Q4 2021 Denbury Inc Earnings Call
Good day, ladies and gentlemen, and welcome to Danbury, its fourth quarter and full year 2021 results and 2022 outlook conference call. My name is Sherry 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 <unk>.
Western and answer session.
Ask a question at that time, Please press star one.
I would now like to turn the conference over to your host for today's call Brad Whitmarsh head of Investor Relations. Please proceed sir.
Good morning, everyone and thank you for joining us today.
I hope you've had a chance to review our news releases this morning, as well as the supporting materials that are available on our website at Danbury dotcom.
I want to remind everyone that today's call will include forward looking statements.
That are based on our best and most reasonable information.
There are numerous factors that could cause actual results to differ materially from what is discussed on today's call.
You can read our full disclosures on forward looking statements and the risk factors associated with our business in the slides accompanying today's presentation. Our most recent SEC filings and today's news release.
Also please note that during the course of today's call we may reference certain non-GAAP measures.
Reconciliation and disclosure relative to those measures are provided in today's earnings release and supplemental materials as well.
Morning, our prepared comments will come from Chris Kendall President and CEO .
Alan C F O b.
David Shepherd SVP of operations, and Nic Wood SVP of carbon solutions.
That day, and SVP of business development and technology is here to participate in the Q&A 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 we.
We have a lot to talk about today I'm incredibly excited about our team's accomplishments since our last update and we are similarly excited to share details of our progress with you. This morning.
I'll begin with a brief overview and then Mark David and Nick will provide more detail.
To begin I am extremely proud of our employees their sustained dedication and resilience as they continue to achieve great results in the face of the impacts from the Covid pandemic is inspirational.
Our relentless focus on safety and everything we do again drove record performance.
What made this achievement all the more impressive is that it was accomplished while managing through not only the pandemic, but also a significant construction project the installation of our C O two pipeline to CCA.
We recently completed two major milestones in the CCA AOR development the.
The first was the completion of the hundred and five mile CCA C. O. Two pipeline in November followed shortly thereafter with the beginning of phase one C O two injection on February 1st.
These accomplishments have us on track for first incremental production in the second half of next year.
Slowed by decades of strong production and development opportunities from this amazing asset.
Through the exclusive use of industrial source Cotwo. This project all production will be carbon negative blue oil.
You will recall that we've been working on a third party verification of the carbon intensity of our blue oil well.
We recently completed that work for Denver, its two largest producing E O our fields West Hastings in Texas and Bell Creek in Montana.
Significantly and as expected the Ci score is negative for our blue oil production and second lowest behind only dairy RMG when compared to a range of typical fuels.
We expect that this negative Ci score blue oil production will ultimately drive incremental value for Denburg and we are working on several promising pathways to realizing that value.
Before I turn to CCA U S. I want to emphasize how the AOR focus side of Denver as business, what makes most everything possible for us to realize our CCA U S Division.
Financially it drive strong cash flows that can be directed towards C. C U S investments.
Technically the skill sets that make us experts in E. R are the exact same skill sets needed for reliable C O to sequestration.
Operationally, we were able to utilize the same infrastructure for both our E O our operations and C O to sequestration and we have the immediate ability to inject captured C O two into our EUR fields under existing permits and regulations.
For many years Danbury has been the only public company of scale with a primary focus on C. O. Two E R and through that sustained focus we were able to build a deep talent base of experts with similar passions and knowledge.
All aspects of <unk> management.
Today, those experts are helping danbury accelerate into C. C U S. Leveraging the technical project and operational Knowhow that his position denburg, so well in this emerging industry.
I would also like to touch on U S government policy support for CCA U S.
Some have asked our thoughts on what comes next on any potential increases to the 45 Q tax credits and how important those increases may be to our business.
I've heard occasional concerns from investors that some investors may be on the Ccs sidelines until 45 Q has increased.
First and foremost we remain very excited about the high level of engagement and activity with industrial emitters that is based on the current 45 Q levels and we are confident our Ccs business will grow strongly even if we were to see no changes from the current levels.
To underscore this point the goals and priorities. We communicated today are based on the current tax credit levels as are the new C. O two off take agreements we announced this morning.
