Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the Denbury Resource. This conference call. My name is Darryl and I will be your operator for today's call.
At this time all participants are in listen only mode. Later, we will conduct a question and answer session to ask the question at that time. Please press star one I would now like to turn the conference call over to your host John Mayer Denbury is director of Investor Relations. Please proceed sir.
Good morning, everyone and thank you for joining us today.
With me on the call or Chris Kindle, or President and Chief Executive Officer.
Mark Allen, our executive Vice President and Chief Financial Officer.
David Shepherd, our senior Vice President of operations.
And Matthew Dan, our senior Vice President of business development technology.
Before we begin I want to point out that we have slides, which will accompany today's discussion.
Should you encounter any issues with slides advancing during the webcast portion of the presentation. Please refresh your browser.
For those of you that are not accessing the called via the webcast. These slides may be found on our home page Denbury dot com by clicking on a quarterly earning center link under resources.
I would also like to remind you that today's call will include forward looking statements that are based on the best at most reasonable information we have today.
There are numerous factors that could cause actual results to differ materially from what is discussed on todays call.
You can read our full disclosure on forward looking statements and the risk factors associated with our business and the slides accompanying today's presentation. Our most recent SEC filings and today's news release, all of which are posted on our website Denbury dot com.
Also please note that during the course of today's call will reference certain non-GAAP measures.
Reconciliation and disclosure relative to these measures are provided in today's news release as well as on our website.
With that I will turn the call over to Chris.
Thanks, John Good morning, everyone and thank you for joining us today.
And my comments this morning, I'll start with an overview of the corridor and the full year along with our plans for 2020.
Then hand, the call over to David who will discuss our operations and finally to Mark to walk through our financial results.
Denbury is results for both the quarter in the full year were outstanding we achieved or exceeded each of our key goals for the year.
Most importantly, we set new company records for safety performance, ensuring that our employees and contractors were safer than they have ever better.
Safety is the cornerstone of exceptional operations and while I'm thrilled with the progress we've made I'm sure that will get even better.
Our development projects were successful generating high returns as we continued to derive even more value from a great set of long life oil weighted assets.
We found new success with exploitation and late in the year, we entered into an exciting joint venture that will accelerate our exploitation program in the Gulf Coast.
We made good progress on RCC, a yard development project and we reduced our costs, even further with the voluntary separation program implemented late in the year that will reduce our ongoing cost by over $20 million per year or about one dollar per barrel.
Our strong operational performance paved the way for great financial results as well.
We continued to generate significant free cash flow and 165 million delivered for the full year was well above our guided range.
By strong production performance and a relentless focus on cost.
We made significant improvements to our balance sheet, reducing debt by 250 million well extending maturities of another 350 million in debt and our bank facility was undrawn at the end of the year.
Denbury is operating margin remained very strong in the fourth quarter nearly $28 per be or we are 50% of revenue.
The operations teams, hi focus on managing costs and smart sustainable waves resulted in total opex at the low end of our guided range for the year, helping us maximize the value generated from every barrel of oil we produce.
Taking a high level look at production in 2019, our performance was solid across the board our full year production was in the upper half of our guidance range, even after the mid year sale of our Citron L. field.
What makes these production results even better is that we achieved them with very low capital spend even below the low end of our guidance.
We exercise great discipline in our capital program, ensuring that capital is carefully allocated to the highest return projects and our results in both capital spend and production validate the success of this discipline.
Looking now at our plan for 2020, as we considered our key 2020 priorities of spending within cash flow.
Dressing near term debt maturities and reducing debt, we've reduced our base capital budget by nearly 25% from the already low level spent in 2019.
Our base capital range of 175 285 million provides for the execution of multiple high return projects.
I should also drive around 100 million and free cash flow if prices remain in the $50 ranch.
In 2020, we also plan to continue to progress our flagship project initiating you our development in the massive Cedar Creek anticline.
However, because most of the project spend an activity is in the second half of the year and considering the current uncertainty in the oil market along with our priority of addressing our near term debt maturities.
We've decided to defer our investment decision on the incremental hundred 4200 50 million needed for CCH until the second quarter of 2020.
I'm optimistic that will proceed with the project this year, but I think the why this choice at this time is to deferred the investment decision, especially because the execution plan permits us to do so without impacting the project.
Because our very low capital level this year as well below the mid 200 million range that we believe is needed to hold production flat.
We expect continuing 2020 production to be slightly lower year on year.
