Denbury Inc.

Good day, ladies and gentlemen, and welcome to Denberry's second quarter 2021 results conference call. My name is Darrell and I will be your 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 one on your telephone keypad. I would now like to turn the conference call over to your host for today's call, Brad Whitmarsh, head of investor relations. You may begin.

Good morning, everyone. and thank you for joining us today. I hope you've had a chance to review our earnings release and supporting materials that we released this morning. They're available on our website at denbury.com, and we may reference certain slides as we make our prepared comments. 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 presentation, our most recent SEC filings, and today's news release. Also, please note that during the course of today's call, we may reference certain non-GAAP measures. Reconciliation and disclosure relative to these measures is provided in today's news release and supplement as well. With that, I'll turn the call over to Chris.

Thanks, Brad. Good morning, everyone, and thank you for joining us on today's call. I will start off with an overview of our business and will then be followed by Mark, who will review our second quarter results and provide an update on our outlook for the remainder of the year. I'm excited to have Nick Wood, our Denbury Carbon Solutions leader, on the call today to provide an update on the great progress we're making in that business. David Shepherd, our SVP of Operations, and Matt Dahan, our SVP of Business Development and Technology, are here as well for the Q&A portion of the call. I want to begin my comments by wishing you all well and hoping that you and your families are healthy. I also want to say thanks to all of the Denbury employees, contractors, and vendors for your hard work this year. You have kept an intense focus on safety. and through your efforts, the company remains on track for another year of record performance. While Nick will provide a more detailed update on our CCUS business, I would like to provide a few thoughts on CCUS and Denbury's role in this exciting industry. My confidence in the opportunity we have in CCUS has only grown as the year has progressed. CCUS is recognized as being second only to wind and solar in its capacity to mitigate carbon emissions. CCUS utilizes technology that exists today. It can be massively scaled, and it is particularly important for mitigating industrial emissions. Recent projections show that CCUS needs to increase nearly 200-fold by 2050 to meet global emissions reduction targets. The potential of CCUS is widely recognized in Congress as well. With bipartisan support, Most of the legislation I see working today is targeted to improve the incentives for increased captured industrial CO2 volumes. We are at a very exciting time in this industry, and Denbury is extremely well positioned to play a key role. I'm frequently asked how I see the future role of EOR in CCUS. Over time, I believe that the majority of captured CO2 will be sequestered outside of EOR primarily because the volume of captured industrial CO2 is likely to be far greater than what can be injected into EOR fields. As an example, while the CO2 volume that can be injected into Denver's EOR fields is a big number, estimated at more than 160 million tons, the non-EOR storage volume that we are evaluating for potential sequestration sites along our infrastructure is more than 1 billion tons. That being said, EOR will be a critical element to the successful development of the CCUS industry in the US, especially in these early innings. First and foremost, EOR is the only pathway today for CCUS projects to be sanctioned with CO2 offtake certainty under existing leases, permits, and regulations. I am confident the approval timeframe for class six permitting for sequestration will shorten over time. and we are working to provide flexibility in our offtake agreements that provides for both EOR and non-EOR sequestration. This flexibility gives our partners and customers the confidence to sanction capture projects in the near term while providing them with the option to ultimately transition to non-EOR sequestration. In our EOR operations, we are injecting more CO2 to produce each barrel of oil than that barrel's combined Scope 1, 2, and 3 emissions. These barrels are carbon negative when we utilize industrial source CO2, and I believe that this blue oil, a term that we use to describe our carbon negative oil, will be an important energy transition fuel. In the second quarter, blue oil accounted for 26% of our total oil production. To help position us to pursue premium pricing and other potential credits for this unique resource, we recently initiated a project with a third party expert to verify the carbon intensity of this blue oil. Our expertise in managing CO2 for 20 plus years positions Denberry to be a leader in CCUS. Through our extensive CO2 EOR recycling and injection operations, we currently process close to 70 million metric tons of CO2 annually. nearly three times the amount of CO2 captured each year in the U.S. I continue to believe that there is not another company in this space as well positioned as Denberry for continued and sustained relevance through the energy transition. Next, I'll highlight a few year-to-date accomplishments and our focus for the remainder of the year. First, on the CCUS business, We are on track to reach and announce deals for transportation and storage as well as for sequestration sites by the end of the year. You'll hear more color from Nick in a moment, but the number of agreement drafts crossing my desk makes me incredibly excited about how these negotiations are progressing, and they will highlight both the value and scale of this significant growth opportunity for our company. We're generating strong cash flow through our solid operational execution, which was enhanced by an improved commodity price environment in the second quarter. Our teams have done a great job executing recent projects at Oyster Bayou in Tinsley, which will benefit production in the second half of the year and into next year. Third, we're making great progress on our flagship CCA development project. This project, with a total EOR recovery potential of over 400 million barrels, is more than two times Denbury's total current-approved reserves. I expect that the immense CCA resource will generate decades of strong cash flow for our business, and our use of industrial source CO2 means that all the production from this development will be carbon-negative blue oil. Installation of the 105-mile Green Corps CO2 pipeline extension is progressing as planned and on budget, with completion expected late in the fourth quarter, positioning us for first CO2 injection in the first half of next year. Finally, we expect to have our 2019 and 2020 sustainability report out by the end of the quarter. I encourage you to read through the report when available to learn more about what differentiates Denberry as a unique ESG story within the industry.

