DEN - Denbury Reports Third Quarter 2020 Results and Announces November 17th Third Quarter Conference Call

PLANO, Texas, Nov. 16, 2020 (GLOBE NEWSWIRE) -- Denbury Inc. (NYSE: DEN) (“Denbury” or the “Company”) today announced its third quarter 2020 financial and operating results.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

• Successfully completed financial restructuring and emerged from Chapter 11 reorganization on September 18, 2020, with a strong balance sheet and strong liquidity position:
  • Reduced bond debt by $2.1 billion, resulting in $165 million annual interest savings
  • Established a new $575 million senior secured bank credit facility, with $437 million of availability at September 30, 2020 after borrowings of $85 million and outstanding letters of credit
  • Relocated corporate headquarters, resulting in $9 million in annual savings
  • Appointed a new board of directors consisting of four new independent members and three continuing members
  • Commenced trading of new common stock on the NYSE under the ticker symbol “DEN” on September 21, 2020
• Produced 49,686 barrels of oil equivalent (“BOE”) per day (“BOE/d”) during 3Q 2020, roughly flat with 2Q 2020
• Revenues and other income were $194 million for 3Q 2020, excluding $18 million in hedging receipts
• Adjusted EBITDAX (a non-GAAP measure) was $93 million for 3Q 2020
• Received $25 million of proceeds from the sale of two parcels of marketed Houston area surface acreage, with proceeds of $14 million in July 2020 and $11 million in October 2020
• Reacquired the NEJD and Free State CO ₂ pipelines, reducing debt by $25 million and lowering interest expense while maximizing flexibility for future CCUS operations

Upon emergence from bankruptcy on September 18, 2020 (the “Emergence Date”), the Company applied fresh start accounting, which resulted in a new entity for financial reporting purposes. In applying fresh start accounting, the Company’s assets and liabilities were recorded at fair value as of the Emergence Date, which differs materially from historical values reflected on the Company’s balance sheet prior to the Emergence Date. As a result of the application of fresh start accounting and the effects of the Company’s Chapter 11 restructuring, the consolidated financial statements of the Company after September 18, 2020 are not comparable with its consolidated financial statements on or prior to that date. References to “Successor” refer to the new Denbury reporting entity after the Emergence Date, and references to “Successor Period” refer to the period from September 19, 2020 through September 30, 2020. References to “Predecessor” refer to the Denbury entity prior to emergence from bankruptcy, and references to “Predecessor Period” refer to periods (as specified herein) prior to and through September 18, 2020. Under GAAP, Denbury is required to report the Company’s financial results for the Successor Period separately from Predecessor Periods, making the information not comparable. In order to provide meaningful comparable results of certain information for the third quarter and year to date periods, the Company has combined the results for the third quarter’s Successor Period and Predecessor Period where appropriate, which the Company refers to as “Combined”.

SELECTED QUARTERLY COMPARATIVE DATA

Following are unaudited financial highlights for the Successor Period, certain Predecessor Periods and on a Combined basis for the third quarter ended September 30, 2020.

(1) Combined results for the three months ended September 30, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods.
(2) A non-GAAP measure. See accompanying schedules that reconcile GAAP to non-GAAP measures along with a statement indicating why the Company believes the non-GAAP measures provide useful information for investors.

MANAGEMENT COMMENT

Chris Kendall, Denbury’s President and CEO, commented, “In less than two months during the third quarter we entered and exited our Chapter 11 restructuring process. As a result of this process, Denbury emerged with a strong balance sheet, a solid liquidity position, and a significantly reduced cost structure providing us with a breakeven oil price near $30 per barrel. Denbury’s low base production decline and the flexible, low capital intensity nature of our assets are particularly well suited for today’s environment. The industry-leading low carbon footprint of our CO ₂ EOR-focused oil production sets us apart. Moreover, the potential of the emerging CCUS business presents a unique, exciting, and significant growth opportunity to leverage both our strategically advantaged asset base and our extensive CO ₂ expertise developed during more than 20 years of CO ₂ EOR operations.

“I want to thank the Denbury team for their focus, care, and diligence throughout 2020. Even in this challenging environment, the team is setting Company records for safety and efficiency, which is a testament to our employees’ professionalism, dedication, quality and resilience.

