Denbury Inc.

Greetings and welcome to Dunbarry's third quarter 2021 results conference call. My name is Daryl 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 1 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. Please go ahead, sir.

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 denberry.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 earnings release as well. This morning, our prepared comments will come from Chris Kendall, President and CEO of Mark Allen, CFO, David Shepard, SVP of Operations, and Nick Wood, SVP of Carbon Solutions. And 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. In last quarter's call, I noted three key areas to watch in the second half of the year where Denberry would be unlocking substantial value for our shareholders and propelling our company toward an exciting future. This morning, I will provide a brief update on each, and then Mark, David, and Nick will provide more detail. The first of those key catalysts was strong execution on our base EOR-focused business. I'm incredibly pleased with our results across the board. Safety performance is better than it has ever been. We've continued to deliver on the plan with quarterly operating and financial results meeting or exceeding expectations in all areas. We exited the quarter with no borrowings on our credit facility and we anticipate having zero debt on the balance sheet early next year. The second catalyst was executing on our flagship CCA development project. David will share more detail, but the project is ahead of schedule is at or below budget and is on track for initial CO2 injection in the first quarter of next year. Importantly, We have incurred zero recordable safety incidents over the entire project to date, a remarkable achievement by the team, which underscores our core emphasis on safety. All production from this project will be carbon negative blue oil, and we continue to believe that our enhanced oil recovery business, utilizing industrial source CO2 emissions, produces the most environmentally friendly barrel of crude oil on the planet. We are progressing the blue oil third-party verification and CI score process that I mentioned on last quarter's call with completion of that project planned around year end. The third key catalyst I noted last quarter was progressing agreements with companies seeking to capture their CO2 emissions as well as agreements with the owners of potential storage sites in each case to begin unlocking the massive value potential that we have for CCUS with our carbon solutions business. During the third quarter, our carbon solutions team executed initial term sheets for our CO2 transport and storage services, including the previously announced ammonia project with Mitsubishi and the joint evaluation agreement for low carbon solutions with Mitsui. These are just the first of what I am confident will be many agreements. I am excited and encouraged by the number of agreements we're negotiating, as well as the cumulative volume potential. I anticipate we will have executed even more agreements for CO2 transport and storage by the end of the year. At the same time, we've continued work to secure underground CO2 storage access along our infrastructure to provide long-term safe sequestration of CO2 for our customers. The agreement with Gulf Coast Midstream Partners that we announced this morning represents the first of these sites, providing a substantial storage opportunity in the Houston area. Total storage potential at this location could be up to 400 million metric tons, and we're thrilled to be working with Gulf Coast Midstream partners on this project. We're also working to add sites across our infrastructure network, and I expect that the proximity of these locations to our pipeline system will provide a very economic, reliable, and flexible storage solution for our customers. I often get asked about the competitive landscape in CCUS. Considering the magnitude of the CCUS opportunity, I expect there may be many potential competitors who will work to enter this market. That being said, I do not see another company capable of providing the complete package that Denbury provides today, ranging from our industry-leading CO2 infrastructure footprint, our deep technical expertise in the complete spectrum of transporting and storing CO2, and the certainty that our currently operating system can provide. Before handing over to Mark, I wanted to comment briefly on the latest draft of the House reconciliation package, which includes enhancements to the 45Q tax credit. While there are many details to work through in the language, and the entire package is, of course, subject to congressional approval, These enhancements are consistent with our expectations for increased CO2 emission capture incentives with greater support for both dedicated storage and EOR storage. The proposed increased tax credit levels should begin to incentivize higher cost of capture industries like cement and steel manufacture, as well as certain other post-combustion emissions. The draft package also includes other enhancements to 45Q, such as an extension of the capture construction period, a reduction in the minimum facility size that qualifies for the credit, and a shift from a tax credit structure to direct pay. If passed, I believe these changes will expand and accelerate the growth of the U.S. CCUS industry, leading to significant reductions in industrial CO2 emissions. Before I wrap up, if you haven't had a chance to read our corporate responsibility report that we issued in September, it is available on our website, highlighting our progress in mitigating direct and indirect emissions, as well as enhancements in safety and governance. DenBerry has a unique and impactful ESG strategy, and we are dedicated to being a leader in sustainability as we all work to create a new energy future.