Mark, I'll now turn it over to you. Thanks, Chris, and good morning, everyone. Today, I'll provide a review of Denberry's results for the quarter and comment on our outlook for the remainder of the year. As Chris mentioned, we've had a very strong start to 2021, with great operational execution assisted by the improvement in oil prices. After adjusting for the impact of fair value changes, primarily the market-to-market changes in commodity derivatives, our adjusted net income for the quarter was $33 million, or $0.61 per diluted share, as compared to a gap net loss of of $78 million, or $1.52 per diluted share. Our fully diluted share count used for computing adjusted earnings per share for the quarter totaled 54.3 million shares. This ended up higher than we guided previously due to the increase in our share price during the second quarter. The dilutive impact of our Series A and B warrants, which have exercised prices in the low to mid-30s, will vary with changes in our share price. For now, I would recommend that you use a diluted share count in the $54 to $56 million range for the second half of the year. Operating cash flow adjusted for working capital changes was $71 million for the quarter, well in excess of our $54 million of development capital incurred in the second quarter. Approximately one-third of our capital spend this quarter was related to the CCA EUR development and the associated Green Core CO2 pipeline extension, with remaining capital related to various development projects including the Oyster Bayou and Tinsley projects. Production volumes averaged 49,133 barrels of oil equivalent per day, up 4% from the first quarter, primarily due to a full quarter's contribution from the Wind River Basin assets acquired in early March this year and the winter storms that reduced first quarter production. Production was slightly behind expectations in the second quarter due to unplanned downtime at Conroe Field, and a slower than expected production response in Phase 6 at Bell Creek Field. Phase 6 is now progressing nicely and is currently at or above expected levels, and Conroe is producing at its highest rates this year. Revenues and other income were up $15 million, or 20% from the first quarter, supported by strong oil price realizations and higher production volumes. Our pre-hedge realized oil price improved to $64.70 per barrel compared to just over $56 per barrel last quarter. In the second quarter, we paid out $63 million on our oil price hedges, resulting in a post-hedge realized oil price of $50 per barrel compared to $47 per barrel last quarter. As you are likely aware, in connection with our new credit facility in September of last year, We were required by our banks to have certain hedges in place for 2021 and the first half of 2022, which has made a significant impact on our cash flow at today's old price. We do not have ongoing hedging requirements under our credit facility, and the additional hedges we have entered into are more favorable and provide upside price participation. Lease operating expenses for the quarter totaled $110 million, or $24.65 per BOE, This was in line with our expectations in about $13 million higher than the first quarter after considering the non-recurring $15 million benefit to LOE last quarter as a result of power disruption during the winter storm URI. Around 40% of the $13 million increase in LOE was due to a full quarter's expense from the Wind River Basin acquisition in March, with remainers split between higher CO2 costs and workover costs. The increase in CO2 costs is due to both higher CO2 injection volumes, as winter storms in the first quarter cause injection curtailment at some fields, and the impact of higher oil prices. As we get into the warmer months, the level of workover activity typically increases, resulting in higher workover costs. Even with the sequential increase in LOE, our pre-hedge cash operating margin increased over $28 per BOE, an uplift of 10% from the first quarter. Our strong operating cash flow, together with the $18 million of cash proceeds from the undeveloped acreage sale at Herzog Drawfield, further strengthened the company's balance sheet in the second quarter. At June 30, our total debt was $69 million, down 45% from the prior quarter. Financial liquidity at the end of the second quarter increased to $531 million, including cash on hand and available credit facility bonds. Now we'll make a few additional comments on our outlook for the remainder of the year. We are expecting production in the second half of the year to average around 50,000 barrels of oil equivalent per day, with fourth quarter production expected to be slightly higher than the third quarter. Volumes are expected to increase from a variety of projects, including Bell Creek Phase VI, as well as our Oyster Bayou and Tinsley projects. For the second half of the year, we expect oil differentials to widen out to an average of $1.50 to $2 below WTI, driven primarily by our Gulf Coast pricing, which has been weaker relative to WTI, correlating with the recent tightening of the Brent WTI price spread. On the capital front, through mid-year, we have incurred $74 million of our $250 to $270 million development budget. Consistent with our plan, we expect capital to increase significantly in the second half of the year, with the third and fourth quarters being relatively equal. As a reminder, approximately 60% of our development budget relates to the CCA EOR project and associated green course CO2 pipeline extension, which is primarily second half spent. Our LOE guidance remains in the range of $22 to $24 per BOE for 2021, although we currently expect to be in the upper half of that range for the full year based on anticipated activity levels and higher commodity prices. At today's oil price, we have many work over projects with great economics. We expect the third quarter LOE to be somewhat higher than the fourth quarter, but the third quarter including more work over and preventative maintenance projects. Our depletion, depreciation and amortization expense came in lower than projected as our oil reserves increased with the improvement in the trailing 12 month oil price. For the remainder of the year, we expect our DDA expense to be in the range of 37 million to 42 million per quarter. All other cost items are expected to be relatively consistent with second quarter levels going forward. We have an exceptionally strong balance sheet and plenty of available liquidity. This is an attractive place to be as we anticipate the massive growth potential ahead of us with CCUS, including pipeline capacity expansion, CO2 storage development, and the potential for various other opportunities to create even more value in CCUS. I'll now hand it off to Nick for an update on the CCUS business. Nick?

