Q2 2021 Denbury Inc Earnings Call
Good day, ladies and gentlemen, and welcome to John Berry's second quarter 2021 results Conference call.
I'm as Daryl and I will be your operator for today's call. At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session to ask a question at that time. Please press star 1 on your telephone keypad I would now like to turn the conference call over to your host for today's call Brad Whitmarsh head of Investor Relations you may begin.
Morning, everyone and thank you for joining us today I hope you've had a chance to review our earnings release and supporting materials that we released this morning.
They are available on our website at Danbury Dot com.
And we may reference certain slides as we make our prepared comments.
I want to remind everyone that today's call will include forward looking statements that are based on our best and most reasonable information.
There are numerous factors that could cause actual results to differ materially from what is discussed on today's call.
You can read our full disclosures on forward looking statements and the risk factors associated with our business in the slides accompanying today's presentation.
Our most recent SEC filings and today's news release.
Also please note that during the course of today's call we may reference certain non-GAAP measures.
Conciliation and disclosure relative to these measures is provided in today's news release and supplement as well.
With that I'll turn the call over to Chris.
Thanks, Brad.
Good morning, everyone and thank you for joining us on today's call.
I will start off with an overview of our business and will then be followed by Mark who will review our second quarter results and provide an update on our outlook for the remainder of the year IMAX.
I'm excited to have Nick would our Denver, a carbon solutions leader on the call today to provide an update on the great progress, we're making in that business, David Sheppard, our SVP of operations and Matt day him, our SVP of business development and technology are here as well for the Q&A portion of the call.
I want to begin my comments by wishing you all well and hoping that you and your families are healthy.
I also want to say, thanks to all of the Denver employees contractors and vendors for your hard work this year.
You have kept an intense focus on safety and through your efforts. The company remains on track for another year of record performance.
Well, Nick will provide a more detailed update on our U S business I would like to provide a few thoughts on <unk> in Denver his role in this exciting industry.
My confidence in the opportunity we have in Cc U S has only grown as the year has progressed Ccs is recognized as being second only to wind and solar and its capacity to mitigate carbon emissions.
<unk> utilizes technology that exists today, it can be massively scaled and it is particularly important for mitigating industrial emissions.
Recent projections show that <unk> needs to increase nearly 200 fold by 2050 to meet global emissions reduction targets.
The potential of Cc U S is widely recognized in Congress as well with bipartisan support most of the legislation I see working today is targeted to improve the incentives for increased captured industrial C O 2 volumes.
We are at a very exciting time in this industry and Denver is extremely well positioned to play a key role.
I'm frequently asked how I see the future role of EUR NCC U S.
Over time, I believe that the majority of captured C. O 2 will be sequestered outside of vor, primarily because the volume of captured industrial C. O..2 is likely to be far greater than what can be injected into E O our fields.
As an example.
While the C O 2 volume that can be injected into Denver is EUR fields is a big number estimated at more than 160 million tons. The.
The non EUR storage volume that we're evaluating for potential sequestration sites, along our infrastructure is more than 1 billion tons.
That being said EUR will be a critical element to the successful development of the C. C. U S industry in the U S, especially in these early innings.
First and foremost you are is the only pathway today for C. C. U S projects to be sanctioned with C. O 2 off take certainty under existing leases permits and regulations.
I am confident the approval timeframe for classics permitting for sequestration will shorten overtime.
And we are working to provide flexibility and our off take agreements that provides for both <unk> and non AOR sequestration.
This flexibility gives our partners and customers the confidence to sanction capture projects in the near term, while providing them with the option to ultimately transition to non EUR sequestration.
In our you know our operations, we are injecting more C O 2 to produce each barrel of oil than that barrels combined scope, 1.2 and 3 emissions.
And I believe that this blue oil.
Term that we use to describe our carbon negative oil will be an important energy transition fuel.
In the second quarter Blue oil accounted for 26 per cent of our total oil production.
To help position us to pursue premium pricing and other potential credits for this unique resource. We've recently initiated a project with a third party expert to verify the carbon intensity of this blue oil.
Our expertise in managing C O 2 for 20 plus years positions Danbury to be a leader in Cc U S.