“Going forward, while ensuring a steadfast focus of building on our strong foundation of safety and operational excellence, our priorities will be to protect and maintain our balance sheet, to continue to invest within cash flow, to further build our EOR-focused business, and to continue to position the Company to be a leader in what we believe will be a high value CCUS business.”

(1) Continuing production excludes production from the Gulf Coast Working Interests Sale completed on March 4, 2020.

REVIEW OF OPERATING AND FINANCIAL RESULTS

Denbury’s oil and natural gas production averaged 49,686 BOE/d during third quarter 2020, relatively flat with second quarter of 2020 (the “prior quarter”) production and a decrease of 10% compared to continuing production in the third quarter of 2019 (the “prior-year third quarter”), which is adjusted for production from assets sold in the first quarter of 2020. Production during the second and third quarters of 2020 was impacted by approximately 4,300 BOE/d and 1,700 BOE/d, respectively, of production that was shut-in due to wells that were uneconomic to produce or repair. In addition to shut-in production, the year-over-year production decline was primarily due to production declines at Delhi Field which were mainly associated with the suspension of CO ₂ purchases since late-February 2020 as a result of the Delta-Tinsley CO ₂ pipeline being out of service for repairs, as well as reduced levels of workovers and capital investment due to actions taken by the Company to reduce costs in response to the significant decline in oil prices earlier in 2020. In late October 2020, repairs to the Delta-Tinsley pipeline were completed and the pipeline was brought back into service, allowing CO ₂ purchases to resume at Delhi Field. Further production information is provided on page 18 of this press release.

Denbury’s third quarter 2020 average realized oil price, including derivative settlements, was $43.23 per barrel (“Bbl”), an increase of 25% from the prior quarter and a decrease of 27% from the prior-year third quarter. Denbury’s NYMEX differential for the third quarter 2020 was $1.64 per Bbl below NYMEX WTI oil prices, compared to $4.03 per Bbl below NYMEX WTI in the prior quarter and $1.30 per Bbl above NYMEX WTI in the prior-year third quarter.

Total revenues and other income in the third quarter of 2020 were $194 million, an increase of 64% from the prior quarter and a decrease of 39% from the prior-year third quarter. The sequential quarterly increase was primarily due to higher realized oil prices, and the decrease from the prior-year third quarter was primarily due to lower oil prices and to a lesser degree lower oil production levels.

Total lease operating expenses in third quarter 2020 were $71 million, or $15.57 per BOE, a decrease of $10 million, or 12%, compared to the prior quarter due primarily to a $15 million insurance reimbursement received in the current quarter related to a 2013 incident at Delhi Field, partially offset by higher workover expense during the current quarter as the Company resumed some repairs and maintenance activity. Compared to the prior-year third quarter, lease operating expenses decreased $47 million, or 40%, due primarily to reductions in all expense categories, with the largest decreases in workover expense, labor, and power and fuel costs, as well as the insurance reimbursement noted above.

Taxes other than income, which includes ad valorem, production and franchise taxes, increased $5 million, or 50%, from the prior quarter and decreased $6 million, or 29%, from the prior-year third quarter, generally due to changes in oil and natural gas revenues.

General and administrative (“G&A”) expenses were $17 million in third quarter 2020, a $7 million decrease from the prior quarter, primarily due to the prior quarter including higher than normal compensation-related expenses related to modifications of the Company’s 2020 employee compensation programs. During the prior quarter, the Company reinstated a bonus program for 2020 which had previously been suspended in the first quarter, resulting in a higher than normal bonus accrual in the second quarter. Compared to the prior-year third quarter, G&A expenses decreased $2 million, or 8%, due to lower overall employee compensation and related costs due to reduced headcount.

Interest expense, net of capitalized interest, totaled $8 million in third quarter 2020, a $13 million decrease from the prior quarter and a $15 million decrease from the prior-year third quarter. The decreases in both comparative periods were primarily due to the approximate $2.1 billion reduction in bond debt associated with the Company’s Chapter 11 restructuring during the third quarter of 2020. A schedule detailing the components of interest expense is included on page 20 of this press release.