After accounting for the Citadel sale as well as the expected 50% working interest sale of the fields associated with the Gulf Coast JV.
We expect full year production to be in the 53000 to 56000 Boe per day range with the midpoint, just 4% below the corresponding 2019 production level.
With 100% of our field held by production our ability to flex development capital is a great characteristic of our business. One that has helped us consistently spend within cash flow through a wide range of oil price environments.
Next I'll outline our key priorities for 2025.
First and as I mentioned earlier it is essential that we maintain our focus on operational excellence.
We have made great strides as reinforced by our 29 10 results, but we will continue that focus to improve safety improve reliability reduce costs and become even more efficient.
Second we will take steps to address our near term maturities and continue our great progress on reducing overall debt.
Third we will continue to drive value from within our great asset base, both through incremental ear, our development and through our exploitation program, which will be accelerated upon commencement of the Gulf Coast JV.
Finally, as I mentioned, we'll continue down the path to bring you are to our massive C.C.A. asset, but we'll make the ultimate determination on proceeding with the bulk of that capital in the second quarter.
Before I hand, the call over to David I'd like to talk about a shift in the industry that I see is exciting and extremely beneficial for denbury.
This shift is driven by an increase in the urgency of meeting the dual challenge of fueling the world's economy and continuing to improve the quality of life for all while mitigating climate risk by reducing atmosphere axio to emissions.
The role that oil and gas companies playing the challenge is essential not only because we find that produce these hydrocarbons, but because we can be a key part of this solution to reducing C or two emissions as well.
Denbury is uniquely well positioned to be a meaningful part of this solution.
Our current that you are business already makes a significant impact injecting over 3 million metric tons of industrial Seo two per year.
This is equivalent to taking 700000 cars off the road.
We see our impact growing significantly as more captured industrial CEO to becomes available.
Equally exciting is the emerging carbon capture usten storage business or Cc U.S.
We're industrial sales, who is captured and it's not necessarily only used for you are but may also be stored and non hydrocarbon underground reservoirs.
Denbury is uniquely qualified to become a leader in this business both through our expertise and our assets.
Our technical and operational expertise comes through two decades of experience in a business that is fundamentally focused on Seo too.
We safely and efficiently move about a quarter million tons of C. O. Two each day through pipelines compressors pumps production equipment and into and out of wells and reservoirs.
We have a workforce that is trained and ready to apply the same expertise and high standards that we use any you are two assisi U.S. business.
On the technical side, our staff has experienced in the unique challenges of handling Seo too and ensuring that it is safely contained an underground reservoirs.
Our in house 40 seismic expertise is a powerful advantage that we've refined over two decades of your operations, helping us frequently monitor how C. O two is moving in reservoirs.
Idle step and ensuring that C O two remains effectively sequestered after injection.
Denbury is assets are perfectly situated for cc U.S. in particular, our Gulf coast pipeline system with strategically located to be close to both current and expected industrial C. O. Two sources along the Gulf Coast.
And our 24 inch Seo two pipeline through Louisiana, and Southeast, Texas has the capacity of transporting at least 20 million tons of Seo two per year from industrial sources to sequestration reservoirs, well generating significant on a sustained cash flow.
Because CEO to you our NCC U.S. are both highly impactful solutions to reducing C or two emissions. They receive brought a bipartisan support from the U.S. and local governments and recent steps by the U.S. government further demonstrate that support through the expanded and extended 45 Q tax credit.
When this tax credit was enacted in 2018, it provided for a credit a $35 per ton for CEO to captured for you our use and $50 per tonne for that captured and placed in non that you are sequestration.
Lack of clarity and other provisions of the original tax credit did not spur significant cc U.S. investment, but denbury and many others have been working with other stakeholders to improve and clarify 45, Q to where it can be a useful incentive for investment in this critical effort.
I'm excited to say that I feel very good recent progress on this front.
Earlier this month the IRS provided clarity on two key outstanding provisions and we expect the remaining outstanding items to be clarified in the near future.
Once this clarity is finalized I believe that a very exciting new business opportunity will rapidly emerge.
Spec that multiple new capture projects will be sanctioned both along the Gulf coast and across the U.S.
The opportunity to provide a full capture solution receiving captured CEO to from industrial emitters, then safely and efficiently transporting it to storage sites injecting it into those reservoirs and monitoring its placement will be a necessary and valuable service.
I believe Denbury came quickly become a leader in this evolving new area, providing new opportunities to expand our future growth potential.
