Q3 2020 Denbury Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to the Denbury third quarter 2020 of results Conference call. My name is Laura and I will be the operator for today's call.

The signs all participants are in a listen only mode. Later, we will conduct a question and answer session.

Ask the question at that time, Please press star one on your telephone keypad I would now like the trend. This conference call over to your host for today's call Mr., John Mayer Denbury director of Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us today.

With me on the call are Chris Kendall, our 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 day hand, or senior Vice President of business development and technology.

Before we begin I want to point out the we have slides, which will accompany today's discussion.

So did you encounter any issues with slides advancing during the webcast portion of this presentation. Please refresh your browser.

For those of you that are not accessing the call via the webcast. The slides may be found on our home page at Denbury Dot com by clicking on the quarterly earnings 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 and most reasonable information we have today.

There are numerous factors that could cause actual results to differ materially from what is the discussed on today's call.

You can read our full disclosure 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 our quarterly earnings release, all of which are posted on our website at Denbury Dot com.

Also please note the during the course of today's call, we will reference certain non-GAAP measures.

Reconciliation and disclosure relative to these measures are provided in our quarterly earnings release as well as on our website.

With that I will turn the call over to Chris.

Good morning, and thank you for joining us on today's call.

2020 has been an incredibly unique and challenging year for all of the US right of highly optimistic about what the future holds for Denbury.

Our quick emergence from the very efficient restructuring resulted in a dramatically improved capital structure, which clearly and uniquely positions denbury for future success and the industry.

Denbury of the company built to provide long term value through our base you know our business supported by a lot of lived low decline of low capital intensity oil production.

The Denbury is much more than that we're also a company that is extraordinarily well positioned for the energy transition with the unique line of sight to significant growth in the coming years does the.

Emerging business of carbon capture you sort of storage, commonly referred to as Cc U.S.

There is not another company in the L.P. industry as well positioned as Denbury for continued relevance through this inevitable transition.

Turning to slide six I'd first like the highlight two changes of the company.

Our board has been refreshed with four new board members, who brings significant and relevant experience the perspective.

Together with the experience continuity and historical perspective of the two continuing independent directors will be appropriately positioned to guide denbury through this new phase.

We have also simplified our name retaining denbury as our historical name is broadly recognized and respected as a leader in enhanced oil recovery, but dropping resources from the name of our parent entity as we believe that over time the significant growth in the future of value of this company will be based on more than tradition.

The <unk> oil and gas resources.

Many aspects of Denbury will not change as in the past, we intend to invest within cash flow and to maintain our consistent focus on optimizing our business and reducing costs.

We also remain excited about the long term value and cash flow associated with the development of the large resource potential of the Cedar Creek Anticline. The you are project and we plan to move forward with this project as soon as practical.

Our reorganization realigned the company for success across a wide range of oil prices.

The elimination of all of our bond debt has resulted in a negligible leverage ratio and as the major factor in reducing our go forward interest expense by about 170 million per year or over $9 per BLE.

Our bank group was fully supportive throughout the restructuring process and we exited with the bank credit facility of 575 million providing significant liquidity.

We also recently relocated our corporate headquarters entering into the commercial lease which will result in significant savings of approximately 9 million per year, which translates to about 50 cents per Boe per day.

Finally, we simplified our operations by requiring of the any J.D. and free state C. O two pipelines, ensuring that we have complete control and the ownership of the extensive Gulf Coast C O two pipeline that work.

The significant transaction of not only reduces our debt and further lowers our interest expense. It also enhances our flexibility to lead and they see the U.S. business. The we expect to grow significantly in the coming years.

All the initiatives combined our cash cost structure has been reduced by about $10 per Boe, we significantly enhancing our cash margin even in todays challenging oil price environment.

Okay.

Eliminating nearly $10 per be away from our cash breakeven cost structure is the game changer for Denbury.

Using the third quarter as an example, our total cash operating costs. Excluding interest were reduced to approximately 27 50 per Boe eating about $10 per Boe, we below our previous organization cost structure.

