genesys, which further reduced our debt. At the emergence date, we entered into a new $575 million senior secured revolving credit facility with no change to the syndicate thanks party to our previous facility. The facility matures in January 2024, and the borrowing base is subject to a semiannual redetermination with our next scheduled redetermination around May 1st, 2021. At September 30th, we had $85 million outstanding under our bank facility and $22 million of cash, giving us liquidity of about $460 million after considering letters of credit under our bank facility. Our total net debt of $154 million at September 30th includes our bank debt and $91 million of pipeline debt associated with our NEJD and Free State CO2 pipelines. Using our 12 months adjusted EBITDAX, which is included in the appendix of this presentation, the company's leverage ratio is less than half a turn at the end of this quarter. Turning to my next slide, I will go into more detail on our recent pipeline debt transactions. In late October 2020, we completed the restructuring of our CO2 pipeline financing arrangements with Genesis, whereby we acquired the NEJD pipeline system in exchange for accelerating repayment of the approximately $70 million balance remaining under the financing lease, which will be paid in four equal payments during 2021. and pursuant to which we also reacquired the Free State Pipeline in exchange for a one-time payment of $22.5 million on October 30th. These transactions reduced our pipeline debt by approximately $25 million in the third quarter. We'll reduce our go-forward interest expense and we'll further enhance our flexibility relative to our pipeline system as we position our business for future CCUS operations. On slide 25, adjusted net income for the combined three-month period ending September 30, 2020, was $20 million, which represents $0.40 per diluted share when applying the $50 million common shares issued upon emergence to the full three-month period. The largest differences between adjusted and gas net income for the combined quarter included $18 million of non-cash expense from fair value changes in commodity derivatives $850 million of net reorganization items, which essentially represents the impact of removing net liabilities and reestablishing new fair values along with certain costs of the restructuring, a $262 million full-cost pool ceiling test write-down at September 18, 2020, before the application of fresh start accounting, $16 million of expenses associated with restructuring, and $15 million of insurance reimbursements related to a 2013 incident at Del High Field. Turning to slide 26, our non-GAAP adjusted cash welcome operations, plus special items, which excludes working capital changes and reorganization items settled in cash, was $68 million for the combined three-month period into September 30, 2020, an increase of $59 million from last quarter, driven primarily by higher realized oil prices. We generated free cash flow of $42 million for the combined third quarter 2020 after considering $4 million of interest that is included as repayment of debt in our financial statements and $22 million of development capital, including capitalized interest. Our third quarter average realized oil price of $43.23 per barrel after hedges was up 25% from our realized price in the second quarter. Slide 27 provides a summary of our oil price differentials, excluding any impact from hedges. I realize oil price averaged $1.64 per barrel below nine next prices in the third quarter, which is an improvement of over $2 per barrel from the second quarter, Although we have seen prices improve from the significant dislocation that took place in the second quarter, we are still seeing weaker than historical differentials, especially across the Gulf Coast production, as refiners across that area have continued to be impacted by lower demand and to some degree downtime due to hurricanes. We currently expect that differentials for the fourth quarter will continue to be weaker within a range of $1.50 to $2 below NYMEX. But over time, we would expect differentials in the Gulf Coast to strengthen as demand and supply balance out. Slide 28 provides a review of certain expense line items. Since David already addressed LOE, I will start with G&A. Our G&A expense was $17 million for the third quarter, a decrease of $7 million from the second quarter, primarily due to the prior quarter including higher-than-normal compensation-related expenses related to modifications of the company's 2020 employee compensation programs. During the second quarter, the company reinstated a bonus program for 2020, which had previously been suspended in the first quarter, resulting in a higher than normal bonus accrual in the second quarter. We expect G&A expense in the fourth quarter of 2020 to be in a similar range to Q3, as we expect a higher level of professional fees and expenses associated with the application of Fresh Start Accounting. Net interest expense was $8 million this quarter, a decrease of $13 million from last quarter due primarily to the reduction in bond debt associated with the Chapter 11 restructuring. On the bottom portion of this slide, there is a detailed breakout of the components of interest expense. The reduction in bond debt and restructuring of our pipeline arrangements with Genesys will result in approximately $170 million of annual cash interest savings. In Q4, our cash interest will include interest on our bank debt and imputed interest of approximately $1 million on the remaining Genesis obligation. On top of that, we will have amortization of bank facility issuance costs of approximately $1 million per quarter. With lower interest charges, we expect our capitalized interest to be in the range of $1 to $2 million in Q4. We recognized a full cost pool ceiling test write-down of $262 million during the predecessor period into September 18, 2020, due to the continued decline in the trailing 12-month oil prices used to establish the full-cost ceiling. As a result of fresh start accounting, oil and gas properties were recorded at fair value as of September 18, 2020, and there was no full-cost pool ceiling test write-down for the successor period ended September 30th. We expect our DD&A expense for the fourth quarter will be in the range of $40 to $45 million. My last slide provides a current summary of our oil price hedges. Since emergence, we have put in place hedges for 2021 and the first half of 22. Additionally, under the terms of our new bank credit facility, we have certain minimum hedging requirements that must be satisfied by the end of this year. And we believe those requirements have been met based on our current hedge portfolio. And now we'll turn it back to John.