Thanks, Mark. It's great to be on the call today to share some of our team's exciting progress. Over the past quarter, we have been intensely focused on five strategic priorities that we believe will drive tremendous value for DenBerry. I'll spend most of my time today on two of them. First, negotiating transportation and storage service agreements with CO2 emitters. And second, securing sequestration sites along our infrastructure. We have made significant progress on both fronts and are advancing negotiations with multiple parties. I'm confident we will be able to share information about several of these deals by the end of the year, if not sooner. Chris mentioned the potential for Congress to improve the incentives for carbon capture, and we see the potential capture volumes massively expanding with higher 45Q credits currently being contemplated by many in Congress. Having said that, looking at the scale and pace of our discussions with both current and future emitters, I believe there is an incredible amount of capture that will take place at the current 45Q levels, primarily for lower cost of capture processes like ammonia, hydrogen, ethanol, biofuels, and natural gas processing. Many of our potential customers will receive premium pricing or other credits on the products they produce while capturing emissions. We also see significant motivations beyond economics. For some, carbon capture is a necessity to continue to operate. following through on commitments they have made to significantly reduce their carbon footprint. To provide some color on our discussions, we are currently engaged in negotiations with more than 15 different CO2 emitters, representing captured CO2 volumes potentially exceeding 50 million tons per year. These deals are going to be long-term in nature, generally in the 15 to 20-year range. Some of these parties will be installing capture equipment on existing operations, while others are planning greenfield projects with carbon capture. On the existing facility side, our system provides security of takeaway and immediacy to the customer. We have capability to take emissions as soon as the customer is ready. This is a clear benefit of having significant EOR presence today, where EOR is the only existing storage operation of any scale. And when I think about new build facilities, I see Denver as the optimal solution. where customers can select a plant location with easy access to our existing pipeline system and the ability to get their end products to key markets. In both cases, DenBerry provides security, reliability, and diversity in takeaway, along with the expertise in managing and storing CO2. With our combination of assets, skill sets, and experience, we believe that we are an ideal strategic partner. We see this advantage opening the door to opportunities to participate in some projects beyond our core transport and storage services, potentially gaining exposure to the significant value that low-carbon products can generate in the market. On the sequestration side, I see an abundance of opportunity. We are focused on building a portfolio of storage sites in close proximity to our infrastructure, thus providing necessary scale, certainty of storage, reliability, and diversity to our customers. Our extensive pipeline system will provide multiple storage options while allowing us to optimize the capacity and efficiency of our network. Meanwhile, our team continues to plan for a substantial pipeline expansion in the Gulf Coast with the goal to ensure that we can match takeaway with future market demand. We are currently engaged in discussions and negotiations on over 15 sequestration sites representing total estimated CO2 storage volumes of more than 1 billion tons. And combined with over 160 million tons of potential storage in our UR fields, I am highly confident that we will have a significant level of storage to provide our customers. Wrapping up, I'd like to emphasize what an amazing opportunity I think CCUS is for Denberry. We started from an ideal place with great assets and deep experience in handling, injecting, and monitoring CO2 undergrounds. We can build from that ideal start and be great partners with industry in creating win-win solutions to help emitters safely and reliably reduce their emissions. I'm confident that Denberry Carbon Solutions will grow significantly in the coming years, creating substantial value for our shareholders. Operator, we'd now like to open the call for questions.