Now I'll pass the call over to David for an update on Denbury is operations.
Thank you, Chris and good morning, everyone before I go into the quarterly results I would like to provide an update on an incident that occurred this past weekend Saturday February 22nd relative to our delta tends lease yield to pipeline in Mississippi.
On Saturday evening, our CEO to operation Center detected a pressure loss on our 24 inch Delta Tinsley CEO to pipeline immediately triggering our emergency response protocol. The affected pipeline segment was off later, but the minutes a detection and that's up or caution the area surrounding the lead side was evacuated.
Including residents of the small nearby town of such Harsha.
No injuries to local residents our employees our contractors were reported in association with the league. The site was declared safe and the evacuation was lifted early the following morning, allowing residents to safely returns or their homes. The area surrounding the lake is secure and poses no threat to the public.
We do not wish to speculate on the calls the incident at this time, but we are working closely with federal agencies to investigate the calls and to take the appropriate steps to promptly put the line safely back in service.
As this pipeline supplies, so you'll to our kinsley and they'll have fields, we had suspended seo to purchase volumes to those fields. The recycled facilities at both Tinsley and they'll have our operating as usual, but total field to injection rates are reduced due to the curtailment of Seo to purchase volumes.
Back to see some level of production impact in the first quarter, but as we are still assessing the situation. It is too early for us to estimate the impact.
Finally, I want to reiterate that as we move forward with the repair the safety of the public and protection of the environment remain our top priority.
As ive transition to discuss the quarterly results I want to first ups Express how pleased I am with the full year 20, not seen operations accomplishments.
We're 20 not team, we operated safer than ever before setting a company record low total recordable incident rate and exceeded the midpoint of our original production guidance, while spending at the lower end up guidance in both locally and capital categories.
I would like to circle back to production to take a closer look at both the quarter and the full year.
Production for the fourth quarter of 20, not team was 1070 be OE per day about the third quarter, reaching just over 57500 Boe per day, and resulting in full year production over 58200 Boe per day within the top half of our original guidance for the year. Despite the sale.
Sicher nail field at the beginning of the third quarter and in line with the midpoint of our mid year upward revised 20, not team production guidance range.
Quintle quarter increase was primarily due to rebounding production at Bell Creek, where production have been reduced in the third quarter.
Due to an extended period of planned maintenance at our primary north region CEO to source.
Bell Creek Phase five continues to perform as expected and we recently began seeing a production response from phase six at Bell Creek, which all the touch on further in a moment.
Lease operating expenses during the fourth quarter decreased slightly from the prior quarter on both an absolute and per be OE basis with quarterly although we have $116 million are just under $22 per Boe we.
So youre two calls were up in the quarter due to the return of field to volumes at our primary North region Seo to source, however decreases in other categories, notably workovers more than offset the additional field to cost and drove low we lower for the sequential quarter.
For your although we previously was $22 and 46 assets at the lower end of our original guidance of $22 to $24 per deal we.
As we enter 2020 with production rates declining slightly year over year as a result of lower maintenance capital spend we continue to focus on sustainable improvements that will drive cost out of our production operations and our watts of young guiding lowi to be $22 to $24 per deal where you for the year 2020.
Slide 16 provides an update of our plan your development at Cedar Creek Anticline.
During 20 not team, we completed rolling encoding into pilot for this easy or you feel to pop line, which is awaiting installation.
Total spending in 2024, the CCH Youre project is projected to be a $155 million with $140 million to $150 million about them out conditioned upon board approval in the second quarter.
Subject to that approval, we intend to began installing the pop long in the second half a 2020 with C. O two injection commencing in early 2021.
In connection with the first two phases, we anticipate storing approximately 90 million metric tons of an industrial sourced CEO to contributed into the carbon negative story, Chris outlined earlier.
Turning your attention to slide 17 fourth quarter 2019, net tertiary production at Bell Creek build rebounded to over 5600 barrels per day.
From just under 4700 barrels per day in the third quarter as production increased nicely with the yield to purchase resuming subsequent to the north region CEO to source maintenance I mentioned previously.
Phase five in the field is performing in line with expectations and we have recently began seeing a production response from two producing wells in phase six.
With production growth and save six expected to continue to grow at a modest rate for 2020.
Late in the fourth quarter, we drilled a second whale and Bell Creek targeting untapped accumulations in a previously completed phase of the development as a follow on to the to the successful well, we drilled and pays for earlier in 2019.