I'm looking forward to sharing more positive and exciting developments in the coming weeks and months that will further highlight this progress.
Considering the strong bipartisan support for CCA us I believe that in time favorable changes to the tax credit will be implemented in my view higher tax credits will accelerate CCA U S. From what we already see is a rapidly growing business and most importantly will accelerate progress in achieving the ulta.
That objective of reducing carbon emissions.
My confidence in the opportunity we have in CCA U S has steadily grown over the last year and last quarter and quite frankly, even during the last several weeks.
Nick will provide details around how this exciting business is developing in a few minutes I'd first like to share a few high level thoughts here.
My fundamental belief is that a reliable redundant and secure transportation and storage system downstream from the capture facilities is essential for successful <unk> project.
Our strategy is to bring a solution to our industrial partners that economically provides those elements leveraging the extensive backbone of our industry, leading C O two pipeline infrastructure.
In the coming months and beyond we plan to continue to strategically add dedicated storage sites along that backbone just as we announced today, providing both significant storage capacity as well as the great redundancy that will give our industrial partners. The most reliable service possible.
That service will be backed by our deep technical and operational C. O two handling bench strength, which is unmatched in the industry.
When combined with our ability to provide cotr offtake certainty today in EUR is dedicated storage is being permitted and developed.
Then very offers more than a compelling combination for anyone preparing to make significant capture investments.
Utilization of C. O. Two is an exciting area of C. C. U S technology development and this morning, we announced a strategic alliance with Infineon a company that has developed an innovative technology to produce ultra low carbon fuels using captured C O two.
In addition to supplying C O two Denver has the opportunity to potentially participate as a partner and Infineon ultra low carbon fuel projects.
We have set aggressive goals for our CCA U S business in 2022 that support our strategy to lead the CCA U S industry.
For C O two storage sites. Our goal is to reach at least 1.2 billion tons of potential capacity by the end of 2022 with storage sites strategically located across our network.
For the transportation and storage of C. O two received from industrial emitters. Our goal. This year is to reach agreements representing an excess of accumulative 10 million tons per year.
The agreements announced today have moved us further towards that target and based on our current negotiations I'm highly confident that we will meet and will hopefully meaningfully exceed our goal.
Based on our encouraging progress we are allocating significant capital to CCA us this year.
We are planning on spending around $50 million, but we are prepared to flex that number higher depending on our continued or accelerated progress.
Capital spend in this area could include lease acquisition costs pre development activities on sequestration sites and potentially even some capital for equity investments or joint ventures in the Ccs value chain.
Building on the great accomplishments of last year 2022 will be transformational for our business in the course of this year I'm confident investors will have a much more defined view of Danbury significant industry leadership and the incredible potential of what this business can become in the coming years.
I will now turn it over to Mark for a review of our 2021 results in 2022 outlook.
Thanks, Chris and good morning, everyone.
Today I'll provide a brief overview of them various financial results for the fourth quarter.
And review our high level financial guidance for 2022, and then hand, the call over to David for an operations update and more detail on our plans for this year.
Let me start off by saying I'm very pleased with where we've ended the year financially, which sets us up very well to execute on our plans not only in 2022, but for several years into the future.
Financial liquidity at the end of 2021 was a robust $532 million and we exited the year with our only debt being $35 million in borrowings drawn on our credit facility.
We reduced our debt by more than $100 million in 2021, a significant accomplishment, especially considering our payout of $277 million on the hedges that we were previously required to have in place under our credit facility.
Looking forward with a robust oil price strip and more favorable hedges, we project being debt free in the first half of this year for 2022, we have around 50% of our anticipated production covered by hedges and in comparison to last year. Our current your hedges are at higher prices and provide more upside exposure.
Due in part to a more balanced mix of collars and swaps.
You can find the specifics on our hedges and the earnings supplement.
We have recently begun to layer in some hedges for 2023 at very attractive prices, we believe that securing some price certainty is prudent for our business and provides a level of assurance for our longer range plans, especially as we enter a period of more significant spend for CCA U S.
With extremely low debt levels, our current strong outlook on oil prices and a modest natural production decline business Danbury is in great position and we plan to focus our hedge strategy towards providing an adequate level of certainty, while still providing exposure to market prices.