Our extensive C O 2 EUR recycling and injection operations. We currently process close to 70 million metric tons of Cotwo annually nearly 3 times the amount of C. O 2 captured each year in the U S.
I continue to believe that there is not another company in this space as well positioned as Danbury for continued and sustained relevance through the energy transition.
Next I'll highlight a few year to date accomplishments and our focus for the remainder of the year.
First on the C. C. U S business, we are on track to reach an announced deals for transportation and storage as well as for sequestration sites by the end of the year.
You'll hear more color from Nick in a moment, but the number of agreement drafts crossing my desk makes me incredibly excited about how these negotiations are progressing and they will highlight both the value and scale of this significant growth opportunity for our company.
Second we're generating strong cash flow through our solid operational execution, which was enhanced by an improved commodity price environment in the second quarter.
Our teams have done a great job executing recent projects at Oyster Bayou, and Tinsley, which will benefit production in the second half of the year and into next year.
Third, we're making great progress on our flagship CCA development project. This project with a total EUR recovery potential of over 400 million barrels is more than 2 times Danbury total current proved reserves.
I expect that the immense CCA resource will generate decades of strong cash flow for our business.
And our use of industrial source Cotwo means that all the production from this development will be carbon negative blue oil.
Installation of the 105 mile of Greencore C. O..2 pipeline extension is progressing as planned and on budget with completion expected late in the fourth quarter positioning us for first C. O 2 injection in the first half of next year.
Finally, we expect to have our 2019 and 2020 sustainability report out by the end of the quarter.
I encourage you to read through the report when available to learn more about what differentiates Danbury is a unique ESG story within the industry.
Mark I'll now turn it over to you.
Thanks, Craig and good morning, everyone. Today, I will provide a review of <unk> results for the quarter and comment on our outlook for the remainder of the year.
As Chris mentioned, we've had a very strong start to 2021 with great operational execution assisted by the improvement in oil prices.
After adjusting for the impact of fair value changes, primarily the mark to market changes in commodity derivatives are adjusted net income for the quarter was $33 million or 61 cents per diluted share.
As compared to a GAAP net loss of 78 million or $1.52 per diluted share.
Our fully diluted share count used for computing adjusted earnings per share for the quarter totaled $54.3 million shares.
This ended up higher than we guided previously due to the increase in our share price during the second quarter.
The dilutive impact of our series, a and b warrants, which have exercised prices in the low to mid thirties will vary with changes in our share price for.
For now I would recommend that you use a diluted share count in the $54 million to $56 million range for the second half of the year.
Operating cash flow.
Adjusted for working capital changes was 71 million for the quarter well in excess of our $54 million of development capital incurred in the second quarter.
Approximately 1 third of our capital spend this quarter was related to the CCA EUR developments and the associated Greencore C O 2 pipeline extension with.
With the remaining capital related to various development projects, including the Oyster Bayou and Tinsley projects.
Production volumes averaged 49133 barrels of oil equivalent per day.
Up 4% from the first quarter, primarily due to a full quarter's contribution from the wind River basin assets acquired in early March this year and the winter storms that reduced first quarter production.
Production was slightly behind expectations in the second quarter due to unplanned downtime at Conroe field.
And a slower than expected production response in phase 6 at Bell Creek field.
Basics is now progressing nicely and is currently at or above expected levels in conroe is producing at its highest rates this year.
Revenues and other income were up 15 million or 20 per cent from the first quarter supported by strong oil price realizations and higher production volumes, our pre hedged realized oil price improved to $64.70 per barrel compared to just over $56 per barrel last quarter.
In the second quarter, we paid out $63 million on our oil price hedges, resulting in a post hedge realized oil price of $50 per barrel compared to $47 per barrel last quarter.
As you are likely aware in connection with our new credit facility in September of last year, we were required by our banks to have certain hedges in place for 2021 and the first half of 2022, which has made a significant impact on our cash flow at today's oil price.
We do not have ongoing hedging requirements under our credit facility and the additional hedges. We have entered into are more favorable and provide upside price participation.
Lease operating expenses for the quarter totaled $110 million or $24.65 per Boe a.