The Company recognized a full cost pool ceiling test write-down of $262 million for the Predecessor Period from July 1, 2020 through September 18, 2020 as a result of the continued decline in first-day-of-the-month oil prices for the preceding 12 months. This write-down compares to full cost pool ceiling test write-downs of $662 million during the prior quarter and $73 million during the first quarter of 2020. As a result of fresh start accounting, oil and gas properties were recorded at fair value as of September 18, 2020, and there was no full cost pool ceiling test write-down for the Successor Period.

Depletion, depreciation, and amortization (“DD&A”) was $42 million during third quarter 2020, compared to $55 million in both the prior quarter and the prior-year third quarter. The decreases from the prior quarter and the prior-year third quarter were primarily due to the application of fresh start accounting resulting in lower asset balances.

Denbury’s effective tax rate for the Predecessor Period from January 1, 2020 through September 18, 2020 was 23%, slightly lower than the Company’s estimated statutory rate of 25%, due primarily to the establishment of a valuation allowance on the Company’s federal and state deferred tax assets after the application of fresh start accounting. Given the Company’s cumulative loss position and the continued low oil price environment, management recorded a total valuation allowance of $129 million on its underlying deferred tax assets as of September 18, 2020. For the Successor Period, the Company continues to offset its deferred tax assets with a valuation allowance. Thus, the income tax expense associated with the Successor’s pre-tax book income was offset by a change in valuation allowance.

BANK CREDIT FACILITY

In connection with the emergence from Chapter 11 bankruptcy proceedings, the Company entered into a new $575 million senior secured bank credit facility due January 30, 2024, with the lending group remaining consistent with that of the Predecessor’s bank credit facility. As of September 30, 2020, the Company had $85 million of outstanding borrowings on the senior secured bank credit facility, leaving $437 million of borrowing base availability after consideration of $53 million of outstanding letters of credit.

RECENT PIPELINE TRANSACTIONS

In late October 2020, the Company restructured its CO ₂ pipeline financing arrangements with Genesis Energy, L.P. (“Genesis”), whereby (1) Denbury reacquired the NEJD Pipeline system from Genesis in exchange for $70 million to be paid in four equal payments during 2021, representing full settlement of all remaining obligations under the NEJD secured financing lease; and (2) Denbury reacquired the Free State Pipeline from Genesis in exchange for a one-time payment of $23 million made on October 30, 2020.

HEDGING UPDATE

Details of the Company’s hedging positions as of November 13, 2020 are included below.

(1) Averages are volume weighted.
(2) If oil prices were to average less than the sold put, receipts on settlement would be limited to the difference between the floor price and the sold put price.

2020 CAPITAL BUDGET AND ESTIMATED PRODUCTION

The Company’s 2020 estimated development capital budget, excluding acquisitions and capitalized interest, remains unchanged from its previously estimated range of $95 million to $105 million. The capital budget consists of approximately $70 million for tertiary and non-tertiary field investments and CO ₂ supply, plus approximately $30 million of estimated capitalized costs (including capitalized internal acquisition, exploration and development costs and pre-production tertiary startup costs). Of this combined capital expenditure amount, $78 million (78%) has been incurred through the first nine months of 2020. Based upon this capital spending level, Denbury’s estimated full-year 2020 production is currently expected to be within a range of 50,900 – 51,400 BOE/d.

THIRD QUARTER CONFERENCE CALL INFORMATION

Denbury management will host a conference call to review and discuss third quarter 2020 financial and operating results tomorrow, Tuesday, November 17, at 10:00 A.M. (Central). Additionally, Denbury will post presentation materials on its website which will be referenced during the conference call. Individuals who would like to participate should dial 877.705.6003 or 201.493.6725 ten minutes before the scheduled start time. To access a live webcast of the conference call and accompanying slide presentation, please visit the investor relations section of the Company’s website at www.denbury.com. The webcast will be archived on the website and a telephonic replay will be accessible for approximately one month after the call by dialing 844.512.2921 or 412.317.6671 and entering confirmation number 13696085.

Denbury is an independent oil and natural gas company with operations focused in two key operating areas: the Gulf Coast and Rocky Mountain regions. The Company’s goal is to increase the value of its properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis relating to CO ₂ enhanced oil recovery operations. For more information about Denbury, please visit www.denbury.com.