Thank you. We will now be conducting the 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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first question has come from the line of Leo Mariani with KeyBank. Please proceed with your questions.

Hey, guys. As expected, I can move around Corbin Capture here. I just wanted to kind of get a sense, and it sounds like you have a lot of irons in the fire, sensing a lot of confidence on getting things, you know, announced here. Just any indications of kind of sizes on some of these potential deals for transport? Are we talking kind of at least a couple million tons per annum in terms of what you think is? It's kind of the right size deal for you folks. And could you generally just talk to whether or not a lot of the customers are buying off on the idea of taking the CO2, inject it into EOR for a few years and waiting kind of for some of these new sequestration sites to get fully permitted and operational. That's something that, you know, you think all the customers you're talking to are buying off on. And can you just talk a little bit to kind of the timeline of how that would play out in terms of if you were to sign some deals, you know, say later this year, when would you expect to get to, you know, first transport, you know, CO2, and then when do you think you could transition those volumes eventually away from EOR and into more permanent sequestration?

You bet, Leo. And I'm going to ask Mick to answer the specifics of that set of questions you asked. I would say your perception is exactly right on just how we're feeling about this and the progression that we're seeing with the agreements. Definitely excited about it. Ask Mick to share a bit on his thoughts on your specific questions. Sure. Hi, Leo. This is Nick. So thanks for the question. In terms of the CO2 emitters, there's a wide variety of CO2 emissions from each site, but generally the volumes are ranging from about 1 to 5 million tons per year. When it comes to different sites wanting to go to EOR first or move directly into sequestration, pure sequestration, I would say generally the different sites are open to going to EOR first. And what we see is a lot of groups will have to have a high amount of capital to invest early on. And to get to that final investment decision, it's very good to have this EOR option to bring in early in. When it comes to the timing on moving into our sequestration sites, we look for about a two or three year timeframe to get to the actual injection into a pure sequestration. And that's generally based on the technical evaluations that will need to be taking place early. Even though we've spent a lot of time going through these sites, evaluating the confidence in our containment in each one of these sites, we want to take some additional steps as we acquire these sites to further verify that containment is very solid. And so we look forward to doing that in parallel with getting the Class 6 permits, which will then lead to us being able to inject in these sites in about two or three years. I hope that answered the questions.