Importantly, we continue to demonstrate our ability to flex Ela, we lower and the challenging price environment to below $19 per Boe per day, and David will share more details on our significant achievements there in a few minutes.

So with the realized price of 42 27 per Boe per day for the quarter, including hedges, we generated the cash operating margin in the third quarter of about 14 70 per BOE, a day or approximately 35%.

This high cash operating margin positions denbury to both manage through market cycles and to generate significant free cash flow across a wide range of oil prices.

We continue our initiatives and focus on strong governance that led to denbury, receiving I assess as highest governance rating.

In addition to the four new directors that I mentioned earlier, we have established a new sustainability committee led by Caroline and Gourley.

Which will ensure broad oversight of perspective with respect to a range of sustainability issues, including health and safety climate change and social and community matters.

An area of focus for the company that has not changed is our emphasis on building the foundation of safe and responsible operations and we have continued along that path in 2020.

As I've mentioned before we believe the this foundation as vital to everything else, we do as the company.

I'm proud of our employees for their continued focus and perseverance, especially in the year as challenging as 2020 has been.

The aspect of our business. The most distinguishes it differentiates denbury is the important role we currently play and reducing C O two emissions.

The potential for this role and our impact to increased greatly in the coming years.

With increasing awareness of the risks associated with growing the levels of carbon dioxide in the Earth's atmosphere.

It is imperative for all of us to find pass to reduce and even reverse emissions then.

Denbury is base of business is built to do just that.

Through our significant the emphasis on using the Seo true for enhanced oil recovery.

We already have a negative admissions footprint, considering the direct and indirect of missing associated with our business.

Denbury injects over 3 million tons of industrial source the go to into the ground every year.

Essentially all of the CEO to the would otherwise be emitted into the atmosphere remain securely underground as the result of our process.

This represents the equivalent of lessons of 700000 cars and we firmly believe that we can increase this amount significantly overtime.

If the U.S. has been the money headlines in recent months with the worldwide emphasis on reducing the concentration of C or two in the atmosphere seats. The U.S. is a proven the low cost method that has the potential to and really reduce hundreds of millions of tons of industrial C. O two emissions.

Denbury is the oil our method is a form of the seats the U.S., where the process of producer of oil results and the associated secure underground storage of nearly a ton of C. O two for each barrel of oil produced.

In fact, Seo to you or is the only form of cease the U.S. that is currently operating at significant scale.

Another form of seats. The U.S. is the direct injection of C. O two into secure underground formations, where does not necessarily associated with the oil production.

I believe the growth in this area will be essential to meet the emission goals in the future.

Denbury is in an ideal position to lead in this emerging sees the U.S. business in particular, our Gulf coast assets are strategically located through an industrial corridor. The today accounts for about 140 million tons per year of point source C. O two emissions and we believe that about 40% of those image.

<unk> could be captured at a cost of less than $50 per ton.

Additional industrial development of this quarter in the coming years will only increase the amount of CEO to the can be captured.

Denbury broad infrastructure with over 800 miles of steel to pipelines in this region provides the capability and flexibility to transport significant volumes of C. O two to the multiple destinations.

Our ability to adjust the euro two and supply and demand within our existing system provides an important level of redundancy of that will be needed to minimize interruptions to the steady operations of the industrial facilities, where the sales who is captured.

Beyond the are strategically located assets Denbury has extensive experience provides for the safe secure and reliable handling of injection of C O two.

Through our 21 years of Seo to each of our experience we have built a great platform of reliable safe and secure transportation processing and injection practices.

From sophisticated geological modeling and analysis to Wellbore design and monitoring.

To surface C O two facility construction and operation.

And ultimately to sub surface for D seismic imaging.

But it has the knowledge experience and systems to provide a high level of public confidence in the security of C. O two injection this.

This will be vital as we seek to significantly expand the use of sees the U.S. and the United States.

We are more excited than ever about our vision per denbury.

We are perfectly aligned for a world that will require oil for many decades and with the increasing use of industrial source Seo too.

You are have the potential to produce oil with the lowest carbon footprint on the planet.