Fourth quarter 2021 sales volumes averaged approximately 48900 barrels of oil equivalent per day, a slight decrease from the third quarter due to unplanned downtime at several of our fields. During the month of December as well as the impact of higher oil prices on the third party owned net profits interest at CCA that general.
It reduces our net revenue barrels as oil prices move higher.
Lease operating expenses for Q4 totaled $25 75 per Boe.
In line with our expectations and relatively consistent with the third quarter.
Our other cash operating costs were all generally inline with expectations, including transportation and G&A.
For the fourth quarter, our cash margin prior to any hedging impact increased to approximately $38 per Boe.
Fourth quarter development capital came in at $78 million as our teams continue to deliver on the CCA project below budget for your development capital expenditures totaled $252 million at the low end of our original 2021 capital guidance range.
Next I'll cover a few items relative to our current year outlook.
As you can find in our supplemental information. We've included a slide on guidance for capital production oil price differentials in various costs, including income taxes.
With respect to capital we've set our 2022 E&P development capital at a range of $290 million to $320 million.
At the midpoint. This includes approximately $198 million for what we would consider sustaining production activities and $115 million for our CCA EUR development when.
When adding our projected six U S capital expenditures of 50 million. Our total Capex for 2022 is currently anticipated to be between 340 and $370 million.
We've been asked many times, our thoughts as to the level of maintenance or sustaining capital necessary to hold our production flat.
With the current cost environment, we estimate that sustaining capital level to be approximately $200 million.
This estimate excludes significant upfront capital for new EUR floods, such as CCA, which we have not incurred for quite some time.
Looking back over the last couple of years.
We have spent significantly below this estimated level and therefore, it should not come as a surprise that we have experienced a modest decline in production.
These prior decisions around capital spend we're well considered and justified based on many factors, including the global economic crisis and oil price degradation in 2020 and in 2021, we made the strategic decision to generate free cash flow even at lower oil prices, while at the same time investing in our new <unk>.
Oh, our growth project at CCA.
2022, however is looking to be much different both from a macro perspective for oil prices as well as specifically for denburg with our strong balance sheet and direct line of sight to higher anticipated cash flows. Accordingly, we are investing closer to the estimated sustaining capital level for our base oil business.
We're also progressing our CCA EUR development and initial investments into our Ccs business, it's still anticipate generating significant free cash flow.
We built our 2020 to budget around a $70 oil price and based on our volume and cost guidance, we would expect to generate between 450 and $500 million in operating cash flow, excluding working capital changes.
With a $10 increase in oil prices, we would expect our cash flow to be around 70 million higher.
Sales volumes for 2022 are anticipated to be down slightly as compared to last year, primarily resulting from the underinvestment over the last couple of years.
Before I hand, the call over to David I want to emphasize just how good I feel about our strong financial position and the outlook for our increasing cash flows while we anticipate the capital spend for our Ccs business, just significantly and appropriately ramp up over the next several years. We also expect the free cash flow from our oil bill.
At current oil prices to similarly, expand providing the capability to organically fund our anticipated six U S investments.
As the certainty around them very Ccs business increases both in terms of capital expansion and contractual agreements supporting future revenues, we will continue to assess the optimal financing strategy for our <unk> business and the best uses of excess cash.
However, we currently believe that building cash to fund our growing <unk> business is our top priority.
In addition, with higher oil prices and expanding C. O. Two resources, there's also potential for expansion on the EUR side of the business.
Again, we are extremely excited about our financial position and the great opportunities in front of US now I'll turn it over to David.
Thanks, Mark good morning, everyone.
Looking back on our performance for 2021, I am extremely proud of how our teams executed achieving another record low annual total recordable incident rate delivering solid asset and project performance and managing capital spend towards the bottom end of our guidance. During my time today I will touch on safety performance your EM.
<unk> cover some highlights from our solid 2021 execution results and lastly, provide an overview of our 2022 operational plans.
As typical I want to start with safety, which is core to our operational performance for the year, we achieved a record low combined company and contractor total recordable incident rate of 0.4. This was our fifth consecutive annual rate improvement and it was about half of the previous record bright.
In addition, we established a new record low serious injury potential our surf rate in 2021.