No, that was, you know, good color, you know, for sure. And then maybe could you just talk a little bit to the competitive landscape of what you're seeing in terms of these, you know, 15 various parties that you're sort of talking to? You know, I guess really just both on the, you know, competition for permanent storage sites as well as, you know, the deals that you're, you know, in discussions on kind of, you know, transporting storage. Do you get a sense that these parties are talking to a lot of different players, or are folks really starting to hone in more on Denberry as the right partner of choice, just given the obvious infrastructure advantages and the wealth of experience with CO2?

Yeah, Leo, this is Chris. I'll take that one. And certainly you're right about a level of interest, and I would say that there is – There's plenty of competition out there, although the competition is different in nature just as you described there. A lot of interest. I'll tell you, I take it as a positive, just the view of the magnitude of what CCUS will be. There will be a room for a lot of people to work in this space. I do think that Denberry brings something specifically different to the equation with the combination of experience and assets that we have. And so just a good example is, as you mentioned on storage, when we're talking to potential storage site owners, we're able to bring the infrastructure and the ability to gather CO2 from a big range of geography to bring into their area. So I think that there's an advantage there that definitely gives us a leg up. And honestly, I think that advantage plays through on the transportation and storage as well. Not to say that there's not going to be competition, but I think that what we have, the immediacy of being able to put CO2 into EOR and not have to work through the classic permits is another advantage. All of those put together puts us in a good place, but we know we still need to work hard to make this all happen.

Okay, that's very helpful, guys. And maybe just lastly, given the strength of the balance sheet, I think you guys are nearing your kind of, you know, one-year anniversary of the exit on bankruptcy. Are you starting to give more, you know, serious consideration to returning capital, which I think you guys would be allowed to do in September now?

Hey, Leo, this is Mark. I'll take that. Yeah, definitely something we're looking at, and as you noted, our bank credit facility for the first year coming out of restructuring, we're prohibited from doing any dividends or buybacks or those type of things. Beyond that, there's a cash flow accumulator we have to meet, and so we're doing well on that front. I'd say as we kind of round out this year and evaluate what the opportunities are for CCUS, what we might be looking at next year. I think if there's some capital On that front, it's likely storage-related, and we want to make sure we provide for that, as we do see this as a significant growth element. So definitely more to come, and something that's top of mind. But I think as we work through the rest of this year and see how things come together, we'll be able to talk about that a bit more.

Thank you.

Thank you. Our next question comes from the line of Michael Ciala with Stigl. Please proceed with your question.

Good morning, guys. I wanted some idea about when you're thinking about potential expansion of the green line, given that you've at least you're in the negotiation stage for taking on more CO2 than what you have capacity for. What would be the time frame for doing some expansion on the green line? And is that going to entail looping of the line? Or could that all be done with just more pumping stations?

Hi, Michael. This is Nick. I'll take that question. Talking about the Green Line expansion, the first thing I want to reiterate is that we have ample capacity right now to take on additional CO2 through the Green Line, which we see becoming useful here in the next couple of years as we bring on these additional CO2 emitters. When it comes to actually introducing capital to the line, I also want to remind you that the placement of where CO2 comes on the line and comes off the line can add to that capacity just naturally by having those in close proximity. When it comes to when we will actually have to introduce additional capital to expand the line, it'll be mostly through pump stations early on, and we'll be stepping through that in kind of a sequence that lines up when we add those additional CO2 emissions to our line. So we'll be able to make them in very small chunks, I'll call it, as we step through the expansion of the line, which adds to our ability to kind of distribute that capital over time. There will probably be some time where we will have some line loops, but they'll probably be relatively small line loops to get us from where one emitter is to our storage sites.