We believe that growth in the Ses the U.S. business will be remarkable in the coming years and our path to leading will cease the U.S. is direct.

We have the assets the infrastructure the focus the experience and the expertise to make this happen.

I'll now pass the call over to David Shepherd, who will give us an update on operations.

Thank you, Chris and good morning, everyone.

As we reach the final quarter of the year capital spend remains on track to be near the midpoint of our full year guidance at approximately $100 million.

As you recall, we reduced our 2020 capital program by $80 million earlier. This year. The response to oil price volatility due to the COVID-19 of handling and Opex supply pressures.

As the reduction in capital spending was announced in late March spending during the first half of the Europe was greater than in the second half due the ongoing projects already in progress, including final calls to prepare the store the SIFI a pipeline pipe for installation and the day two development projects not worst of body field.

Third quarter spending of $18 million and planned fourth quarter capital is primarily dedicated to the central capital required to continue to say we operate our fields.

Production for the third quarter was relatively flat with the second quarter at just under 50000 Boe per day during the second quarter. We shut in production that was on the economic to produce or repair of wall, taking our rig count the on the T. Rowe.

With the moderate increase in oil prices during the third quarter, we identified the economic girls using the conservative oil price threshold and begin the brain certain production back on line.

The end of the third quarter, approximately 1800 Boe per day. The main show the with approximately one third of this production being economic to repair the current pricing.

We continue to evaluate currently on economic production and well make the decisions to bring additional wells back on line depending on oil prices.

During the quarter, we resumed work over operations ramping up to a rig count optimize the safely and reliably reduce the backlog of economic to repair wells, while being mindful of cash flow, maintaining a reasonable l. always done right.

We're currently running between 14 to 16 rigs across our operations and expect to work through approximately half of the remaining economic to repair oil inventory by the end of the year.

Although we reactivated they submit the portion of our shut in production throughout the third quarter production was negatively impacted by the typical seasonal summer time temperature effect across certain you are fields in the Gulf Coast region, along with approximately 300 and get the beauty of per day from Hurricane Laura and other seasonal Gulf Coast.

Tropical storm activity and finally lower production of Doha, while the repair of war on going to the field field to supply of pop on.

I'm pleased to say that we have completed repairs to the Delta pop one in late October and have safely <unk> feel to purchase Abdel huh.

We currently expect our full year 2020 of production to average between 50950 1400 Boe per day, which was about 3300 and get the B OE per day of lower than our original budget the announced in February 2020.

This decrease is primarily related to the $80 million production our capital program in response to substantially lower oil prices, which impact the production by products in the 1200 beyond the per day.

With the remainder of the we pad.

Due to shut in production weather and other events.

We continue to focus on optimizing our business to improve operations and actively manage the total operating costs were up a little over one dollar for the only in the second quarter, primarily due to increased workover activity as we return economic wells to production a pair of reaching the mall voters speaking of well failures.

We are on track this year to see a 20% production and Rob failures as compared to 20 not team due to improvements in our Rob Pope operations.

Our overall feel to repurchase of lower during the third quarter of primarily due to downtime at one of our Gulf Coast Industrial for your true supply sources.

Compared to the third quarter of 2019, we have driven the operating costs lower isn't of direct result of our strategic investment in digital transformation technology, along with the organizational realignments interest streamlined supply chain efforts.

Furthermore, the teams are evaluating operating expense decisions as discrete investments, where we evaluate the cost benefits and the economics. It's little of this level of the valuation provides the framework the flex our operating cost structure downward in the low oil price and Robert while continuing to safely operating our asset.

Yes, and as prices rise, we can make deliberate decisions to spend areas the increase overall profitability.

In our worst of value field, we completed capital spend and started injection a true developing the expansion project during the second quarter the.

This project at the beginning of the pattern in the day to reservoir with four new producers and three injectors.

We also added 30 million cubic feet per day increase the yield to compression capacity, which not only benefit of this new expansion powdered also provided the increase capacity of benefiting full field performance.

The first production of the spots in the new pattern at the end of the second quarter. We're now seeing approximately 420 <unk> per day from two of the four producers, which is in line with our expectations.

