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.