This was in line with our expectations and about 13 million higher than the first quarter. After considering the nonrecurring 15 million benefit to low last quarter as a result of power disruption during the winter storm Yuri.
Around 40% of the $13 million increase in alloy was due to a full quarter's expense from the wind River basin acquisition in March with the remainder split between higher C O 2 costs and Workover costs.
The increase in C. O 2 cost is due to both higher C. O 2 injection volumes as winter storms in the first quarter calls injection per tailwind at some fields and the impact of higher oil prices.
As we get into the warmer months the level of Workover activity typically increases, resulting in higher workover costs.
Even with the sequential increase in L. A we are pre hedge cash operating margin increased over $28 per Boe.
An uplift of 10% from the first quarter.
Our strong operating cash flow together with the $18 million of cash proceeds from the undeveloped acreage sale at hartzog draw field further strengthen the company's balance sheet in the second quarter.
At June 30, our total debt was $69 million down 45% from the prior quarter.
Financial liquidity at the end of the second quarter increased to $531 million, including cash on hand and available credit facility borrowings.
Now I will make a few additional comments on our outlook for the remainder of the year.
We are expecting production in the second half of the year to average around 50000 barrels of oil equivalent per day.
With fourth quarter production expected to be slightly higher than the third quarter volumes are.
Expect it to increase from a variety of projects, including Bell Creek phase 6 as well as our oyster Bayou and Tinsley projects.
For the second half of the year, we expect oil differentials to widen out to an average of $1.50 to $2 below Debbie T I D.
Driven primarily by our Gulf Coast pricing, which has been weaker relative to W. T. I correlating with the recent tightening in the Brent W. T I price spread.
On the capital front through mid year, we have incurred $74 million of our 250 to 270 million development budget.
Consistent with our plan, we expect capital to increase significantly in the second half of the year with the third and fourth quarters being relatively equal.
As a reminder, proximately, 60% of our development budget relates to the CCA <unk> project and associated Green Force you to pipeline extension, which is primarily second half spend.
Our LOE guidance remains in the range of 22 to $24 per Boe for 2020.1 although we currently expect to be in the upper half of that range for the full year based on anticipated activity levels and higher commodity prices.
At today's oil price, we have many workover projects with great economics, we expect the third quarter LOE to be somewhat higher than the fourth quarter with the third quarter, including more workover and preventative maintenance projects.
Our depletion depreciation and amortization expense came in lower than projected as our old reserves increase with the improvement in the trailing 12 month oil price for.
For the remainder of the year, we expect our DD&A expense to be in the range of 37 million to $42 million per quarter.
All the other cost items are expected to be relatively consistent with second quarter levels going forward.
We have an exceptionally strong balance sheet and plenty of available liquidity. This is an attractive place to be as we anticipate the massive growth potential ahead of us with Cc U S, including pipeline capacity expansion C O 2 storage development and the potential for various other opportunities to create even more value in Cc U S.
I'll now hand, it off to Nick for an update on the C. C U S business.
Nick.
Thanks, Mark it's great to be on the call today to share some of our teams exciting progress.
Over the past quarter, we have been intensely focused on 5 strategic priorities that we believe will drive tremendous value for Danbury.
I'll spend most of my time today on 2 of them.
First negotiating transportation and storage service agreements with C O 2 emitters.
Second securing sequestration sites of all of our infrastructure.
We have made significant progress on both fronts and are advancing negotiations with multiple parties.
I'm confident we will be able to share information about several of these deals by the end of the year if not sooner.
Chris mentioned the potential for Congress to improve the incentives for carbon capture and we see the potential capture volumes massively expanding with higher 45, Q credits currently being contemplated by many in Congress.
Having said that looking at the scale and pace of our discussions with both current and future emitters. I believe there is an incredible amount of capture that will take place at the current 45 Q levels, primarily for lower cost of capture processes like ammonia.
Hydrogen ethanol biofuels and natural gas processing.
Many of our potential customers will receive premium pricing or other credits on the products, we produce while capturing emissions.
We also see significant motivations beyond economics for some carbon capture is a necessity to continue to operate.
Boeing do all commitments they've made to significantly reduce their carbon footprint.