Mark, I'll now turn it over to you. Thanks, Chris, and good morning, everyone. Today, I'll provide a brief review of Denbury's financial results for the third quarter before handing the call over to David for a more detailed operations review. As Chris mentioned, our third quarter results were bolstered by higher sales volumes and realized oil prices, which led to quarterly highs this year for revenues, net income, and operating cash flow. Adjusted net income for the third quarter was $40 million, or $0.74 per diluted share, as compared to gap mid-income of $83 million, with the primary difference being the mark-to-market change of our oil hedges. Operating cash flow for the quarter was $104 million, or $78 million adjusted, as positive working capital changes contributed $26 million to our cash flow from operations during the quarter. On a pre-hedge basis, our cash operating margin increased to over $32.50 per BOE in the third quarter. Financial liquidity at the end of the third quarter increased to $565 million, and we exited the third quarter with no borrowings on our credit facility. Our only outstanding debt at the end of the quarter was the final $17 million payment obligation on our NEJD pipeline financing, which was made last month. During the quarter, we closed on the sale of some additional Houston-area nonproductive surface acreage that was outside of the company's planned development area for total proceeds of $12 million. Looking forward, I anticipate we will exit the year with $25 to $50 million of bank borrowings as we wrap up the capital spend for the Green Core CO2 pipeline expansion to CCA in the fourth quarter. Based on current oil pricing, we project being debt-free in the first half of next year. Our strong balance sheet provides us great flexibility and is extremely valuable as we assess the massive growth potential ahead of us with CCUS, including pipeline expansion, EUR and non-EUR storage development, and various new opportunities to create even more value in CCUS. Sales volumes averaged approximately 49,700 barrels of oil equivalent per day in the third quarter, as expected, a slight increase from the second quarter. Differentials in the third quarter were consistent with our guidance, widening primarily with respect to the Gulf Coast crews. which were weaker relative to WTI prices. For Q3, the differentials for our Gulf Coast and Rockies regions were essentially the same, whereas historically our Gulf Coast crude received higher prices. This is reflective of the supply and demand balances in the various regions, with the tight supply at Cushing driving strength into our Rockies term to be similar to our third quarter results. Our cash outflow on hedges

compared to 63 million last quarter. As WTI oil price quarter.

You are in place in the fourth quarter of last year as required under our bank credit facility. We have no additional hedging requirements under our bank credit facility. And as we move into 2022, we have less of our expected production hedge. And with a greater mix of collars, which provides for more upside. Needless to say, we are looking forward to the roll-off of the 2021 hedges. Lease operating expenses for the quarter totaled $25.50 per BOE, in line with our expectations considering the amount of seasonal workover activity that we typically have in the third quarter, as well as the impact on our operating costs from rising commodity prices, including the natural gas price impact on power and utility costs. All other items are right down the fairway of expectations. For the fourth quarter, we expect that DD&A will increase by $5 to $7 million as we consider the impact of the potential booking of initial approved tertiary reserves at CCA. It's too early to provide specifics on 2022 capital or cash flow plans as we are still working through our planning process. However, to provide a framework, I think it's reasonable for you to expect our focus to be on holding our base business relatively flat from a volume perspective and maximizing our cash flow generation as we progress CCA towards first tertiary production with ongoing evaluation of our capital needs in 2022 as we continue to grow our CCUS business. Before I turn it over to David, I want to reemphasize what a great place we are in financially with essentially no debt on the balance sheet a strong base oil business that can generate significant free cash and hedges that are rolling off in our favor as we move into 2022. It gives us a lot of confidence in executing our long-term strategy and great optionality for funding our growing CCUS business. David?