This press release, other than historical information, contains forward-looking statements that involve risks and uncertainties including estimated 2020 production and capital expenditures, and other risks and uncertainties detailed in the Company’s filings with the Securities and Exchange Commission, including Denbury’s most recent report on Form 10-K. These risks and uncertainties are incorporated by this reference as though fully set forth herein. These statements are based on financial and market, engineering, geological and operating assumptions that management believes are reasonable based on currently available information; however, management’s assumptions and the Company’s future performance are both subject to a wide range of risks, and there is no assurance that these goals and projections can or will be met. Actual results may vary materially. In addition, any forward-looking statements represent the Company’s estimates only as of today and should not be relied upon as representing its estimates as of any future date. Denbury assumes no obligation to update its forward-looking statements.

FINANCIAL AND STATISTICAL DATA TABLES AND RECONCILIATION SCHEDULES

The following tables include selected unaudited financial and operational information for the Successor Period, Predecessor Periods from July 1, 2020 through September 18, 2020 and January 1, 2020 through September 18, 2020, and certain Combined information for the three and nine months ended September 30, 2020, in order to assist investors in understanding the comparability of the Company’s financial and operational results for the applicable periods. All production volumes and dollars are expressed on a net revenue interest basis with gas volumes converted to equivalent barrels at 6:1.

DENBURY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(1) Combined results for the quarter ended September 30, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods. Because of the impact of various adjustments to the financial statements in connection with the application of fresh start accounting, including asset valuation adjustments and liability adjustments, certain results of operations for the Successor are not comparable to those of the Predecessor. Management believes that the combined results provide meaningful information to assist investors in understanding the Company’s financial results for the applicable period, but should not be considered in isolation, as a substitute for, or more meaningful than, independent results of the Predecessor and Successor periods for the quarter reported in accordance with GAAP.

(1) Combined results for the nine months ended September 30, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods. Because of the impact of various adjustments to the financial statements in connection with the application of fresh start accounting, including asset valuation adjustments and liability adjustments, certain results of operations for the Successor are not comparable to those of the Predecessor. Management believes that the combined results provide meaningful information to assist investors in understanding the Company’s financial results for the applicable period, but should not be considered in isolation, as a substitute for, or more meaningful than, independent results of the Predecessor and Successor periods for the nine months ended reported in accordance with GAAP.

DENBURY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(1) Combined results for the nine months ended September 30, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods. Because of the impact of various adjustments to the financial statements in connection with the application of fresh start accounting, including asset valuation adjustments and liability adjustments, certain results of operations for the Successor are not comparable to those of the Predecessor. Management believes that the combined results provide meaningful information to assist investors in understanding the Company’s financial results for the applicable period, but should not be considered in isolation, as a substitute for, or more meaningful than, independent results of the Predecessor and Successor periods for the nine months ended reported in accordance with GAAP.

DENBURY INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of net income (loss) (GAAP measure) to adjusted net income (loss) (non-GAAP measure)

Adjusted net income (loss) is a non-GAAP measure provided as a supplement to present an alternative net income (loss) measure which excludes expense and income items (and their related tax effects) not directly related to the Company’s ongoing operations. Management believes that adjusted net income (loss) may be helpful to investors by eliminating the impact of noncash and/or special or unusual items not indicative of the Company’s performance from period to period, and is widely used by the investment community, while also being used by management, in evaluating the comparability of the Company’s ongoing operational results and trends. Adjusted net income (loss) should not be considered in isolation, as a substitute for, or more meaningful than, net income (loss) or any other measure reported in accordance with GAAP, but rather to provide additional information useful in evaluating the Company’s operational trends and performance.