Yeah, that's helpful. And you mentioned you're looking at offshore storage sites. What kind of infrastructure would that require? You obviously don't have any offshore pipelines, so I wanted to get a sense of what you guys are thinking about there.

You bet, Mike. And we're looking at both onshore and offshore, and each one of them has particular advantages and disadvantages. And just as we've looked across the space here, we see good sites onshore, and we're progressing those, but also offshore, generally closer to shore, for example, in state waters. And we see some good structures there. Obviously, you know that from just the past oil and gas development along the coastline. But we see those as being good as well, and so we're going to progress those. We think that there is some additional infrastructure cost, but there's also some simplicity in ownership, for example. And at least at this point, we think pursuing both onshore and offshore options makes the most sense as we work to build this portfolio along that network that Nick was talking about.

Would that require, Chris, some greenfield pipeline on your part, or would you be able to acquire something and convert that to a CO2 transportation line?

It could be either. Mike, generally we like to move CO2 in ANSI 900 class lines, which run at a higher pressure and keep the CO2 in a supercritical phase. You know, if you think about where the green pipeline is, it's not too far from the coastline along most of the Gulf Coast there. And so jumping out into the near shore is not too far. And so I think that, you know, that's our primary choice. I do think along the way you'd look at other alternatives from any existing infrastructure as well, but we're looking at it both ways.

Okay. And last one for me, Mark, you gave us some detail on the LOE. It sounds like it's going to be higher in third quarter than second quarter, and given that with the workovers. Given that, is fourth quarter going to be back down to kind of where the first quarter was, or how's that going to – I know you said it's going to step down, but trying to get a little bit more detail on that.

Sure thing. Appreciate it, Michael. This is David Shepard. I'll take that question there looking at the operations. Now, I'll just start out by saying, you know, LOE is something that we actively manage, you know, through our business. And if you look back historically through time, we've been able to flex LOE costs up and down, you know, as the business needs demand and also, you know, with commodity prices too as well. You know, just recently in 2020, obviously, we were able to dial down LOE substantially, you know, with the market conditions. And as oil price has climbed this year, we're able to make active decisions to make investment in some really high-value type projects. In LOE, you mentioned workovers specifically. You know, this year, last time, you know, we were barely running a workover rig, you know, at all. You know, right now we're running, you know, quite a few upwards of 26 to 28 top rigs. Once again, making those elective decisions that bring on, you know, good quality barrels there that capture margin that the oil price is presenting us. Right now, you know, as we watch, you know, oil price ebb and flow there, you know, we'll make those active decisions, you know, to choose investment or dial it back down as well. You know, as I figure out in the future, you know, a little bit too as well, even a little bit more long range question. than what you ask. You know, we're in the throes right now of installing our CCA CO2 pipeline project there. And as we complete that project, by the end of the year, we start injection in the first half By 2022, about 18 months later, we're going to see some production start coming into the mix. There's that back half in 2023. Those incremental barrels, they're coming into our system there through our 100% industrial source CO2 injection. are going to be at a lower lifting cost. They're going to be $10 to $15 top BOE range. That will help influence our overall lifting cost for the company in that timeframe. There's a lot of focus has been on CCUS business. I'm really excited. about that in the out years too as well, just that if you look across our business right now, CO2 costs in particular average about $4 a barrel across the aggregated business. And as we restructure contracts, wind up replacing our naturally sourced CO2 with industrial sourced CO2, I expect to see those prices fall materially throughout time. Very good. Thank you.

Thank you. Our next questions come from the line of Richard Tullis with Capital One. Please proceed with your questions.