Thanks, Mark. Good morning, everyone. It's certainly an exciting time at Denbigh as activity levels have been increasing throughout the year as we have built great momentum with our near and long-term development projects. I will focus most of my discussion this morning on the CCA project and our recent oyster value development before wrapping up with some comments on volumes and expenses as we progress towards closing out 2021. I always want to start with safety, which is core to our operational performance. Effective and efficient operations have to be safe operations, and our teams are doing a great job on that front. Year to date, we are continuing to track at a record low total recordable incident rate, and the third quarter was our best quarter. One accomplishment I want to share with you that is just outstanding. On the CCA project, we have accumulated 550,000 man-hours of activity between Denbury Company employees and contractors. this year with no recordable safety incidents i acknowledge the tremendous effort and focus by the project development and operations teams for a job well done moving on to an update on project execution during the third quarter we finalized the a1 development project at our worcester value field in southeast texas The initial A1 expansion included the drilling of one new producer while converting two wells to producers and two additional wells to injectors in a pattern designed to optimize resource recovery in a previously underswept area of the A1 reservoir. Late in September, we began seeing the first well respond and is currently producing above plan. We expect the two additional producers to respond before the end of the year. This positive early result is very encouraging as we consider two additional development patterns for future expansion in the A1 reservoir. Continuing with Orchard Bayou, you will recall the deeper A2 development that was executed in 2020, where we also expanded our facility compression and injection capacity. Results from the A2 have continued to show strong response. Therefore, we are evaluating a potential A2 expansion. At the end of the third quarter, oyster value was producing approximately 4,200 barrels per day net to Benbury, the highest level seen in the field since the fourth quarter of 2019. Approximately 60% of our third quarter capital spend went towards our CCA tertiary project, which is progressing ahead of plan. As of today, we have installed all 105 miles of the 16-inch green core CO2 pipeline extension with final testing underway and mechanical completion expected within the next two weeks. This is the only significant CO2 pipeline project installation in the United States this year, and with this extension, I believe Denbury will become the largest mileage operator of CO2 pipelines in the U.S. The first phase of tertiary development at CCA is targeting the East Lookout Butte and Cedar Hill South units. where our teams have multiple work over rigs operating in the field, converting 74 water injector wells to CO2 injectors. CO2 landfill, the green core pipeline extension should begin by the end of this month and is expected to be completed by the end of the year. First subsurface CO2 injection has now accelerated into the first quarter of 2022 and phase one production response is expected in the second half of 2023. With the pipeline installed, we have put the key infrastructure in place that will benefit all future phases of CCA tertiary development. about the CCA development are resource potential of 400 to 500 million barrels equivalent makes CCA the largest undertaking. Phase one is targeting less than 10% of the total potential, which means we have a a multi-decade long development opportunity.

Two, BOE. We estimate LOE per incremental BOE, thereby increasing our margins with every barrel produced.

And three, this is a fully carbon negative development, as we will inject more industrial source CO2 into the ground than the production and combustion of the oil will ever admit. CCA will significantly increase the scale of our blue oil operations. Now to give some near-term thoughts for four-quarter guidance on volumes, capital, and operating costs. We anticipate four-quarter sales volumes being nearly 50,000 barrels equivalent per day. Oyster value is anticipated to increase from the third quarter as we will see additional contribution from the A1 development. This should offset anticipated lower volumes from our CCA field, where we are temporarily shutting in wells to convert from water to CO2 injection. In addition, at certain fields in CCA, a third party holds a net profits interest, which negatively impacts our sales volumes as oil prices rise and the fields are more profitable. On the capital front, We remain on plan at to slightly below the $260 million midpoint of our full year guidance range. And accordingly, the fourth quarter will come down some from the third quarter peak spend level. The vast majority of 4Q spend will again be related to the green course CO2 pipeline completion and CCA field activities. Fourth quarter LOE per BOE should be relatively consistent with the third quarter. as fewer workovers and preventative maintenance projects are offsetting some of the impact from the increased commodity prices, both oil and natural gas, on our variable costs such as CO2, power, and utilities. As we are seeing some incremental cost inflation pressures on certain goods and services, our operations teams, along with planning and supply chain, are proactively working with our suppliers to get the things we need, when and where we need them, at fair prices. Wrapping up, I just want to comment how pleased I am with the performance of our assets, but even more so the execution by our teams. With our near and long-term developments, we are strengthening the foundation on which Denberry stands and positioning ourselves for a tremendous future. I'll now hand it off to Nick for an update on the CCUS business.