There are additional development opportunities in the day warm and the true reservoirs and the worst for Bob that we continue to evaluate jury of 2021 budgeting process.

During 2020, we have continued to progress the sale of our valuable surface land in the Houston area.

From July through October 20, Twond, we have closed on $25 million of land sales and the inspect the close an additional $4 million in sales by the end of the year, bringing our aggregate land sales to $49 million over the last three years, we continue to market additional like ridge, which we estimate has a future potential value.

The range of the 20 $30 million to $50 million net.

Next I'll turn it over to Mark 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 second quarter of 2020.

I'll also provide some forward looking guidance for the remainder of this year to help you update your financial models post restructuring.

Before I begin to review the quarterly highlights I want to provide the baseline with respect to the significant changes in our financial statements, resulting from the Companys recent restructuring upon.

The upon the emergence from bankruptcy on September 18, we were required to adopt fresh start accounting, which resulted in a new entity for financial reporting purposes, with our operating results split between pre and post emergence periods.

The fresh start accounting requires that new fair values, the established for the company's assets liabilities and the equity as of the date of emergence and therefore of certain values and operational results will not be comparable pre and post emergence from bankruptcy.

The specific valuation approaches and key assumptions used to arrive at the reorganization value as well as the value of discrete assets and liabilities are described in greater detail in our form 10-Q.

I will start by discussing the impact of our recent restructuring on our debt profile, which has changed dramatically since last quarter.

On the emergent state and pursuant to the terms of our plan of reorganization all remaining obligations under our then outstanding senior secured second lien notes convertible senior notes and senior subordinated notes were fully extinguish the leaving the company of approximately 2.1 billion of debt through the issuance of the combination of equity and why.

Warrants in the new entity to the holders of that debt.

As I will more fully discuss in a moment in conjunction with the Companys reorganization process. We also restructured our pipeline financing arrangements with Genesis, which further reduced our debt.

The emergence day, we entered into a new 575 million senior secured revolving credit facility with no change to the syndicate banks party to our previous facility the.

The the facility matures in January 2024, and the borrowing base, it's subject to a semiannual redetermination with our next scheduled redetermination around may 1st 2021.

At September Thirtyth, the we had 85 million outstanding under our bank facility and 22 million of cash, giving us the liquidity of about 460 million after considering the letters of credit under our bank facility.

Our total net debt of 154 million at September Thirtyth includes our bank debt and 91 million of pipeline debt associated with our any JD and free states you two pipelines.

Using our trailing 12 months adjusted EBITDAX, which is included in the appendix of this presentation. The company's leverage ratio is less than half a turn at the end of this quarter.

Turning to my next slide I will go into more detail on our recent pipeline debt transactions.

In late October 2020, we completed the restructuring of our COO to pipeline financing arrangements with Genesis, whereby we acquired the any JD pipeline system in exchange for accelerating repayment of the approximately 70 million balance remaining under the financing lease which will be paid and four equal payments during 2000.

21, and pursuant to which we also required the free state pipeline and exchange for a onetime payment of $22.5 million on October Thirtyth.

These transactions reduced our pipeline debt by approximately 25 million in the third quarter, we reduced our go forward interest expense and will further enhance our flexibility relative to our pipeline system as we position our business for future C.C.U.S. operations.

On slide 25, adjusted net income for the combined three month period, ending September Thirtyth 2020 was 20 million, which represents 40 cents per diluted share when applying the 50 million common shares issued upon the merchants to the full three month period the.

The largest differences between adjusted and GAAP net income for the combined quarter included 18 million of noncash expense from fair value changes in commodity derivatives 850 million of net reorganization items, which essentially represents the the impact of are moving that liabilities and re establishing new fair values, along the certain cost of the rich.

Structuring the 262 million full cost pool ceiling test write down at September 18, 2020, the for the application of fresh start accounting.

16 million of expenses associated with restructuring and $15 million of insurance reimbursements related to a 2013 incident Adelheid field.