Thank you, Mark. That concludes our prepared remarks. Operator, can you please open the call up for questions?

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Charles Mead with Johnson and Rice. You may proceed with your question.

Good morning, Chris, and to your whole team there. And congratulations to you guys for going through what I'm sure was a whole lot of work under an overall really difficult time for all of us. Thank you. I wanted to start with a kind of a big picture question. It's maybe a way to set up some questions down the roads. Can you tell us, as you look at your – you guys have all this newfound financial flexibility, and can you tell us what the priority stack is for your use of cash or for your CapEx spending? And perhaps related to that, can you give us a sense of what your – your balance sheet or financial policy is going to be with respect to leverage, return of cash to shareholders versus growth opportunities, that sort of thing?

Sure, Charles. And this is Chris. And I'll take the first part of that question. Then I'm going to pass it over to Mark and have him address your questions about use of capital. When I think about the priorities for this company, certainly we want to start with just continuing to build this great foundation of safety and operational excellence that David and the team have done such a super job of building over the last several years, and it really put us where we are. And to me, I think that's our license to operate. Beyond that, certainly you mentioned the flexibility that we have, and we want to maintain and protect the balance sheet that we've been given through this process. We will stay focused on that through everything that we do. We do want to build scale in ways that make sense for Denbury. So we see a lot of things happening in the industry where folks are building scale. And we want to look at that in ways that keep the Denbury story whole. And so that's something that we'll continue to look at. as we go forward, Charles. I'd still say we want to progress the CCAEOR project. That's one that we'd like to get in the ground next year, and we'll look at market conditions and make a decision on that. Then, of course, position ourselves for leadership in CCUS, which we believe is just a fantastic and highly complimentary opportunity for what Denver will be able to do here. Those are the high-level priorities, and I'll turn it over to Mark to finish this off.

Sure. Charles, just in terms of leverage, you know, I guess – You see most of the industry these days kind of targeting about one times the average ratio and sometimes, you know, one to two and sometimes less than one. And so today we're obviously less than one, less than half a turn, and we think that's a great place to be. And we want to continue to maintain a strong balance sheet, but, you know, we do have some flexibility there. But likely staying below one is something we desire to do. I would say in terms of returning capital and other priorities, I think we still have some discussions and things to sort out with the new board and in terms of longer term you know, when those things will emerge. I would say, you know, we do have an asset profile. We continue to believe we have an asset profile that can, you know, generate free cash. And so it will be important to consider the priorities in terms of returning the shareholder, whether, you know, dividends or what. We do have some restrictions under our bank facility here for at least the first year and even going forward. just in terms of any returns have to be out of free cash. But we're well positioned. I guess the last thing I would say, we have been really limiting our capital spending on the business. You know, spending $100 million this year, that's obviously less than what it takes to hold production flat. And we want to, you know, we need to think about more investment in the business and that consistent cash flow generation down the road. So all those things will be taken into consideration as we, you know, look at 2021 and evaluate our go-forward profile. But something that we... We desire to share more about that at the point where we have more clarification and more certainty on the plans ahead.

Thank you for that detail, Mark, and Chris also. And then if I could just push a little bit further, Chris, on your comments about CCA being a priority and then the CCUS being the priority as well. In this question, perhaps we could Maybe it revolves around time frame. My sense is that you guys obviously have this great incumbent position in CCUS on the Gulf Coast, but my sense is that the CapEx call, to the extent there is a CapEx call on Denbury to expand that business is probably still at least a couple of years down the road or maybe more, whereas the CCA project, obviously, I think is a nearer term, could be a nearer term spend, but there's a question about how attractive is it at $40 WTI. So is that, can you talk about how you're looking at those two relative priorities and if that characterization of the timing of them fits with the way you look at it?