Thanks, David. It's great to be on the call today to share some of the team's exciting progress. Over the past quarter, the Dinbury Carbon Solutions team's momentum continued to increase, and we are laser-focused on moving deals to final agreement stages. In last quarter's call, we discussed our ongoing negotiations with industrial partners to transport and store more than 50 million metric tons of CO2 per year. as well as negotiations with multiple pore space owners representing more than 1 billion metric tons of CO2 sequestration potential. We are thrilled with the two agreements that we disclosed since that call. The long-term offtake agreement for Mitsubishi's new build Gulf Coast ammonia project, as well as the MOU with Mitsui to work together to jointly evaluate EOR opportunities to produce carbon negative blue oil. This morning, we're excited to announce two new agreements. The first is a significant storage site development in Texas, and the second is a new CO2 transportation and storage agreement. I'll spend most of my time on the call today talking about these new agreements. We reached a significant milestone with our first dedicated storage site that we plan to jointly develop with Gulf Coast Midstream Partners. The project site is located on the western edge of our infrastructure in southeast Texas. with the potential to inject up to 9 million metric tons of CO2 per year and ultimately store up to 400 million metric tons. Development planning is already underway with preparations for the permitting of Class VI injection wells in progress with the expected readiness for first injection by early 2025. We believe this site will be a very competitive storage option for our customers. DenBerry intends to participate in equity of the storage project with up to 50% ownership. Proximity of this site to our infrastructure is ideal, located just 25 miles from our green pipeline. Also, by extending our pipeline infrastructure to this site, we will improve offtake access for significant additional industrial emissions in the southwest Houston area. This will be the first of several storage sites, as we expect to continue to build a portfolio of dedicated storage options across our infrastructure footprint. They'll provide significant storage capacity in the right locations, ensuring that our industrial partners achieve the most benefit from their captured CO2 emissions. Separately, we've also signed a 25-year agreement for the exclusive rust. At the request of the plant owner, we are limited on what we can share about this deal for now, but we are looking forward to sharing more at the appropriate time. We continue to be encouraged by the scale of plans for new build activity in the area, which I think further validates the Gulf Coast's unmatched combination of ideal geology for storage, strong regulatory and policy support, access to deepwater ports, and extensive existing CO2 infrastructure.

I'll wrap up with a few key thoughts.

First,

we believe EOR is vital to accelerating the success of CCUS, especially in the early innings.

The certainty EOR provides under the existing permits and regulations allows industrial partners to make capture investment decisions today, knowing that there is an offtake solution that is not subject to the uncertain timing of new permit approvals. Ultimately, we believe that dedicated storage will provide the bulk of CO2 storage, primarily because the capacity we see is orders of magnitude greater than an EOR. The Gulf Coast region in particular has an abundance of safe, long-term CO2 storage opportunities that can serve the industry's needs for decades. To put this abundance in perspective, Denver's extensive pipeline footprint provides access to over 30 million acres of potential pore space, within 25 miles of our infrastructure. I'm proud of the great progress the team has made advancing Denberry Carbon Solutions' strategic priorities. The current 45Q tax credit has opened up a large market, and we have great momentum from our initial engagements. I'm optimistic that the potential enhancements to the 45Q that we see in the reconciliation package will substantially increase the scale of the addressable CCUS market. Our extensive, currently operating pipeline network provides flexibility and reliability to our customers today. When combined with our strategy to build a portfolio of diverse storage options, we have a superior solution that will provide a secure, near-term economic storage solution to the front gate of any capture project. Operator, we'd now like to open the call for questions.