Completion operations have recently concluded and we are eagerly awaiting production results. The team continues to look for prospects within the existing producing developments and has been bringing forward highly economic high probability exploitation opportunities.
Our plans include drilling a well in a separate accumulation during the third quarter of 2020.
We continue to evaluate multiple exploitation opportunities across our portfolio and the Brookhaven taste and project is another great example of the value that can be generated within our great assets. The case and target was identified through seismic data evaluation within in the actively producing area the field we drilled.
I believe in our first well in the Brookhaven case say on during the fourth quarter, a 20 not team for cost of approximately $3 million and are seeing highly successful early production results with an estimated IP 30 of around 400 Boe per day, and the 95% oil cut.
We have plans to drill and an additional two wells during 2020 in the same seismic feature identify by our teams.
We are not only excited about this opportunity, but we're also looking forward to applying these learnings as our teams continue to look for ways to extract additional value from our assets.
In December we announced that we have entered into an agreement to farm down half of our nearly 100% working interest in for conventional southeast, Texas oil fields for $50 million cash and a carried interest in 10 wells to be drilled by the purchaser.
The fields included our Webster Thompson Mannville.
And these tastings and the sale is currently expected to close within the next few weeks.
The agreement as structured such that the purchaser will fall in 100% of the capital to drill and complete an initial 10 horizontal wells across the fields with the first at the 10 wells to be Spudded within six months of closing and with all Tim wells to be completed within 18 months after closing.
On these initial 10 wells, we will receive a six in one quarter percent overriding royalty interest prior to payout and subsequent to pay out we will bear our 50% working interest in each well.
As part of the agreement, we will retain ownership of the future Webster units yield to flood, though departure, Sir can elect to participate at their working interest level, which also includes Robert reimbursement of project cost incurred prior to the farm down agreement.
At the purchaser declines to participate in the CEO to flood, we had the right to repurchase the working interest in the June it.
During 2019, we continue to progress the sale of our valuable surface land, we completed the sale of multiple parcels primarily around the Houston area totaling approximately $20 million through year end 2019.
Currently we have another $32 million under contract, which provides for a substantial portion of cash proceeds to be received no later than mid 2021 with the remainder to be recede by mid 2022.
We are actively working with the buyer to potentially closed the first portion of the sale before the end of 2020.
We continue to see significant interest and the remaining surface acreage and we believe future land sales could generate an additional $30 million to $50 million of cash over the next few years beyond the roughly $50 million. We currently have under contract or have sold.
Slide 21 outlines our change in reserve volumes and values. During 2019, we ended the year with 230 million before we have proved reserves with proved developed reserves comprising about 90% of the total the most significant changes from year to year were due to current year production.
And the change in commodity prices as we have stated previously when considering the effect of oil price on Denbury PV 10, a good rule of thumb is that a $10 oil price change results in about a billion dollar PV 10 change and the 20 not seem results are in line with that concept.
The average first they are the month Nymex oil prices decreasing by about $10 from the prior year.
Offsetting these decreases was a roughly 370 million dollar increase due to accretion of discount.
Next I'll turn it over tomorrow for a financial update.
Thank you David My comments today will highlight some of the financial items in our release, primarily focusing on the sequential changes from the third quarter of 2019.
Ill also provide some forward looking guidance for 2020 to help you update your financial models.
Starting on slide 23 fourth quarter 2019, adjusted net income was 47 million or nine cents per diluted share slightly better than the analysts expectations. This quarter's largest differences between adjusted and GAAP. Net income included 64 million of noncash expense from fair value changes in.
Commodity derivatives, and 50 million gain on debt extinguishment related to the private debt exchanges completed during the quarter and 19 million of severance related expense associated with the company's voluntary separation program.
Turning to slide 24, our non-GAAP adjusted cash flow from operations less special items, which excludes working capital changes in severance related expense was 134 million for the fourth quarter up 8 million from last quarter.
We generated free cash flow at 56 million in the fourth quarter. After considering 21 million of interest that is included as repayment of debt in our financial statements and 57 million, a combined development capital and capitalized interest.
For full year 2019, we generated free cash flow of 165 million as our results remained strong and our capital spending came in below the low end of our capital budget Rage.
This free cash flow was used primarily to help reduce our debt by 250 million in 2019.
Our fourth quarter average realized oil price at $58 per barrel. After hedges was down 2% from I realized price in the third quarter, primarily due to weaker differentials.
Slide 25 provides a summary of our oil price differentials.