To provide some Colorado discussions we're currently engaged in negotiations with more than 15 different C O 2 emitters.
Representing capturing C O 2 volumes potentially exceeding 50 million tons per year.
These deals are going to be long term in nature generally in the 15 to 20 year range.
Some of these parties will be installing capture equipment on existing operations, while others are planning greenfield projects with carbon capture.
On the existing facility side, our system provides security of takeaway in immediately to the customer.
We have capability to take emissions as soon as the customer is ready.
This is a clear benefit of having significant presence a day, where you go.
Or is the only existing storage operation of any scale.
And when I think about Newbuild facilities I see Jim Barry is the optimal solution.
Where customers can select a point location with easy access to our existing pipeline system and the ability to get there in products to key markets and.
In both cases didn't really provide security reliability and diversity and take away along with the expertise in managing and storing C O 2.
With our combination of assets skill sets and experience. We believe that we are an ideal strategic partner.
We see this advantage opening the door to opportunities to participate in some projects beyond our core transport and storage services potentially gaining exposure to the significant value, but low carbon products can generate in the market.
On the sequestration side I see an abundance of opportunity.
We're focused on building a portfolio of storage sites in close proximity to our infrastructure.
Thus, providing the necessary scale certainty of storage reliability and diversity to our customers.
Our extensive pipeline system will provide multiple storage options, while allowing us to optimize the capacity and efficiency of our network.
Meanwhile, our team continues to plan for a substantial pipeline expansion in the Gulf coast with a goal to ensure that we can match takeaway with future market demand.
We are currently engaged in discussions and negotiations on over 15 sequestration sites, representing total estimated C. O 2 storage volumes of more than 1 billion tonnes.
When combined with over 160 million tons of potential stores. You know you are fields I'm highly confident that we will have significant level of storage to provide our customers.
Wrapping up I'd like to emphasize what an amazing opportunity I think 6 U S and it's been very.
We started from an ideal place with great assets and deep experience in handling injecting and monitoring C O 2 underground.
We can build from that ideal start and be great partners with industry and creating win win solutions to help them better safely and reliably reduce their emissions.
I'm confident that Jim Barry carbon solutions will grow significantly in the coming years, creating substantial value for our shareholders.
Operator, we'd now like to open the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press star 2 to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, 1 moment. Please while we poll for your questions.
Yeah.
Our first questions come from the line of Leo Mariani with Keybanc. Please proceed with your questions.
Hey, guys.
Thank you Robert.
Around Hey, how are you as expected I can move that around carbon capture here.
I just wanted to kind of get a sense I mean, it sounds like you have a lot of irons in the fire are sensing a lot of confidence on getting things are you know announced here you know.
Just any indications of kind of you know sizes on some of these potential deals for.
For transport are we talking kind of at least a couple of million tonnes per annum. In terms of what you think is is kind of the right size that you know deal you know for you folks and could you generally just talk to whether or not a lot of the customers are buying off on the idea I've taken the C O 2 injected into EUR for.
Few years.
In a waiting kind of for some of these.
Sequestration site to get fully permitted and operational that's something that you.
You know you think all the customers who are talking to you or are buying off on and can you just talk a little bit kind of net the timeline of how that would play out in terms of if you were to sign some deals you know St. Later this year when would you expect to get to you know first transport.
C O 2 and then when do you think you can transition those volumes eventually away from <unk> and into more permanent and sequestration.
You bet and I'm going to ask Nick to answer the specifics of that a set of questions. You asked are I would say your perception is exactly right on just how how we're feeling about this and the progression that we're seeing with the agreements are.
Definitely excited about it.
Nick to share a bit on on his thoughts on your specific questions.
Sure Hi, Leo this is Nick.
Thanks for the question in terms of the C. O 2 emitters theres a wide variety of C. O 2 emissions from each site, but generally the volumes are ranging from about 1.5 million tons per year.
When it comes to different sites wanting to go to you our first ore or move directly into sequestration pure sequestration I would say generally the different sites are open to go into EUR first and what we see is a lot of groups will have to have a high amount.