Thank you. We will now be conducting a 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 if you would like to remove your question 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 questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.

Good morning, Chris. To you and your whole team there. Good morning, Charles. Chris, I'd like to ask a first question about the – I'd like to actually give us some perspective on the CCUS business from the arc of the last –

how would you characterize your progress versus your expectations? Are you kind of on track? Are the big fish still out there to land?

So kind of give us that sense.

And then also, if you could share, is there anything that surprised you or maybe is there anything? any way that opportunities are evolving in a way that you would not have anticipated six months ago?

Yeah, that's a great question, Charles. Actually, the two parts are kind of linked, and certainly when I think about where we are today, And I think about the great progress that Nick's team has made, both the parts of that that we've disclosed but other parts that are yet to come. I actually think that we're ahead of where I imagined we'd be at the beginning of this. There's just so much activity, so much enthusiasm and tailwinds of where – society is going, where companies are going, and the recognition that carbon capture plays a huge role in what needs to happen here. So I feel great about that. What I think is interesting is your second question of anything that surprised me. And what I would say is the great surprise is not just the take-up that we've seen, not just the regulatory support or the policy support that we saw in the last administration and that's only accelerating in the current administration, but it is what energy transition will really mean in terms of new build. We know about emitters on the ground, and we have great relationships there, and we're off taking CO2 already from several of them. What's been surprising is the ideas around, for example, blue ammonia and the new developments that will be associated with that, or biofuels, and the way that any of these new developments can use the breadth of the system that we have to connect and have access to all of those benefits and really optimize their costs and optimize the whole system. So it continues to me to look positive to the upside, We talked a little bit about some of the work to enhance 45Q. We were excited about this in the first place when we had $35 and $50 at 45Q. I think that the potential expansion there just makes it that much better. So we feel great about it, and I think that it's really coming into its own as a technique that is recognized and is going to be a big business. That's really interesting, Chris. I think I was likewise, I wasn't looking for a new build blue ammonia plant as your first guess. Exactly. You caught me, or you kind of aptly described me there. Second, if I could ask a question about the CCA pipeline. It's remarkable. We've been talking about this project for so many years, and here we are. literally a couple weeks from all the pipe being in the ground. Can you talk about what are the steps and if there's any really meaningful obstacles between getting the pipe in the ground and actually getting the first CO2 injected in the first couple months of next year? I mean, I know you saw a line fail in field distribution, but is that it?

Good morning, Charles. This is David Shepard. I'll take that question. I'll just tell you, it's been really tremendous progress by our teams in the field. Just the execution that has gone on, and not just the execution, it's how we've executed safely. And I really think that that's a core tenet to our success right now. Just for clarity, the pipe is completely in the ground. We have one final segment that we're hydrotesting, At this point, that work will be complete this week. The final mechanical completion of the pipeline will be finished within the next two weeks. Line fill will start prior to that pump station being completed here by the end of the month. We expect to get that pipe filled and progress ahead. So, no, to answer your question very short and direct, I do not see any impediment to CO2 distribution occurring in the first quarter of 2022.

Thank you for that detail.

Thank you. Our next questions come from the line of Leo Mariani with KeyBank Capital Markets. Please proceed with your questions.

Hey, guys. Wanted to ask a handful of questions here on the deal that you guys announced this morning with Gulf Coast. I just wanted to get a sense, is this deal kind of completely locked down at this point by the Gulf Coast guys? Is this a project they've already fully secured and you guys are in the process of, quote unquote, kind of farming into this for some type of equity interest here? And I guess just additionally, would this be sort of, you know, kind of heads up economics? Would those guys would be any kind of upfront payments you got to make? Or is it more just sharing in the capital to kind of build this out, you know, over the next couple years?