Sure, Charles, and you nailed the timing aspect. What I'd say about the CCUS side that I think is interesting to point out is just that the capital heavy portion of that, as far as Denver is concerned, has already been spent over the past years when we put in this great system that I spoke about a few minutes ago. So a lot of CapEx went into that, but that system exists, it's in operation, it's proven, and it's in the right place. So we're excited about that. When we do think about when incremental capital will be needed, to me it's in that timeframe. Just as you mentioned, these projects that we're aware of are going to start coming to fruition to where they'd actually be capturing CO2, say, in the late 2022, 23 and onward timeframe. So, any additional capital needed to tie all that together would be in that timeframe that you mentioned. So, you're right on with that. But I do see that capital as being significantly less than what Denver has invested historically to build the system in the Gulf Coast. When I think about CCA, you're right on the mark there. For us, it's a project that's attractive in the mid-40s oil price range, and we believe that that oil price is not unreasonable in the future here. We're not seeing it today, but I think going forward, it's not unreasonable. And so we would like to continue to progress this project for a couple reasons. One is that the initial phase of the project, which does have the heavier spend, as you mentioned, bears the full burden of the CO2 pipeline that brings CO2 up to that great set of fields. And so what we see beyond this first step There's a number of additional expansion opportunities all along the structure here that will have very attractive economics as they're essentially bolt-ons to the project that we'll start with. So we're excited about that. We also are very flexible on the implementation of this project. The installation season for the pipeline is the second half of the year, the July through December timeframe. So that's a decision on capital that we can actually – defer until late first quarter, early second quarter of next year, when hopefully we have a clearer picture on how the market is shaping up, just having gone through the rough patch of this year and and hopefully we'll see something more clear as we get into next year that's how we think about that and that's a project that we can put in the ground next year and if needed we can we can push it further but just uh also for the reasons you mentioned i think uh sooner would be better than later i hope that helps charles that that is they're they're big uh big open questions and i appreciate you guys adding that uh adding all that detail you bet

Our next question comes from the line of Richard Tellis with Capital One Securities. You may proceed with your question.

Thanks. Good morning, Chris and Mark. Good morning. Continuing with the CCUS theme, obviously big, important, a lot of potential. How do you see the process potentially working Do you need to wait, as a company, need to wait on the actual carbon-producing facility operators to initiate the process, I guess particularly the tax credit process, or are there actions that Denberry can take to kind of move the process along?

That's a good question, Richard, and I have a couple thoughts on it. First, we're currently taking industrial CO2 from a couple of different customers on the Gulf Coast, so there's an element of it that's already in place. I do see for the level of growth that we expect to come that it will need to be supported by clarity on the 45Q policy. That's what I believe many of these companies that are looking to invest in the capture equipment will need. Although I would say on top of that, there is public and investor pressure on these companies to capture emissions in any case. So I think that there's an element that's outside of 45Q But I do see that as something that is going to be needed to really push this into high gear and have these additional projects start to become developed. You know, when we look, Richard, at just the volumes that are possible on the Gulf Coast, we think about how much CO2 is captured in the U.S. right now, which is about 25 million tons annually across the country. I mentioned 140 million tons that are emitted along this corridor, and we think a good percentage of that could be captured here in the coming years. We just think it's a great opportunity, but I do think that a key lever will be the clarity on 45Q and the applicability of 45Q. And the good news there is I think we're close. With the government in transition right now, there's been a pause in Washington, as you'd expect. But 45Q, as you know, has received great bipartisan support because it just fits so many needs for the country in so many ways on either side of the aisle. So I firmly expect that once we get into next year that that clarity will – come to fruition here and we'll see these projects proceed. Okay. Now that's helpful.

And I guess just as a follow-up question, you talked a little bit about looking over time to expand operations. Could you maybe speak a little bit about what you might look for in M&A deals going forward? What sort of deals might fit the profile that would interest Denberry given its current situation? Sure.

And I'll tell you, at face value, I don't think that Denberry needs to jump out and do something just to get bigger. I think it's much more important that it makes sense for the profile of the company We have a unique profile with the low carbon footprint of our oil production and the great potential with CCUS that we want to make sure that we stay true to. And there are ways that that can happen, I believe, but I think it's going to be a lens that we're going to look at any potential acquisition through to just make sure that that makes sense for us. There's just not another Denberry out there, and we love that, but it makes your question a little bit more complicated. Okay. Okay. Very good.

I appreciate the discussion. All right. Thank you, Richard.

Ladies and gentlemen, we have reached the end of today's question and answer session. This concludes today's conference. The replay of this conference can be accessed through the company's website for approximately one month from today. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.