Capital to invest early on it to get to that final investment decision. It's very good to have this your option to bring in early and when it comes to the timing on moving into our sequestration sites.
We look for about 2 or 3 year timeframe to get to the actual injection into a pure sequestration and that's generally based on the technical evaluations that will need to be take place early even though we've spent a lot of time going through these sites evaluating the the confidence in our containment and.
Each 1 of these sites, we want to take some additional steps as we acquire these sites to further verify that containment is very solid and so we look forward to doing that in parallel with getting the classics permits, which will then lead to us being able to inject any sites in about 2 or 3 years I hope that answered the question.
No that was good color for sure and then maybe could you just talk a little bit to the competitive landscape of what Youre seeing.
In terms of these you know 15, various parties that youre sort of talking to you.
I guess really just bolt on the competition for permanent storage side as well as.
The deals that you're.
We're in discussions on.
Transport and storage.
Do you get a sense that these parties are talking to a lot of different players there are folks really starting to hone in more on Danbury.
He is the right partner of choice just given the obvious infrastructure advantages in and named a wealth of experience with Sidoti.
Yeah. Leo this is Chris I'll take that 1 and certainly you're you're right about the level of interest in and I would say that there is.
Plenty of competition out there although the competition is different in nature. Just as you described there a lot of interest I I'll tell you I take it as a positive just the view of the magnitude of what C. C Ross will be.
There will be a room for a lot of people to work in this space.
I do think that Denburg brings something specifically different too to the equation with the combination of experience and assets that we have and so just a good example is our as you mentioned on storage when we're talking to our potential.
Potential storage site owners.
We're able to bring the infrastructure and the ability to gather C. O 2 from a a big range of geography now to bring into their area. So I think that there's an advantage. There that are definitely gives us a leg up and honestly I think that that advantage plays through on the transportation and storage as well.
Not to say that theres not going to be competition, but I think that what we have the immediacy of being able to put a C. O 2 into E O arm and not have to work through the.
Classic permits is another advantage of them.
All of those put together puts us in a good place, but we know we still need to work hard to make this all happen.
Okay. That's very helpful guys, maybe just lastly, given the strength of the balance sheet. I think you guys are nearing your kind of.
Our 1 year anniversary of the exit on bankruptcy are you starting to get more serious consideration to.
Turning capital what do you think you guys should be allowed to do in in September now.
Okay.
Hey, Leo this is Marc I'll take that yeah definitely something we're looking at and and then as you noted.
Our our bank credit facility for the first year coming out of restructuring, we're prohibited from doing any dividends or or buybacks or those type of things.
Beyond that there's a cash flow accumulator, we have too.
Meat, and so where we're doing well on that front I'd say.
As we kind of round out this year and evaluate what the opportunities are for C. C U S.
What we might be looking at next year I think if there is some capital.
On that front, it's likely storage related and we want to make sure we provide for that as we do see this as a significant growth element so depth.
Definitely more to come.
And were something where it's top of mind, but I think as we worked through the rest of this year and see how things come together, we'll be able to talk about that a bit more.
Thank you.
Thank you. Our next question come from the line of Michael <unk> with Stifel. Please proceed with your question.
Hey, good morning, guys good.
Some idea.
Hi, good morning, when you're thinking about a potential expansion of the green line given that you've.
At least you are in the negotiation stage 4 are.
Taking on more C. O..2 then what you have capacity for what would be the.
Time frame for doing some expansion on the Green line in.
Is that going to entail looping of the line or could that all be done with just.
More pumping stations.
Hi, Michael This is Nick I'll take that question talking about the Green line expansion in the first thing I want to reiterate is that we have ample capacity right now to take on additional C. O 2 through the Green line, which are we see.
Becoming useful here in the next next couple of years as we bring on these additional C. O 2 meters when it comes to actually introducing capital to the line I also want to remind you that the placement of where Q2 comes on the line that comes off the line can it can add to that capacity just naturally by having that those in close proximity.
<unk>.
When it comes to when we will actually have to introduce additional capital to expand the line it'll be mostly through pump stations early on and we'll be stepping through that and kind of a sequence that lines up with when we add those additional C. O 2 emissions to airline so we will be able to make them in very small chunks all call. It as we step through the.