Thank you. Good morning, everyone, and congratulations. Good morning, Richard. Good morning, Chris. Maybe start with Nick or Chris for this one. You know, as you go through your negotiations with the admitters, What's the rough expected breakeven cost range per ton of CO2 captured for the admitters you're speaking with? I know you probably targeted some of the lower cost ranges now, and a lot of those are available along the Gulf Coast. But just trying to get a sense of CapEx plus ongoing OpEx breakeven for some of those projects.

You bet, Richard. I'll start with that. You know, I guess the way I think about it, first of all, when we think about even what a break-even would look like, so certainly we're early days on a lot of this, particularly on the storage. But, you know, this great advantage that we have of having already made the investment in the pipeline infrastructure is a great start. So we have that infrastructure in place, which really helps when we look forward at how capital and revenues would balance out. But from a break-even standpoint, I'd say the way that we're looking at it is very much in line with what we've seen in the National Petroleum Council CCUS study. Those are essentially numbers that seem to make sense for the emitters and for the transporters and stores to have a reasonable rate of return on their investments and cover their OpEx. But at least what I see now, those MPC numbers that are out there make sense for the business, and we think they look good.

Okay. That's helpful. Thoughts on Denberry potentially sharing in some of the CapEx costs initially to possibly help move along some of the project decisions? Is that a potential option for Denberry at this point?

Yeah, you know, I think as we look into the years ahead, Mark talked a bit about, you know, potentially needing some capital as we get into next year even as we start to work towards some of that testing and validation of the storage sites that Nick talked about. So we'll need some capital there. And then as this develops, I can certainly imagine that growing to some pretty healthy levels. One thing I think about is just this base EOR business that will continue to spin off cash, especially more beginning next year as these hedges roll off. And in the current oil price environment, we see that looking very good. Along the way, I think we'll have additional capital needs that we're going to need to think about. And when the time comes, what I would say, Richard, is I don't think there's any shortage of sources that could help along that when you have these great, you know, very ESG-focused investments that will help build this business.

Thank you. And I know it's still early days, as you mentioned, but how do you kind of see this playing out over the next year or two years as far as agreements go? Do you think They'll skew more toward just transportation only, or do you think transportation plus storage will play a significant component in what you're able to capture?

You bet. For us, I really think, Richard, that the transportation and storage piece will be the greatest one. If you think about what these emitters are looking for, They want a solution. They want to capture their emissions. They want to have them handled in ways that they can be confident in the security of the storage and the long-term nature and reliability of the storage. And I think we can provide all of that. um and so what i see is as time goes on that it would be skewed that way that's not to say that we wouldn't have some transportation only type agreements but i'd say uh my expectation is that the majority would be uh denbury be the uh the one that takes the co2 at the gate of the plant and and takes it away to where the emitter never has to think about it again all right and just lastly for me

With the parties you've spoken with already, and it sounds like it's a good number, how many of those or what percentage roughly do you think are kind of waiting on some sort of decision with 45Q where maybe they require a higher 45Q to actually move forward?

I'll tell you, Richard, I think the folks we're talking to today are not waiting. That's why they're talking to us. And so there's a lot of enthusiasm, a lot of focus for all of the reasons that Nick mentioned earlier. And so we're excited about just the magnitude of what that is. I do think that there's a good chance that we'll see 45Q at higher levels. I know it's being talked about extensively in Washington right now. And what I think will happen then, Richard, is that that just brings a whole new wave of different emitters that we're talking to, whether it's steelmaking, gas-fired power, coal power, and so on. So I think certainly the folks we're talking to now, they're not waiting. And I think that the ones who are in the wings there, it's just bringing more scale to the whole equation.

That's helpful.

Thanks a bunch, Chris.

Thank Thank you, Richard.

Thank you. There are no further questions at this time. I'd like to hand the call back over to Brad Whitmarsh for any closing comments.

Sure. We appreciate everybody joining us today and hope you're having a great summer. We got through all the questions there. If you have any to follow on, please don't hesitate to reach out to Susan and myself. We'd love to connect with you. Thanks.

That does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a great day.