You bet, Lou. I'll take the first part of that, and then I'll ask Nick to go into it a little bit more. And certainly at this point, there are going to be some details of the agreements that I'm sure you can understand we can't go into, but I think we can talk generally about it and might just ask Nick to share your thoughts on the nature of where the GCMP team was when we met up with them and where we are. Great, great. Thank you, Leah. Thank you for the question. So I'll jump into the first part of the question around the lockdown of the storage site aspect. And what I'd like to, I guess, state here is that as we entered into negotiations with GCMP, they had already progressed a lot of the steps necessary to get a storage site in Texas past the the hurdles that are in Texas around poor space ownership. And so getting that acreage prepared for development was something that they'd already put in place. And so being able to get a site where it's at on our infrastructure, close to emitters there in Texas, was a great win for both parties. And so we look forward to getting past that and starting the definitive agreement and working through that over the course of the coming months. And just what I'd add to that is that we think we bring a lot to the story with the Gulf Coast Midstream team. We think that that team brings a lot to the story, particularly for the storage area southwest of Houston. And so we'll continue working through that and share more details at the right time.

Okay. And I guess maybe just – from a high level perspective could talk about kind of what y'all's role would be in this project versus GCMP role. I don't know those particular, that particular group, but obviously you guys both have, you know, midstream capability, but clearly you have the giant trunk line to move lots of volumes around. So maybe you can get into that a little bit more to be helpful.

Great. And this is Nick again, Leo. And so just to address kind of the nature of the partnership, it'll be a JV, and the exact interest percentage that either party will own in that JV will be figured out over time. But generally, we look forward to jointly developing this together. GCMP will take on a lot of the steps that are ongoing on the acreage they already secured. Denver will be working a lot on the pipeline connection that will be bringing the CO2 to that site and working a lot with the emitters that will actually be bringing the revenue to that site.

Okay. Helpful for sure. And I guess, you know, potentially, would this be a site that you would just fold in to other deals that you guys sign? So as you guys are signing deals from emitters, this would be part of their kind of offering package with these folks? Or is GCMP also kind of pursuing, you know, emitter deals on their side as well, just trying to get a sense of that dynamic?

The way we think about it is that this is the first piece in a puzzle that we talked about for some time. Our vision is that this great pipeline network that we have, the existing EOR fields that are great targets for CO2 right now, needs to be supplemented with a number of dedicated storage sites from one end to the other. And so this is on one end, and what I picture is that the storage sites will, and we're working on many of them, as Nick mentioned earlier, that they will steadily be folded into the entire package to really give us this breadth of an offering that we can provide to the industrial partners where they know that that if their storage needs can't be met for whatever reason, whether it's storms or technical or operational, that we have other options along the way. So we see it as part of a bigger story that we're building in real time right now. Okay. Thanks, guys. Thank you.

Thank you. Our next questions come from the line of Doug Leggett with Bank of America. Please proceed with your questions.

Thanks. Excuse me. Good morning, everybody. Thanks for taking my question. Guys, I don't know who's best to answer this one, but class six permitting, where does that stand on the GD you announced this morning? Because our understanding is there's only a couple of those active currently in the country.

All right, Doug, this is Nick again.

So what I'd like to say there is that GCMP has been progressing interactions with the EPA to get the Class 6 permitting underway, but the actual Class 6 permit application hasn't exactly been submitted yet.

Do you know if there are any economics around the project that relates to specific... So, Doug, we haven't shared any of that yet purposefully.

What I would say is kind of echoing Nick's comments a few minutes earlier is that... We think that this storage will be competitive with anything that will be out there when we just look at what it will take to develop it, where it will be, and what emissions it can access.

Thank you. I have one last one, and I know, Chris, you and I have talked about this before, but I just wanted to ask this publicly so everyone can hear what's on our mind on this particular topic, and it relates to utilization.

of your infrastructure, the replacement costs of that infrastructure, and how you think about getting the market to recognize the value of that infrastructure.