Excluding any impact from hedges I realized oil price averaged 44 cents per barrel below nymex prices in the fourth quarter, which is down around a dollar and 75 cents per barrel from last quarter, but in line with the guidance, we provided an expectation of weaker differentials for both our Gulf Coast and Rockies production.
Looking ahead to the first quarter of 2020, we expect that our overall oil differential will declined slightly from the levels realized in the fourth quarter due to further weakening of the LLS differential and moderately lower differentials in the Rockies region.
We currently estimate that our overall first quarter 2020, Nymex differential will be in the range of 50 cents to a dollar below Nymex prices.
Slide 26 provides a review of certain expense line items since David already addressed Ela, we I will start with Gionee.
Our Gina expense, excluding 19 million of severance related expense associated with the previously mentioned voluntary separation program was 10 million for the fourth quarter of 2019.
A decrease of 8 million from the prior quarter with a significant portion of the decrease due to lower compensation and employee related costs on a year to date basis also excluding severance related expense, our Gina expense was down about 10% from the prior year period.
Ongoing annual savings for the voluntary separation program are estimated at 21 million spread across Gina expense lease operating expense and capital. We expect Gina expense in the first quarter of 2020 to be between 17 million and 20 million with stock based compensation, representing them roughly 3 million of that amount.
For subsequent quarters, we expect DNA will be somewhat less with our expected annual Gina expense and the range at 60 to 65 million recall that our DNA in the first quarter tends to be higher than other quarters due to the higher payroll taxes and other compensation related items associated with bonus and award payouts in Q.
Yeah.
Net interest expense was 21 million this quarter decreased a decrease of 2 million from last quarter due primarily to lower cash interest on the bottom portion of this slide there is a detailed breakout of the components of interest expense capitalized interest was approximately 9 million for the fourth quarter and we currently expect that are.
Capitalize interest will be in the eight to 10 million range for the first quarter of 2020.
Our depletion and depreciation expense this quarter was 63 million an increase of 8 million from the prior quarter. This increase was due in part the higher depletion and see you two assets during the quarter as the prior quarters depletion was abnormally low as result of lower Seo to production and the Rockies region from the planned maintenance at.
Primary Seo to source plant with the remainder attributable to higher oil and natural gas property to position as a result of higher net property balance and a higher depletion rate.
We currently expect that DDNA for the first quarter of 2020, well be at a similar level as the fourth quarter 2019.
The next slide provides a current summary of our oil price hedges were approximately 70% hedged using the midpoint of our estimated 2020 production.
With 80% of our contracts being collar structures that provide for downside protection and upside participation.
The weighted average floor price for our 2020 oil hedges is about $57 per barrel for Nymex contracts and around $61.60 per barrel for LLS based contracts.
Based on our current assumptions and projections, we estimate that at a $50 Nymex oil price our hedge portfolio will generate around 105 main of cash proceeds in 2020.
If nymex prices were to average $55 per barrel for 2020, we would expect those cash proceeds to decrease to around 37 million.
We typically estimate that every five dollar change in oil price excluding hedges results in a 100 million dollar change and cash flow. So you can see that our hedges are providing significant protection such as the amount of cash flow lost between a 55 and $50 oil price is closer to 25 million than an unhedged when.
Hundred million.
Turning to our next slide during October and November of 2019, we repurchased principally through exchanges.
100 million of our senior subordinated notes for 11 million in cash and the issuance of 38 million shares of the company's common stock.
We also used free cash flow generated during the quarter to repay outstanding borrowings on our bank credit facility contributing to the 154 million reduction in our debt since September 30.
These transactions together with other transactions throughout the year resulted in a total debt principal reduction of 250 million during the during 2019.
Utilizing a 136 million of cash and 38 million shares of Denbury stock.
In the aggregate we have reduced our total debt principal by 1.3 billion since year end 2014.
We ended the year with no amounts drawn on our 615 million Bank line, giving is 528 million up liquidity after considering letters of credit.
Moving to slide 29.
At year end 2019, our trailing 12 months leverage ratio was 3.7 times compared to 4.2 times at year end 2018.
We're pleased with the continued progress we have made with our leverage metrics over the last several years and reducing our leverage and improving our debt maturity profile remain top priorities.
As we have discussed in the past and as demonstrated by our 100 million repurchase of senior subordinated notes during the fourth quarter, we continue to focus on improving the company's balance sheet.
We are currently assessing various alternatives to further this effort primarily focused around maturity extension and or debt reduction with our top priorities being 2021, and 2022 second lien debt maturities, including potentially using access to unused first lien capacity to help refund.
