Denbury Inc.

Welcome to Denver's first quarter 2021 results conference call. My name is Shamali, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. To ask a question at that time, please press star 1. I would now like to turn the conference call over to your host for today's call, Brad Widmarsh, Head of Investor Relations. Please proceed, sir.

Good morning, everyone, and thank you for joining us today. I hope you've had a chance to review our earnings release and presentation materials that we released this morning. They're available on our website at denberry.com, and we may reference certain slides as we make our prepared remarks. This morning we will hear from Chris Kendall, President and Chief Executive Officer, Mark Allen, Executive Vice President and Chief Financial Officer, and David Shepherd, Senior Vice President of Operations. Matt Dahan, Senior Vice President of Business Development and Technology, and Nick Wood, Senior Vice President and Head of Denberry Carbon Solutions, are joining us for the live Q&A session. I want to remind everyone that today's call will include forward-looking statements that are based on our best and most reasonable information. 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 disclosures on forward-looking statements and the risk factors associated with our business in the slides accompanying today's earnings presentation, our most recent SEC filings, and today's news release. 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 and presentation as well. With that, I'll turn the call over to Chris.

Thanks, Brad, and welcome to the team. Good morning, everyone, and thank you for joining us on today's call. I hope you, your families, and your colleagues are all well. I want to begin by saying thanks to all of our employees, contractors, and vendors for their hard work to kick off 2021. In the midst of continuing to recover from a global pandemic, we also experienced a significant winter weather event in the first quarter in Texas. Despite all of the challenges, the team's sustained effort and focus has delivered strong results, including continued improvements in our record levels of safety performance, and I'm highly encouraged with our overall start to the year. Mark and David will summarize the first quarter results shortly, but I wanted to mention a few key accomplishments. First, Denberry's underlying base performance, enhanced by an improving commodity price environment, delivered strong financial and operating results, including significant free cash flow. Second, we are moving forward with the Cedar Creek Anticline EOR development project, with the installation of the GreenCore CO2 pipeline extension scheduled to begin in the coming weeks. We expect that this multi-phase development will provide significant long-term free cash flow for the business. Third, We closed on the acquisition of our Wind River Basin EOR assets, a transaction that looked robust at fourth quarter oil prices when we announced the deal and has only improved over time. Our teams have done a great job of rapidly integrating these assets into Denberry's business. Finally, we made a great addition to our board through the appointment of Cindy Yielding, Cindy is well known for her leadership of the working team of over 300 global experts from a range of industries, government, academia, and NGOs that created the National Petroleum Council's important 2019 CCUS report. In last quarter's call, I made the comment 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 is only growing stronger. I'm very encouraged to see that carbon capture use and storage is now being broadly embraced as a practical and impactful method for reducing atmospheric CO2 emissions. As an example, the IEA projects that CCUS will be behind only wind and solar as a means of reducing CO2 emissions through 2040, accounting for about 11 billion tons of reduced emissions over that period. While current global capture is only 40 million tons per year, the IEA's sustainable development scenario states that to meet the targets set forth in the Paris Climate Agreement, by the end of this decade, we will need to increase global CCUS capacity by 20 times and by 140 times by 2050. Putting the magnitude of that projection in perspective, by 2050, the liquid volume of CO2 being captured on a daily basis is about the same as today's worldwide oil production. That should provide you with a good sense of the size and scale of what this industry can become. Many countries are taking aggressive measures to further incentivize CCUS projects. In the U.S., the recent finalization of the enhanced and expanded 45Q tax credit has opened the door for significant progress in CCUS, which should be the first of many steps that will cement the position of the United States as a global CCUS leader. In light of this huge market opportunity, over a year ago, we formed the Denbury Carbon Solutions Team to identify and secure opportunities for Denbury to build on the advantage of our unique assets and CCUS experience. The Denbury Carbon Solutions Team includes business development, technical, project management, commercial, and government relations experts. Last month, we announced dedicated executive leadership for Denbury Carbon Solutions, with Nick Wood, promoted