Is there anything structural that you might think in the context of how the ownership of your pipes might evolve over time? If not, how do you think about how you can get maximum recognition for the value of what's already in the ground?

yeah that's a great question doug and we think about that quite a bit um obviously we think that the value of our infrastructure network is incredible and and what it can provide and not not just a replacement value but the fact that it is in the ground and operating today and it's touching all of these key industrial emissions areas so it's in the right place it has the right capacity it has the right expandability And so we think it's incredible. Obviously, we want to continue to grow that value, and we think about the system You know, you'll hear us repeatedly talk about that we think that the most efficient and reliable and flexible type of system that can exist is what we have that to a variety of different destinations. So we think that's a winner in the long run, and we're going to keep working to build that. The underlying question of how do we really ultimately get that value realized, I think I think along the way, right now, what we want to do is just build this business as well and as large as we can. And as you see, we're in the process of doing that. Ultimately, I think there could be some different structures, ways to think about providing opportunities for investors to invest in different parts of what Denver does. And we'd like to get a bit further down the road on that and have that look like a business that truly does stand on its own. So yet to come, but it's certainly something that we're thinking about.

Intriguing comments, Chris. Thanks so much. Thank you, Doug.

Thank you. Our next questions come from the line of Michael Ciala with Stifel. Please proceed with your questions.

Yeah, hi, good morning. I understand that you're not ready or able to discuss the economics of the storage site, but I just wondered if you could give an idea of maybe initial capital costs or at least what are the early steps? You mentioned getting a class experiment, obviously, but I'm just wondering if...

Do you give any sense on what the next steps would be there?

Is there any remediation work that's required? Are there critical wells in the area that need to be worried about? I guess anything along those lines. Yeah, you bet, Mike, and good morning.

So we're not yet at a point where we're ready. Ready to jump into the capital costs.

I mean, obviously, you see that we're about 25 miles off of the western extent of the green pipeline, so we'll have a pipeline interconnect that we work on that you could apply some of the typical pipeline capex to. Otherwise, we've got some work to do before we're ready to disclose any of that publicly. What I just say is when I think about it and I think about storage costs that we've talked about publicly, how they've been laid out in the National Petroleum Council's report on CCUS, it all fits very well with that. And so we feel good about it, just a little bit premature to talk any more details.

In terms of...

Any vertical wells in the area that you need to do remediation work on, or is there seismic that needs to be acquired over the area? Yeah, and so to that, I'm not aware of any remediation that's needed on this site, and so nothing that's extensive or costly that we're aware of from that point. Seismic, I think, in all of these sites, as you work towards a Class 6 permit and the MRV, there will be expenses like that that are baked into our planning, not just for this site but for any others that we're working on. as we're wanting to make sure that we can provide just the highest level of confidence, most of the regulators and to the public, that we're putting CO2 into very secure places.

Got it. Okay. And with the proposed legislation, you know, if we do go to 85 and 60 per ton, Chris, you mentioned that that opens the door for more industrial companies to contemplate carbon capture.

Are you seeing any new companies come to the table, and have your discussions changed at all in terms of the potential tolling fee you may charge those customers? And I guess the same goes for now that you've secured a permanent storage site.

Has that opened the door for more potential customers and changed any of your negotiations.

You bet, Mike. And so what's interesting, you know, when we look at where these credits could go compared to where they are today, you know, first of all, the excitement that we've had about this business was based on where the credits were and the number of different partners we're talking to that were incentivized at those levels. And so what I'd say first is that that's the primary set of conversations that we've been having. And I know that there are others that have known that they were outside of the money on 45Q. You know, great examples are these hard-to-abate industries like cement. or steel or honestly even start to get up into electricity generating plants that are natural gas fired, for example. So I think that as we get to these higher levels, it opens that door. It also starts to move you toward a part of the cost of capture curve that flattens out some more. And so I think that just every dollar that you gain from gives you an outsized improvement in the total amount of emissions that can be captured. So I'm excited about that. I think that it just really underscores the bipartisan support that we see here on CCUS, whether it comes through this reconciliation package or whether it comes from the CATCH Act. You know, plenty of pathways that this can be achieved, at least right now, the highest likelihood we see is in the reconciliation package. But it's It's exciting. You know, to your question on the negotiations and economics, I mean, to me, the biggest win for us and for the CCS industry in general, I think, is building scale. And this allows significant building of scale. think that there will be some improvements in what Denver is able to realize, but primarily what you want to do is you want to attract those higher cost of capture industries to build that huge scale that we think is the long-term win here.