Since the second lien debt.
We also continue to evaluate capital enhancing opportunities such as asset sales and our joint ventures, particularly for our CCOH two pipeline.
Affected enhance liquidity and further reduce debt.
And now I'll turn it back to John.
Thank you Mark that concludes our prepared remarks, operator can you. Please open the call up for questions.
Thank you.
And we will be conducting a question and answer session you would like to ask a question. Please press star one on your telephone keypad.
For participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys confirmation tone will indicate your line is in the question Q.
Hey Press Star too if you would like to remove yourself from the Q1 moment. Please while we poll for questions.
Our first questions come from the line of Charles made of Johnson Rice. Please proceed with your question.
Good morning, Chris then John market in the whole team there.
I really appreciate the way you guys have already answered a lot of questions about how you're going to address the CCH pipeline.
Decision and I think it makes sense that you guys you push this later in the year, we when you get to see few more cards, but I guess my question is around what are those cards in one of the relevant pieces and how are you going to navigate through that I can think about you know if we have the situation where.
Oil prices move higher you guys successfully executed JV and you you re Fi your your second lien. Okay. That's you we're definitely going to see that that Capex ruled that the picture. Conversely, if you like Mark said.
You have to use some of their first lien capacity to deal with the could you what's the the second lien.
And oil prices stay at you know it at current levels I could see it wouldn't go forward or at least this year, but is can you talk about what the moving pieces are to you and whether I have to write read.
So far on on the way it looks for you guys.
Yeah, you bet, Charles and I think that you've got it pretty much on track with what you've already said I'll just just share a few additional thoughts.
As we've talked about see say in the past we love. This project. It's it's a real cornerstone to what we want denbury to be pointed towards in the future. So it's a priority.
But at the same time, when we look at just where this year started and we see a pretty pretty choppy market out there with the Corona virus fears.
Running running pretty hard right now.
Combining that with just how the project timing as and when we look at the timing of the installation of the pipe. For example, that's a second half event and that just also just make perfect sense.
With the market and then with the other at some of the other activity that we're looking at that you mentioned.
Still still wanting to see where they progress. So just a great example is the the very exciting JV that.
David talked about on the Gulf Coast, but Oh, so we have that under contract we expect it to close in a few weeks, we'd like to see that get done just as one example.
And of course, so we'll continue working on.
Other elements around the balance sheet that makes sense, but I do think that your read on it is pretty accurate.
Thanks, Chris Thanks for adding that debt one piece about that the Gulf Coast JV, and then lot of interesting things to talk about operationally, but but Chris I want to go back to one of the points in your prepared remarks. He talks about the carbon capture use of storage. This is a a this is something I don't want to say zix explode. It but this is this is really.
Isn't in prominence over the last 12 or 18 months in and I think it gets investors excited about the Denbury story, but I'm curious from your point of view.
What timeline should we be thinking about for this to actually.
Contribute to revenue or margin Act denbury.
That's a great question Charles on on the timeline and certainly like you. We see this in the news everyday just this morning I see a see more companies that are starting to point towards that as a means of getting themselves into a better carbon footprint a profile.
Interestingly, though when you think about Denbury and what we do and so many of the other companies that are really have a different business model for us Cc U.S. is a perfect fit it is literally just an extension of what we're doing technically and operationally and uses assets that we have that are.
Mission didn't were thought through over many years ago to be able to do just just what we want here.
So we feel great about where our position as an us and even the the pent up a potential capture that were aware of is very significant just as an example on the Gulf Coast right. Now we know of a specific projects that are that are pending approval that will be cash.
Capturing CEO to to the tune of about 14 or 15 million tons per year.
So if you compare that to the 3 million tons per year that were currently using of industrial C. O. Two as a company. It's a multiple of four to five times that so that that we see as potential being approved when we see these these 45 Q tax credits get clarified.
Just a big business.
Now as to the timeline those are projects that will take time to develop so I would certainly say I would not look at.
The next that this year or the next to next couple of years as years that you'd expect to see significant.
Cash flow gains, but I would expect that you'd see us moving in the direction to where those projects are sanctioned and were participating in some fashion and so you'd have a view to what that what that future cash flow looks like it's somewhat longer term, but just just as you mentioned the the big push not just.
On oil and gas companies, but on any industrial emitters.
Is pretty heavy and we see that with a 45 Q coming together.