Expansion of the line, which adds to our ability to distribute that capital over time.
Probably would be some time and we'll we will have some wine loops, but they'll probably be relatively small wind loops to get us from where.
We're 1 of meter adds to our store sites.
Got it that's helpful and.
You'd mentioned that.
Looking at offshore storage sites, what kind of infrastructure would that require you. Obviously don't have any offshore pipelines. So wanted to get a sense of what you guys are thinking about there.
You bet, Mike and we're looking at both onshore and offshore in each 1 of them that has particular are advantages and disadvantages in and just as we've looked across the space here, we see good sites onshore and we're progressing those but but also offshore.
Generally closer to shore for example in state waters.
We see some good structures. There obviously you know that from just the past the oil and gas development, along the coastline, but but we see those as being.
I'm, good as well and so we're going to progress. Those are we think that there is some additional infrastructure cost, but theres also some simplicity in an ownership for example, and at least at this point, we think pursuing both onshore and offshore options. It makes the most sense as we work to build this portfolio along that network that Nick was talking about.
Would that require Chris some greenfield.
Greenfield pipeline on your.
Part or would you be able to I guess.
Would you be able to acquire something and convert.
That to a.
Yeah C O 2 transmission lines.
It could be either Mike generally we like to move C. O 2 and Nancy 900 class lines, which run at a higher pressure and keep the C O 2 when a supercritical phase.
Yeah.
If you think about where the green pipeline as it's not too far from from the coastline, along most of the Gulf Coast, there and so so jumping out into the near shore is not not not too far and so I think that you know that that's a our primary choice I do think along the way you'd look at other alternatives.
From any existing infrastructure.
As well, but we're looking at it both ways.
Okay.
Last 1 for me Mark you gave us some detail on the.
Hello Hello.
Sometimes it can be higher than in third quarter than second quarter, and given that with the with the workovers given that.
As fourth quarter, youre going to be back down to kind of where the first quarter was or how is that going to I know you said, it's going to step down, but just trying to get a little bit more detail on that.
Yeah sure thing I appreciate it Michael This is David Sheppard I'll take that question and they're looking at the operations now I'll just start out by saying you know L. O is just something that we actively manage net throughout our business and and if you look back historically through time, we've been able to flex that L O.
He calls to up and down.
Business can be.
Needs a demand and also you know what commodity prices are too as well just recently in 2020, obviously, we were able to dial down although we used substantially you know with the market conditions and as oil price has has climbed this year, we're able to make active decisions to make investment in some really hot.
<unk> type projects.
<unk> you mentioned Workovers specifically.
This year last time, we were barely running a workover rig at all right now we're running quite a few up upwards of 26 to 28 top rigs once again, making those elective decisions that are that are bringing on good quality barrels there that capture margin that the oil price.
<unk> is presenting US right now as we watch you know oil price ebb and flow.
Are there no we'll make those after the active decisions to choose investment or dial it back down as well he knows all the gas thing out in the future and a little bit too as well, even a little bit more long range no question them, what you ask.
We're in the throes right now of installing our sushi a C O 2 pipeline.
Project, there and as we complete that project by the end of the year, we start injection in the first half of 2022 about 18 months later, we're going to see some production start coming into the mix there, but back half of 2023, those incremental barrels when they're coming into our system there through our 100% <unk>.
Just a real source of Yo 2 injection.
Are going to be at a lower lifting costs theyre going to be 10 to 15 dollar top.
A range so that will help influence in our overall lifting cost for the company and in that time frame.
There's a lot of focus has been on and see if the U S business I'm really excited about that in the out years are too as well just that are if you look across our business.
Right now C O 2 cost in particular are average about 4 bucks a barrel across the aggregator business.
To see those prices fall materially no throughout time.
Very good thank you.
Thank you our next questions come from the line of Richard Tullis with capital..1. Please proceed with your questions.
Thank you and good morning, everyone and congrats morning, Richard Good luck, Scott Good morning, Chris maybe start with the nickel out what Chris for this 1.
You know as you go through your negotiations with the admit or is what's what's the rough expected breakeven cost range per ton of C. O 2 captured.