Turning to slide 26, our non-GAAP adjusted cash flow from operations less special items, which excludes working capital changes and reorganization items settled in cash was 68 million for the combined three month period ended September Thirtyth 2020, an increase of 59 million from last.

Peter driven primarily by higher realized oil prices, we generated free cash flow of 42 million for the combined third quarter 2020. After considering 4 million of interest that is included as repayment of debt and our financial statements and 22 million of development capital, including capitalized interest.

Our third quarter average realized oil price of $43.23 per barrel. After hedges was up 25% from our realized price in the second quarter.

Slide 27 provides the summary of our oil price differentials, excluding any impact from hedges.

Our realized oil price average <unk> dollar and 64 cents per barrel below Nymex prices in the third quarter, which is an improvement of over $2 per barrel from the second quarter.

Although we have seen prices improved from the significant dislocation of that took place in the second quarter, we are still seeing weaker than historical differentials, especially across the Gulf coast production as refiners across that area have continued to be impacted by lower demand and to some degree downtime due to hurricanes.

We currently expect the differentials for the fourth quarter will continue to be weaker within a range of $1.50 to $2 below Nymex, but overtime, we would expect differentials in the Gulf coast to strengthen as demand and supply balance out.

Slide 28 provides the review of certain expense line items since day, but already addressed Ela, we I will start with Gionee. Our DNA expense was 17 million for the third quarter, a decrease of 7 million from the second quarter, primarily due to the prior quarter, including higher than normal compensation related expenses related to.

Patients of the company's 2020 employee compensation programs during the second quarter of the company reinstated the 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.

We expect DNA expense in the fourth quarter of 2020 to be in a similar range to Q3, as we expect the higher level of professional fees and expenses associated with the application of fresh start accounting.

Net interest expense was 8 million this quarter, a decrease of 13 million from last quarter due primarily to the production and bond debt associated with the chapter 11 restructuring.

On the bottom portion of this slide there is a detailed breakout of the components of interest expense the reduction in bond debt and restructuring of our pipeline arrangements with Genesis will result in approximately 170 million of annual cash interest savings.

In Q4, our cash interest will include interest on our bank debt and imputed interest of approximately $1 million on the remaining Genesis obligation.

On top of that we will have amortization of bank facility issuance costs of approximately 1 million per quarter.

With lower interest charges, we expect our capitalized interest the be in the range of one to 2 million in Q4.

We recognized a full cost pool ceiling test write down of 262 million during the predecessor period end of September 18, 2020 due to the continued decline in the trailing 12 month oil prices used to establish the full cost ceiling.

As the result of fresh start accounting oil and gas properties were recorded at fair value as of September 80, 2020, and there was no full cost pool ceiling test write down for the success of period ended September Thirtyth.

We expect our DDNA expense for the fourth quarter will be in the range of 40 to 45 million.

My last slide provides the current summary of our oil price hedges since emergence we have put in place hedges for 2021, and the first half of 22.

Additionally, under the terms of our new bank credit facility, we have certain minimum hedging requirements that must be satisfied by the end of this year and we believe those requirements have been met based on our current hedge portfolio.

And now I will turn it back to John.

Thank you Mark.

That concludes our prepared remarks, operator can you. Please open the call up for questions.

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Our first question comes from the line of Charles Meade with Johnson Rice you May proceed with your question.

Good morning, Christian and to your whole team, there and Inc. Congratulation franchise for for go went through a I'm sure was a a whole lot of work under the overall really difficult time for all of us.

I view I wanted I wanted to start with a what kind of of a big picture question.

It's maybe a way to to set up some questions down the road.

Can you can you tell us as you look at your you guys have all of the newfound financial.

Flexibility and can you tell us what the priority stack is for your for your use of cash of for your Capex spending.

And it perhaps related to that can you give us the sense of whats your.

Your balance sheet or kind of the or financial policy is going to be with respect to leverage return of cash to shareholders versus growth opportunities that sort of thing.

Sure Charles and this is Chris and I'll take the first part of that question that I'm going to pass it over to Mark and have him address your questions about.