Records are great accomplishments would not have been possible without the entire organization's focus and collaboration.
As activity levels are increasing a dim barry and across the industry I have challenged our teams to redouble, our focus on safe reliable and efficient operations as we strive for the record that matters most zero incidents.
Moving on to reserves proved reserves at the end of 2021 represented a 34% increase from the end of 2020 to 192 million barrels of oil equivalent.
While the significant increase was largely due to the uplift in commodity prices year on year. We also recorded new reserve additions from our wind River basin assets and from 2021 development activity at Oyster Bayou and other projects.
Our crude oil price per barrel of nearly $67 W. T. A.
PV 10 value of our proved reserves increased to $2 $7 billion as of the end of the year.
With 97% of our reserves being all we estimate that a $10 per barrel change in oil price impacts our PV 10 value by approximately $850 million, which does not include any consideration of our significant CCA your potential.
Our operations team performed exceedingly well throughout the year delivering strong execution on our $252 million of capital projects.
Fourth quarter capital expenditures of $78 million were focused on completing the CCA C. O two pipeline installation from Bell Creek to CCA.
As well as the phase one infield infrastructure it used to lookout Butte and Cedar Hills South.
Our project teams did a fantastic job on the pipeline installation with mechanical completion achieved on the pipeline in November of 2021.
We completed landfill up C O two into the CCA pipeline before the end of last year and I'm proud to announce that the first two injection into the east Lookout Butte field in Montana, and the Cedar Hills, South unit North Dakota commenced on February 1st of this year.
Injection of C O two into the Red River Reservoir has gone very well and as of today, we have C. O. Two injection underway at 25 wells injecting approximately 38 million cubic feet per day.
With the overall CCA project running slightly ahead of schedule. We are still expecting first you are production to occur in the second half of 2023 with production ramping up over a six month duration.
Next I will spend a couple of minutes covering some highlights from <unk> expansive C. O two operations C. O two injection into our EUR fields totaled approximately 510 million cubic feet per day in 2021, or $9 6 million metric tons annually of.
This amount approximately 34% was from an industrial source cotwo, resulting in carbon negative our blue all for.
For 2022, the amount of industrial sourced Cotwo are utilizing is anticipated to increase approximately 33% to $4 3 million metric tons annually.
This increase was driven by new volumes coming from both the Shute Creek and lost cabin gas processing facilities in Wyoming and will be injected into the newly developed CCA your areas.
A key metric from our C O two operations I want to focus on his <unk> system reliability.
In terms of being able to take C. O two from our industrial sources, you owe to providers in the Gulf Coast Air products and nutrient or achieve planned uptime has been 100% since the first of these sources came online over nine years ago.
This flawless performance highlights the reliability of the <unk> integrated system to transport and utilized industrial sourced volumes and our track record of essentially zero downtime.
Now for some additional color on our 2022 operational plans beginning with the ongoing CCA C. O. Two projects anticipated total capital in 2022 for the project is $115 million, including the remaining well conversion work and installation of recycled facilities implementation about C. O. Two pilot project at the mill and the Interlake.
Reservoir and $25 million for C. O two injection cost as those costs are capitalized prior to tertiary production and expense after production commences.
Expenditures for the recycle facilities were previously planned for early 2023 are being shifted to 2022, largely due to the accelerated project schedule alone, we're proactively managing equipment lead times.
We'll see how two injection underway excitement is building as we close in on the first tertiary production at CCA.
As a reminder, the three things that really stand out about the CCA development are number one the estimated total recoverable resource potential over 400 million barrels equivalent makes CCA the largest your development we've ever undertaken.
To.
CCA should drive down our operating cost per BOE as we estimate LOE per incremental Boe at 10 to $15 and three this was a fully carbon negative development in CCA will significantly increase the scale of our blue all operations.
I am excited to see the progress made by the CCA U S team as they engage with additional emitters in the region that can potentially bring new volumes to our CCA development.
Mark mentioned earlier, the 2022 planned capital spend increase in our non CCA tertiary in conventional field activities I think of this spend is part of our sustaining production capital.
As the significant upfront capital associated with the CCA C O two flood will be largely completed in 2022.