as Senior Vice President, leading this team and reporting directly to me. Nick has been a high-impact, value-creating leader in our organization for a number of years, most recently heading our Rocky Mountain business unit, which today utilizes 100% captured industrial source CO2. I am thrilled to have Nick lead this team. He brings great energy, technical expertise, and the leadership capabilities needed to make Denbury the industry's leading carbon solutions provider. In a strategy review session earlier this year with our board, we identified five key strategic priorities for Denbury Carbon Solutions to accelerate the expansion of our CCUS business. First, generate new cash flow streams through agreements with existing and new-build industrial emitters for the transport and storage of captured CO2. Second, add significant permanent CO2 storage capacity through development of a geographically diverse portfolio of subsurface storage sites providing scale, reliability, and flexibility. Third, Increase our proportion of carbon-negative blue oil production by seeking to replace the use of naturally sourced CO2 in the company's EOR operations with captured industrial sourced CO2. Fourth, evaluate and prepare for a capital-efficient expansion of up to two to three times the company's existing green pipeline capacity to meet expected rapid growth in demand. And finally, pursue strategic partnerships along the entire CCUS value chain. I previously shared my belief that the scarce resource in the CCUS industry is on the downstream side of the business, that being the ability to provide a high-capacity, highly reliable, flexible CO2 transportation and storage system with significant scale and expandability. Our Gulf Coast system provides exactly that. Denver has the only significant CO2 infrastructure in the Gulf Coast today, and through our EOR operations, we are the only company of scale in the Gulf Coast that is actively engaged in CCUS. Slide 9 in our presentation materials shows an emissions heat map across the U.S. You can see where our 925-mile Gulf Coast CO2 pipeline system runs through the heart of the Gulf Coast Industrial Corridor, which is an area with very high CO2 emissions. In fact, nearly 10% of the US total of 2.6 billion tons per year in stationary emissions originates within 30 miles of our Gulf Coast system. The Green Pipeline alone has the capacity to transport over 16 million metric tons per year of CO2 over a span of 320 miles with about 75% current open capacity. Today, we are in specific discussions with multiple parties for the transportation and storage of captured CO2, representing volumes well in excess of our current capacity on this system. Considering this potential demand, we believe a significant expansion in capacity will be needed. Our CO2 pipeline team is studying an expansion of the green pipeline from 16 million tons to upwards of 30 to even 50 million tons per year. We believe that capacity is achievable and can be staged over time to align with demand through a combination of adding pump stations, looping within our right-of-way, and optimizing the locations and quantity of storage sites. Our NEJD pipeline, which runs north from the east end of the green pipeline all the way to Jackson Dome in Mississippi, provides 11 million tons per year of incremental capacity beyond this potential amount. We believe that access to long-term non-EOR CO2 storage, such as in saline aquifers, is also needed, and we are in discussions to secure agreements for non-EOR storage in multiple locations representing the potential for several hundred million tons of storage along our Gulf Coast infrastructure footprint. These sites would enhance the flexibility and scale of our storage solution. We've previously communicated that we hope to finalize arrangements this year for both storage and for transport of new captured emissions. Progress is moving forward, and I expect that we will be able to announce initial agreements before year end. I'd like to share how we see EOR in Denver's future. CO2 EOR is a fundamental component of CCUS that today provides the only immediate means of storing significant volumes of CO2. Essentially, all of the CO2 injected remains permanently underground. The skills and assets developed for EOR are complementary to the entire CCUS space. Also, where we use industrial source CO2 in Denver'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 Scope 3 emissions. This carbon negative oil, or blue oil, should become a much sought after commodity that we believe should eventually receive premium pricing as it helps the end user lower their own carbon footprint. Today, around 25% of our total production is blue oil, and we expect that proportion to increase over time on our path to completely offsetting our scope three emissions by the end of this decade. Even as we seek to significantly expand our CCUS business beyond EOR, I believe that EOR will continue to be an important piece of Denbury's business for many years to come. Wrapping up, I've challenged the Denbury Carbon Solutions team to be aggressive in building our business. We have the right strategy, the right assets, and the right people, and now is the time to execute. Mark, I'll now turn it over to you for our financial update.