Use of capital when I think about the priorities for the company certainly we want to start with the just continuing to build the great Foundation of safety and operational excellence that they visit the team of done such a super job of of building over the last several years and the really put us so where we are and to me I think that's our license to operate.

Beyond that certainly you mentioned the flexibility that we have in and the we want to maintain and protect the balance sheet that we've been giving through the process, we will of and stay focused on that through everything that we do we do want to build scale and in ways that make sense per denbury. So we see a lot of a lot of things here.

Happening in the industry.

Where where folks are building scale and we just we want to look at that and ways that keep the Denbury story hole and so that's something that we'll continue to look at.

As we go forward Charles.

I'd still say, we want to progress the cc yet.

If the IDR project that that's the one that we'd like to get it in the ground next year and well look at market conditions, and then make a decision on on that then of course position ourselves for leadership and see if the U.S., which we believe the this is just a fantastic and highly complimentary of opportunity for what Denbury will be able to do here.

The that those are the high level priorities and I'll turn it over the mark to finish this off.

Sure the Charles I, just in terms of of leverage.

You know I guess.

The most of the industry. These day is kind of targeting about one times, so leverage ratio and sometimes when the two and sometimes less than one and so today. We're obviously the less than one less than half a turn on and the we think that's a great place to be and we want to continue to maintain the strong balance sheet, but we do have some.

Flexibility there.

But like the staying below one is is the something we desire.

I would say in terms of returning capital in and other priorities.

Yes, I think we still have oil some discussions and things to sort out whats with the new board and in terms of longer.

Longer term.

When when those things will emerge I would say, we do have an asset profile. We continue to believe we have announced the profile that they can generate free cash.

And so it will be important to consider the the priorities in terms of returning shareholder whether dividends or or what we do have some restrictions under our bank facility here for at least the first year and even going forward.

Just in terms of you know any returns have to be out of free cash and and so on.

But we're we're well positioned I guess the last thing I would say the we have been.

Really limiting our capital spending in the on the business and you know its spending 100 million. This year, that's obviously less than what it takes the whole production flat and.

And we want to we need to think about the more investment in the business and and of that consistent cash flow generation down the road. So so all of those things will be taken into consideration as we.

Look at 2021 and valuable part of our go forward profile, but.

Some things that we.

We decided to share more about but at the point, where we have more clarification and more certainty on.

On the plans of heads.

Got it thank you for that the for that detail of market and Chris also in the and then if I could if I could just push a little bit further Chris on on your comments about see CA.

Being the priority and then the the C.C.U.S. being the priorities well <unk> and this question, perhaps we could maybe revolves around timeframe of my sense is that you guys, obviously of the great incumbent position.

The in Cc U.S. on the Gulf Coast of my sense is that the the the Capex call to the extent there is the capex call on Denbury to two.

To expand that business is probably.

Still the leased up a couple of years down the road or maybe more whereas the.

CC a project obviously I think is is the newer term.

Could be a nearer term spend but there's a question about.

How attractive is it acts at $40 W.P.I. So is that can you can you talk about how you're looking at debt at those two of those two relative priorities in any of that characterization of the of the timing of them is is a good sort of the way you look at it.

Sure Charles and you nailed the a the timing aspect.

What I'd say about the seats the U.S. side that I think is interesting to point out is just that the the capital heavy portion of that as far as Denbury is concerned the has already been spent over the past years. When we put in this great system that I that I spoke about a few minutes ago. So a lot of cash.

Opex went into that but that system exists that's in operation at the proven and it's in the right place. So were excited about that when.

When we do think about when incremental capital will be needed to me. It's in that time frame just as you mentioned the these projects that that we're aware of are going to start coming to fruition to where the it actually be capturing C or to say in the late 2022, 23 and onward timeframe. So any additional.

Total capital needed to to tie all that together or would be in that time frame. The you mentioned the so you're right on with that but I do see that capital is being significantly less than what the denbury has invested historically to build the system in the Gulf Coast.

When I think about Ccas <unk>.

You're right on the Mark there for us it's a it's a project that's attractive and the mid Forty's oil price range, and we believe that but that oil price is not unreasonable in the future here, we're not seeing it today, but the but I think of going forward. The it's not unreasonable.

