Denbury Inc.

Greetings, and welcome to the Denberry Resources fourth quarter 2020 results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Meyer, Director of Investor Relations. Thank you, sir. You may begin.

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 Shepard, 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 the 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 today's news 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 today's news 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. While we are focused on 2021 and the great opportunities that lie ahead, I've spent some time reflecting on 2020 and the massive worldwide disruption caused by the pandemic, including the impact on our employees. As we conduct this call, it has been nearly a year since the onset of the pandemic, and I am incredibly proud of the dedication and resilience of our employees as they faced and conquered the challenges of 2020, all the while being concerned about the health and safety of their loved ones. Most of our corporate office staff has been working from home since the beginning of the pandemic, adapting to the challenges of interacting and collaborating in a different and unexpected manner, with business results demonstrating we did not miss a beat. Our field personnel have continued performing their daily jobs that are vital to the nation's energy supply in a safe and efficient manner, and our employees and contractors were safer than ever as we set another record low incident rate in 2020. Through disciplined good health practices, COVID has had a relatively low impact on our workforce, with very few severe cases, and I'm deeply grateful that no employees have been lost to the disease. Even as vaccinations are rapidly rolling out across the country, we all understand that we must remain diligent and disciplined. However, I'm increasingly confident that the worst of this is behind us. 2021 is going to be a great year for Denbury, But the challenges faced in 2020 and the incredible demonstration of resilience from our employees managing through and conquering those challenges is worth recognizing and reflecting on as we move forward. Again, I thank our employees for their dedication and commitment through a very difficult time. Turning to slide five, I'm excited to announce today that we'll be moving forward with our strategic Cedar Creek Anticline CO2 EOR project in 2021. putting us on track to begin CO2 injection in the first half of next year as we bring this massive oil field into a new phase of its life, one with a negative carbon footprint. I'll touch on this project more a bit later in my comments. In our last quarter's call, I said that I did not believe there was another company in the E&P industry as well positioned as Denberry for continued relevance through the energy transition, and my belief has only grown over the last quarter. With focus and optimism growing on CCUS, we thought hard about what the scarce resource might be in this new industry. I am increasingly convinced that the scarce resource is on the downstream side of the business, the ability to provide a high-capacity, highly reliable, flexible CO2 transportation and injection system with significant scale and expandability. Our Gulf Coast CO2 infrastructure provides just that. We move 10 million tons of CO2 through this 925-mile system annually and have a quarter million tons of CO2 in the system at any point in time. We deliver 1 million tons to industrial customers, and 9 million tons is injected annually into 10 different EOR fields. Also, we receive 1 million tons each year captured from industrial sources. The system has significant available capacity for additional captured CO2 and is incredibly expandable, whether that be through adding horsepower, looping within our right-of-way, or varying the flow direction at different locations in the system. We are very proud of the integrated system we have built and operated safely over many years, and we think it is an essential and ideally located resource to facilitate the growth that is needed in CCUS. I see the opportunity set in front of us expanding significantly with continued emphasis on reducing atmospheric CO2 emissions and an increasing realization that CCUS will be a key element in achieving CO2 reducing objectives. We are convinced that Denbury has the right focus, the right infrastructure, and the right expertise to play a central role in the CCUS industry. CO2 EOR is a key component of CCUS. For Denbury's EOR fields, we inject more CO2 into the ground to recover oil than the production of that oil will ever emit, even when including emissions related to the combustion of the finished oil products. When we use captured industrial source CO2 for EOR, the carbon footprint of the oil produced is significantly negative. We have termed this carbon negative oil blue oil, similar to how hydrogen generated through a reforming process that captures and stores CO2 emissions is called blue hydrogen. We believe that blue oil will ultimately be a much sought after commodity that should receive premium pricing as it helps the end user lower their own carbon footprint. Today, around 20% of our total production is blue oil, and we expect that proportion to increase over time on our path toward completely offsetting our scope three emissions by the end of this decade. Looking at slide eight, I'm very pleased with our results for the quarter and the full year. Most importantly, we set yet another record for safety performance. We kept our employees and contractors safer than ever before a particularly remarkable achievement considering the challenges we faced in 2020. We announced an acquisition of two EOR fields in Wyoming that will continue to strengthen our business in this region, while also improving our already low carbon footprint. Our agreements to reacquire the NEJD and Free State CO2 pipelines, reduce debt and simplify our operations, particularly important as we consider the utility of this expansive CO2 transmission system to a growing CCUS industry. Our operations team drove costs and spending lower in a tough commodity environment, taking both LOE and capital to low levels. Our cash costs remain low at $27.45 per BOE, resulting in a 36% cash operating margin and highlighting our ability to generate free cash even in a low oil price environment. David will go into detail on our 2021 capital budget and production guidance, but I'd like to highlight our projections for our 2021 cash flow relative to our planned capital budget. At a $55 WTI price, we expect cash flow of between $260 and $300 million, more than sufficient to cover our anticipated capital for the year. I'd also point out that the 100 million CCA CO2 pipeline investment in 2021 is a one-time item that positions the company for many years of strong free cash flow at a long-term $50 oil price as our anticipated capital levels in the subsequent years are substantially lower. Turning to slide 10, we plan for 2021 to be the key year in CCA's EOR development. With all of the critical permits in hand and all of the pipe purchased and onsite, we expect to begin laying the 16-inch CCA CO2 pipeline from Bell Creek beginning around mid-year and further expect to begin injecting CO2 into the field in the first half of next year with first EOR production expected in the second half of 2023. We'll spend about $100 million this year on the pipeline and another $50 million on field development. We believe that we can ultimately recover over 400 million barrels of oil over all phases of this project, and because we will exclusively use industrial source CO2, the project is fully carbon negative, which I'll talk more about when reviewing the next slide. The bar chart on the lower left of this slide shows the CO2 balance of the first two phases of the project. This project is carbon negative on a scope three basis, injecting about 85 million tons of industrial source CO2 over the first two phases. We expect the impact on field production to be significant, with a peak rate from phase one adding about 10,000 barrels per day on top of the existing water flood. That wraps up my prepared remarks, and I'll turn the call over to David for an operations update.