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.