So we would like to continue to progress. This project for a couple of reasons. One is that the initial phase of the project, which does have the heavier spend as you mentioned.

Bears the full burden of the CEO true pipeline that brings the C or two up to that great set of fields.

And so what we see beyond this first step is the number of additional expansion opportunities all along the structure here that we'll have very attractive economics as they're essentially bolt ons to the the project that will start with so so we're excited about that.

We also are very flexible on the implementation of this project the installation season for the pipeline as the second half of the of the year. The July through December timeframe. So that's a decision on capital that we can actually defer until late first quarter early second quarter of next year when the hopefully.

We have of a clearer picture on how the market is shaping up.

Just having gone through the the.

Rough patch of of this year and hopefully the see something more clear as we get into next year.

That's how we think about that and that's the project that we can put in the ground next year and if needed. We can we can push it further but just the also for the reasons you mentioned I think of sooner would be better than later I hope that helps Charles that that is the there the big Big open questions and I. Appreciate you guys, adding that I didnt all of that.

Yep.

You bet.

Our next question comes from the line of Richard Tullis. The capital One Securities. You May proceed with your question.

Thanks, Good morning, Christian Mark I'm wondering if anyone of them.

Continuing with the C.C.U.S. the obviously.

Big important a lot of potential how do you how do you see the process potentially working do you do you need to wait it as the company need to wait on the actual carbon producing facility operators to initiate the of.

The process I guess, particularly the tax credit.

Process or are there or are there action the denbury can take to kind of move the process of mom.

Oh, that's a good question, Richard and I have a couple of thoughts on it. The first the we're currently taking industrial C. O two from a a couple of different customers on the Gulf Coast. So there's an element of it that's already in place.

I do see for the level of growth that so that we expect to come that it will need to be supported by clarity on the 45 Q policy. That's that's what I believe.

Many of these.

Companies that are looking to invest in the capture equipment will need of although I would say on top of that there is a public and the investor pressure on these companies to capture emissions in any case. So I think that there's an element that's outside of 45, Q, but I do see that as something that is is going to be needed to really.

Pushed us into the into high gear and have these additional projects start to become.

Become developed.

When we look at Richard just of the the volumes that are possible on the Gulf Coast, We think about how much. The hotel is captured in the U.S. right now, which is about 25 million tons of annually.

Across the country the I'm.

I mentioned, the 140 million tons that are admitted along this corridor and we think of a good percentage of that could be captured here in the coming years.

We just think it's a great opportunity, but I do think that.

A key lever will be the clarity on 45 hue and the applicability of 45 Q.

And the good news there is I think were close we net.

The with the government in the <unk> and transition right now there's been a pause in Washington, as you'd expect but 45 Q as you know has received great bipartisan support.

Because it just fits so many needs for the country and so many ways on either side of the aisle. So I I've firmly expect that the once we get into the next year that that the clarity of or.

Come to fruition here and we'll see these these projects proceed.

Okay. Okay. That's helpful.

And I guess I'm, just as a follow up question.

You talked a little bit about.

Looking over time to expand operations.

Could you maybe speak a little bit about what you might look for in M&A deals going forward with what sort of deals might fit the profile of that would interest denbury given its current situation.

Sure and I'll tell you that face value I don't think that denbury needs to jump out and do something of just to get bigger I think it is much more important that it makes sense for the profile of the company.

We have a unique profile with the low carbon footprint of our oil production and the great potential with C.C.U.S. that we want to make sure that we stay true to and there are ways. The that can happen I believe but I think it's going to be of lens that we that we're going to look at.

Any any potential of acquisition in through the two it's just make sure the that makes sense for us they're just not another denbury out there and we've all of that but it makes the it makes the your question a little bit more complicated.

Okay, Okay very good I appreciate the.

The discussion.

Thank you Richard.

Ladies and gentlemen, we have reached the end of today's question and answer session. This concludes today's conference. The replay of this conference can be accessed at.

That's true the company's website for approximately one month from today you.

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