(1) Combined results for the three and nine months ended September 30, 2020 are provided for illustrative purposes and are derived from the financial statement line items from the Successor and Predecessor periods. Because of the impact of various adjustments to the financial statements in connection with the application of fresh start accounting, including asset valuation adjustments and liability adjustments, certain results of operations for the Successor are not comparable to those of the Predecessor. Management believes that the combined results provide meaningful information to assist investors in understanding the Company’s financial results for the applicable period, but should not be considered in isolation, as a substitute for, or more meaningful than, independent results of the Predecessor and Successor periods for the quarter and nine months ended reported in accordance with GAAP.
(2) Diluted net income (loss) per common share includes the impact of potentially dilutive securities including nonvested restricted stock, nonvested performance-based equity awards, warrants, and shares into which the Company’s previous convertible senior notes were convertible. Basic and diluted earnings per share calculations for the GAAP reporting periods are included on page 13.
(3) The net change between periods of the fair market values of open commodity derivative positions, excluding the impact of settlements on commodity derivatives during the period.
(4) Reorganization items, net represent (a) expenses incurred subsequent to the filing petition for Chapter 11 as a direct result of the prepackaged joint plan of reorganization, (b) gains or losses from liabilities settled, and (c) fresh start accounting adjustments.
(5) Full cost pool ceiling test write-downs related to the Company’s oil and natural gas properties.
(6) Accelerated depreciation for an asset impairment during the three months ended September 30, 2020, and impaired unevaluated properties during the three months ended March 31, 2020.
(7) Gain on debt extinguishment related to the Company’s 2020 open market repurchases and June 2019 debt exchange.
(8) Severance-related expense associated with the Company’s May-2020 involuntary workforce reduction.
(9) Expenses incurred before the petition date and after the Emergence Date related to advisor and professional fees associated with review of strategic alternatives and comprehensive restructuring of the Company’s indebtedness.
(10) Insurance reimbursements associated with a 2013 incident at Delhi Field.
(11) Other includes the following adjustments: (a) for the three months ended September 20, 2020, $5.9 million gain on land sales, $4.2 million write-off of trade receivables, $2.2 million of expense associated with the Delta-Tinsley CO ₂ pipeline incident and $0.5 million of expense associated with the helium supply contract trial court ruling, (b) for the three months ended September 30, 2019, a $6 million gain on land sales, <$1 million of transaction costs related to the Company’s privately negotiated debt exchanges, and <$1 million of expense associated with the helium supply contract trial court ruling, (c) for the three months ended June 30, 2020, $0.5 million of costs associated with the helium supply contract trial court ruling and $0.7 million of expense associated with the Delta-Tinsley CO ₂ pipeline incident, (d) for the nine months ended September 30, 2020, $0.5 million of expense associated with the helium supply contract trial court ruling and $0.9 million of expense associated with the Delta-Tinsley CO ₂ pipeline incident, and (e) for the nine months ended September 30, 2019, $1 million of expense related to an impairment of assets, $1 million of transaction costs related to the Company’s privately negotiated debt exchanges, and an additional $0.8 million of expense associated with the helium supply contract trial court ruling.
(12) The estimated income tax impacts on adjustments to net income for the nine months ended September 30, 2020 are computed based upon a rate of 25% applied to income before tax, which incorporates discrete tax adjustments primarily comprised of the tax effect of the ceiling test and accelerated depreciation, impacts of the CARES Act, valuation allowances, and the periodic tax impacts of a shortfall (benefit) on the stock-based compensation deduction.

DENBURY INC.
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

DENBURY INC.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (UNAUDITED)

Reconciliation of cash flows from operations (GAAP measure) to adjusted cash flows from operations (non-GAAP measure) and free cash flow (non-GAAP measure)

Adjusted cash flows from operations is a non-GAAP measure that represents cash flows provided by operations before changes in assets and liabilities, as summarized from the Company’s Unaudited Condensed Consolidated Statements of Cash Flows. Adjusted cash flows from operations measures the cash flows earned or incurred from operating activities without regard to the collection or payment of associated receivables or payables. Adjusted cash flows from operations less special items is an additional non-GAAP measure that removes other special items. Free cash flow is a non-GAAP measure that represents adjusted cash flows from operations less special items and interest treated as debt reduction, development capital expenditures and capitalized interest, but before acquisitions. Management believes that it is important to consider these additional measures, along with cash flows from operations, as it believes the non-GAAP measures can often be a better way to discuss changes in operating trends in its business caused by changes in production, prices, operating costs and related factors, without regard to whether the earned or incurred item was collected or paid during that period.