For the for the admit or as you're speaking with I know, you're probably targeted some of the lower cost ranges DAU in a lot of those are available along the Gulf coast, but just trying to get a sense of capex plus ongoing opex breakeven for some of those projects.
You bet, Richard I'll I'll start with that.
You know I guess the way I think about it first of all when we think about even what would a breakeven would look like so certainly we're early days on a lot of this particularly on the storage.
Uh huh.
This great advantage that we have of having already made the investment in the in the pipeline infrastructure.
It was a great start so so we have that infrastructure in place.
Helps the when we look forward at how capital in and revenues would balance out.
But from a breakeven standpoint, I'd say the way that we're looking at it is very much in line with what we've seen in the National Petroleum Council <unk> study.
Those are essentially numbers that seem to make sense for the emitters and for the transporters and stores to have a.
A reasonable rate of return on their investments and cover their their opex, but at least what I see now are those those N. P. C numbers that are out there makes sense for the business and.
We think we think they look good.
Okay, No that's helpful and.
As you know thoughts on Danbury potentially sharing in some of the Capex cost initially.
Net to possibly help move along some of the project decisions.
Is that a potential.
Potential.
Option for Danbury at this point.
Yeah, you know I think as we look into the years ahead.
Mark talked a bit about <unk>.
And eating some capital as we get into next year, even as we start to work towards that some of that testing and validation of the storage sites that Nick Nick talked about so we'll need some capital there and then as this develops I yeah, I can certainly imagine that growing to some pretty healthy levels..1 thing I think about is just this base.
Oh, our business that are that will continue to spin off cash, especially more beginning next year as these hedges roll off.
And in the current oil price environment, we see that are looking very good along the way I think we'll have additional capital needs that we're going to need to think about and when the time comes a what I would say Richard is I don't think there's any shortage of sources that are that could help along that when you.
These great.
You know very ESG focused investments that will help build this business.
Thank you and.
I know, it's still early days as you mentioned.
But how do you kind of see this.
Playing out over over the next year or 2 years as far as agreements go do you think.
It will skew more towards just transportation only or do you think transportation plus storage will play.
Significant component and what Youre able to capture.
You bet for Us I, I really think Richard that the transportation and storage piece will be the greatest 1 if if you think about what these emitters are looking for they want a solution they want to capture their emissions. They want to have them handled in ways that they can be confident.
And the security of the storage and the long term nature and reliability of the storage and I think we can provide all of that.
And so what I see as time goes on that it would be skewed that way that's not to say that we wouldn't have some transportation only type of agreements, but I'd say.
My expectation is that the majority would be danbury be the the 1 that takes a C O 2 at the gate of the plant and it takes it away towards the mid or never have to think about it again.
Alright, and then just lastly for me.
With the parties, you've spoken with already and it sounds like it's a good number.
How many of those are what percentage roughly do you think are kind of waiting on some sort of decision with 45, Q, where you know maybe they they require a higher 45 Q2 to actually move forward.
I'll tell you Richard I think the folks we're talking to today are not waiting that's that's why they're talking to us and so there's.
A lot of enthusiasm a lot of focus for all of the reasons that Nick mentioned earlier.
And so we're excited about just the magnitude of what that what that is.
I do think.
There's a good chance that we'll see 45 Q at higher levels I know, it's being talked about extensively in Washington, right now and what I think happened then Richard is that that just brings a whole new wave of.
A different emitters that we're talking to whether it's steel, making gas fired power coal power and so on so I think.
Certainly the folks we're talking to now they're not waiting and I think that they're the ones who are in the wings there.
It's just bringing more scale to the whole equation.
That's helpful. Thanks, a bunch Christy great. Thank.
Thank you Richard.
Thank you there are no further questions at this time I'd like to hand, the call back over to Brad Whitmarsh for any closing comments.
Sure. We appreciate everybody joining us today.
I hope, you're having a great summer we got through all the questions. There. If you have any follow on please don't hesitate to reach out to Susan and myself, we'd love to connect with you.
Thanks.
Thank you that does conclude today's teleconference. Thank you for your participation you may disconnect your lines at this time.
Have a great day.