Great. Thanks for the call, Chris. Thanks, Mike.

Thank you. As a reminder, if you would like to ask a question, please press Star 1 on your telephone keypad. Our next questions come from the line of Richard Tullis with Capital One Securities. Please proceed with your questions.

Hey, thanks. Good morning, everyone. Morning, Richard. I was wondering if maybe you can give us just an overview of any negotiations you may have had or just how aggressively you may have been approach the the air products hydrogen um project that was announced recently um in south louisiana looks like you know a big project and a lot of co2 likely to be moved there eventually just maybe let us know you know did you have a shot at that project or were they just trying to keep almost all of it for themselves and just any any potential to participate in any way going forward

So Richard, thinking about our products, first, they're a great partner of ours. They are together with us with their hydrogen plant in Port Arthur. We're taking about 700,000 tons a year of industrial source CO2 off of that plant into our system and have been doing so for many years. So we have a great relationship. And I would say along the course of the last year, have known that their products was working on this project and that it was something that, at least at this point, they wanted to keep to themselves, as you mentioned. Any numbers that we provided in terms of volumes that we've been considering to be in play, we actually carved those out because of what we knew from their products. Having said all that, I firmly believe that in the long run, the network effect is a more reliable, more effective, just a more risk choice for any emitter to move their CO2 into when you compare it to shipment of CO2 to a single destination. And we think ultimately that carries a day, and we'll keep working on that, and there could be possibilities along the way as we see the Air Products Project move forward and as we continue to develop out our network.

That's helpful, Chris. Thank you. And, you know, looking at, you know, the green pipeline in place, I know it was brought up a little bit earlier in a caller's question. You know, looking at the backlog of projects you're in discussions with, any potential to look at expanding the capacity of the system? I know you have the ability to loop both ways, but just even in one direction to expand it, you know, maybe to 50 million tons per year. If the 45, particularly if the 45Q tax credit is increased to $85 a ton.

Yeah, absolutely, Richard. And I think of multiple ways that we can expand or extend this pipeline infrastructure. In the past, we've talked about expanding the in-place portion up to 50 million tons a year of overall capacity, either by adding pump stations or line loops at high traffic areas, and we see a good pathway of doing that. Along the way, we see other ways of growing this system. Some of them are even associated with reaching the pipeline to the Gulf Coast midstream site. There are other emissions in that area that we're that much closer to. And so that's an area we think about.

We think about moving segments into Lake

We're continuing to work that, and what I love about it is that we are starting from a base system that's already moving 10 million tons a year through it. We have a right-of-way that we're working within. We have a great base to start from that we can incrementally build as that demand comes and provide essentially real-time solutions as we go.

And then I guess just lastly for me, If you could recap the comments made during the opening remarks related to the 25-year contract that Nick was mentioning. I didn't catch all of that.

Yeah, so we have a new agreement with a new-built biofuel plant there in the Gulf Coast. that we have that agreement, so a long-term agreement for 25 years. Yeah, and beyond that, Richard, we have been asked for several reasons by the partner there to not disclose anything further. We're excited about it, but it's going to be a bit of time before we can go into more detail. You know, to me, it's just one more element that's out here of the types of new investments and new opportunities that 45Q combined with our system and the great situation that you have really across our infrastructure opens up. And as I mentioned to Charles earlier, these are ideas that weren't even evident to us a year ago, but we see them coming together.