Partly that there'll be there'll be some announcements coming that will.
Capturing CEO to from these new projects.
Thanks for that added detail Chris.
All right. Thanks Charles.
Our next question comes from the line of Mike Fiala of Stifel. Please proceed with your question.
Hi, good morning, everybody.
Good morning.
You said you're up your base plan I believe is built on $50 to be T. I just want to see what your thoughts are I would do would that be plan change at all if say oil turns out to.
Average somewhere in the low fortys or is that based plan pretty well set at this point.
Oh, Mike I'd say, it's pretty well set I mean always we're going to be looking at the market and making adjustments that we need to depending on where the market is headed but I'd really point back to Mark's comment about our hedge book I mean, we took a good chunk of last year building up a very strong hedge.
But I can have in 70% of our production built into that we're feeling pretty insulated against the a range of oil prices that we see a right now and like I said if things go go too far we're going to obviously continue to look at that but I would think that we would focus on the base plan that we have.
Evan and not want to flex it.
Significantly unless we see prices move well outside the range that we that we currently have.
[noise], great understood and I'm wondering if you could talk a little bit more about your exploitation projects said, obviously some.
Pretty exciting.
Results at a Brookhaven and also on to see if you could talk about what your JV partner will be doing in the.
What's the working interest that they picked up in those fields.
Any particular.
Exploitation projects you could talk about there.
Yes, Mike This is Matt Dan I'll I'll take those questions.
Starting on Brookhaven very excited to once again utilize their existing seismic database to find additional potential.
David mentioned generally we have two wells to drill there and we continue to look within Brookhaven an across the rest of our portfolio, particularly in Mississippi for similar opportunities.
As far as the JV goes in the in the Gulf Coast, They picked up 50% working interest.
They're committed to drill 10 wells and curious on those 10 wells.
And then post payout.
We'll go back and for our 50%.
There's been identified upwards of 60 locations in multiple intervals across the four assets.
So they have to spud to first well within the in the six months after closing.
In 18 months to complete all 10 wells.
And Mike just jumping in on.
Matts comments, there I just see a wet to that joint venture is going to do is really allow us just to accelerate to what we'd already started down they're looking for these a nice remaining accumulations of oil that that are in these great reservoir. So it just.
Really just just pushing that at a faster pace.
Maybe just one follow up on that is it the in terms of the.
The locations in the prospects that you've identified will denbury have any.
Saying, where those are drilled or will that be determined by the partner.
They'll make the initial proposal Denbury will review everyone before we drill.
Very good thank you.
Thanks, Mike.
Our next question comes from the line of Brad Heffern of RBC capital markets. Please proceed with your question.
Hey, good morning, everyone.
A question warning a question on the production guide so.
And it looks like versus the adjusted number for 2019 down between two and 7% I was curious if that's consistent with the decline level you would expect from this capital spend or if there's anything.
Unique about 2020 in terms of feel downtime or or fear to source downtime or anything that's affecting the numbers.
Good morning, Brad This is David Shepherd I'm going to take that question. Yeah. Some of your brought on track you know with the adjustment for our Citron LCL, no and aren't Avatar us.
Gulf Coast farm down you're seeing about 1300 barrel a day, a roughly impact on an annualized basis, but as you think about you know one of the grey attributes of our company is our ability to flex capital and that flexing the capital to match and on the current commodity prices.
In the market.
Flexing virtues in the flex that capital down this year because of where the market is not our maintenance capital is projected to be about $170 million now for 2020, and if you think about that to the in succession 20, not team we spent about $220 million.
On maintenance capital and so both of those numbers are below.
What we guide to be not middle to upper $200 million range for maintenance capital and so with that being said in a were only down about 4% at that reduced consecutive level of maintenance capital spend. So I think the assets are very resilient no for for that level of spend to them and what we're putting into them.
There is no substantial impact from any external causes as you move suggested earlier at France as CEO to source impact.
Okay got it thank you.
And then I guess on the Houston acreage I noticed state you put.
<unk> dollar value on the remaining assets I think for the first time that 30 to 50 million dollar figure.
I was just curious you know sort of whats getting that confidence in that range and does it suggest any.
Additional line of sight into end to.
I knew.
No contract there.
Hey, Brad This is David again, I'll take that to as well and so yes, we've seen a lot of interest in a in the remaining balance of our prospective acreage sales. There. So we're currently in negotiations on several of those tracks none of them have landed in the contract to the phase yet, but it does reinforce.
You know our total no original value estimate that eightyish to 100, almost 100 million dollar value range, So pleased with where that's out today.
Okay. Thank you.
Our next questions come from the line of Gail Nicholson of Stephens. Please proceed with your question.
Good morning, Thanks for taking my question. When you look at kind of basic that Bell Creek could you talk about how we should think about ramping throughout the year and where you dissipate.
Our binds being one basics first is for hearing basics.
Yeah. This is Matt Dan ill take a stab at that one if you flip to slide 17, you can look at the performance of each of the individual Bell Creek phases.
And there really very similar to one another and we expect phase six to perform as the other phases have and it's really just ratio it on the amount of oil that we're targeting so.
A little bit better than phase three a little bit less than phase five so it's going to fall there somewhere in between.
Okay, Great and then.
The other significant tertiary projects you planned in 2020 and.
Timing of does.
Yeah.
How much volume metrics are you anticipating fernndez nager significant your from your projects to benefit 2020 actually benefiting 21.
Yes, Matt again.
So our first project, we're executing in 2020 is always to buy redevelopment.
But again these are seo to flood so.
Once the capital spent we have to inject Seo too so actually little volumes coming in 2020 with the big push coming.
The following year.
And then just looking at your other capitalized item guide at 40 million back down a versus B roughly 46 nine during 2019 and 2018 can you talk if there is incremental improvement there and look forward into 21.
All right Yeah, Yeah, Yeah. This is mark.
Alvin and most of that probably was result of voluntary separation and so some of our cost have have come down there. So that we wouldn't expect that to change much going forward and thus.
We make other changes to the.
Cost structure.
Okay, great. Thank you.
Thanks again.
Our next questions come from the line of Richard Tullis of capital One Securities. Please proceed with your question.
Thanks, Good morning, everyone I.
Hi, good comments, Chris related to the potential carbon capture opportunities out there what does the expected scope of potential additional investments.
Required by Denbury in order to participate in those sort of endeavors I know.
Couple of large caps and majors that had been partnering with some companies in the alternative energy space at what do you envision safe from Denbury over the next couple of years.
Sure richer than and that's a good question and then that it's part of the reason that were particularly excited about this is a.
What I think of the different ways of of executing Cc U.S. So to me still the the most impactful waves of capturing in injecting a large volumes of.
Carbon dioxide, our from single point emitters that.
Can capture.
Large volumes of CEO to put them into a pipeline and transport them into an injection site. There. Many other technologies for capturing Seo to from the atmosphere and and other other technologies, but to us. The the one that is really shelf ready and and has great potential to to make an impact.
That is through those capture from those emitters. So when you ask about the types of investments that we'd be looking at making now the good news with Denbury is we've already made the vast majority of those investments.
Our strategic Gulf Coast pipeline that 24 inch line that runs across the Louisiana industrial corridor into South Eastern Texas is right in the location, where so many of these different projects are going to be developed and so for us that investment has been made we can tie into those into.
For those projects and transport that C O two to either a neo our site or a or non neocart captures our sequestrations site.
But we don't I, so I don't see a huge investment a at this time I think theres investments on the sides of the industrial captures.
But that is that is typically scope that is borne by by those those companies and the other side most of the investments already in place.
That's helpful. Thank you and then just lastly from me.
Regarding proved reserves removing commodity prices from the equation.
Should we expect additional year over year decline at year end 20 related to the base budget similar to maybe what we saw.
This year.
Well in 2019.
Yeah. This is this Matt Dan.
Yeah, I mean, as David pointed out our production.
What are production guidance is of course, those volumes are going to roll off.
In 2020.
And then going forward.
I mean, our production has been very stable our reserves have been very stable and really looking at.
Offsetting as Cc a comes online we are able to book reserves. There hopefully this year when the pipe goes in.
And then some of these other projects that you see on the table.
Adding not only PDP production, but also ultimately some undeveloped reserves behind them offsetting all that production.
Okay. Thank you appreciate it.
Thanks Richard.
We have reached the end of the question and answer session I will now turn the call back over to John Mayer for closing remarks.
That concludes before you go let me cover a few housekeeping items on the conference front, we will be attending the credit Suisse, 25th annual Energy Summit in Vale on Monday March 2nd the presentation for the conference will be accessible through the Investor Relations section of our web site at a later date.
Finally for your calendars. We currently plan to report our first quarter 2020 results on Thursday may 7th and hold our conference call that day at 10 am central.
Thanks, again for joining us on todays call.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.