I would expect future development spend will transition to our sustaining capital amounts. However, we could have some infrastructure spend that may stand out from time to time as we expand operations.
Our 2022 capital plan for this category totaled $190 million and we've listed many of these projects in our earnings supplement.
A few of the most impactful are the EUR projects at Cranfield So-so in East Heidelberg the.
Cranfield in east Heidelberg projects targeted incremental recovery and under swept areas of existing producing reservoirs, while the social development involves re completing existing wells to flood and produce from a different reservoir.
Following our acquisition of the wind River basin assets in the Northern region last year. Our teams have been busy evaluating these fields for opportunities and generating projects.
The first large cap project has been funded and is underway targeting a redevelopment of an existing Madison reservoir flood and the Beaver Creek field.
Drilling activity is shaping up to be at the highest level in recent years with over 20 wells planned throughout our EUR and conventional assets.
I also expect Workover rig counts to range between 25 to 30 rigs with around half of them assigned to capital projects.
Production volumes for 2022 are anticipated to range between 46, and <unk> 49000 barrels of oil equivalent per day with the high end of the range relatively close to our average full year and fourth quarter 2021 volumes.
I anticipate our 2022 sales volumes will be up slightly in the first quarter, but will grow throughout the year, considering unplanned maintenance and whether that has impacted both our northern and Gulf coast regions at the end of 2021 and into the beginning of the year and reflecting production response from our project development work occurring throughout the year.
Briefly on operating expenses, we are anticipating 2022 unit cost to be slightly higher than the run rate in the second half of 2021 with cost expected to range between $26 $28 per Boe.
As a reminder, these cost can fluctuate, mostly resulting from changes in commodity prices, which directly impact our <unk> fuel empower expenses.
So crude oil stay at current price levels I would expect our LOE costs to be at the high end of the range.
Wrapping up I, just want to comment about how excited I am about our 2022 plan and the outlook for our oil business going forward.
With a return to investing at closer to sustaining capital levels in 2022, and as the CCA <unk> development starts to respond later next year, we are strengthening the foundation on which didn't various fans by stabilizing our base production into 2023 and positioning ourselves for a tremendous future as CCA response brings moderate production.
Growth in 2024.
I'll now hand, it off to Nick for an update from the sea for U S business.
Thanks, David I'm looking forward to updating everyone on the call today about the great progress we've made on our carbon solutions strategic priorities as well as the targets we set for this year.
It was an active end of year and started 2022.
As evidenced by the agreements we have announced this morning, the momentum for our Ccs business is building.
In 2021, we announced our first two transportation and storage service agreements for Seo to uptake.
Boy with Mitsubishi and the second with a private Gulf Coast biofuel developer.
Totaling 2 million tons per year.
Since these announcements Mitsubishi has continued to progress the planned ammonia plant in the Gulf Coast.
The private Biofuels plant developers nearing completion on front end design for that project and our team is simultaneously working on plans to connect these plants to our infrastructure.
This morning, we announced three new transportation storage and utilization agreements covering an additional 3 million tonnes of cotwo year.
The first agreement is for the uptake of 400000 tons of <unk> two per year from an existing chemical plant in Louisiana, just 15 miles from our green pipeline infrastructure with potential start up in 2025.
The second is a hydrogen plant in Wyoming claimed to be built within five miles of our Rocky Mountain infrastructure.
The agreement is fully update you about 100000 tons of Sidoti per year, beginning in late 2024, and ramping to over 1 million tons per year around the end of this decade.
This is the first agreement, we've announced in our Rockies region and it showcases the broad spectrum of solutions that are expansive <unk> infrastructure can provide to industry.
These new agreements are long term in nature 12 to 20 years with extension options and including the flexibility for Jim Barry to utilize the few two and EUR operations.
The third is our strategic alliance with Infineon to develop ultra low carbon transport fuels.
Juneberry will source and transport, one 5 million tons of industrial source Youtube per year to Infineon is playing to electro fuel facilities.
<unk> facilities are planned in close proximity to <unk> existing Texas infrastructure and.
And we expect to be ready to deliver C. O two as early as 2025.
This utilization agreement as an example of how <unk> actively pursuing innovative partnerships across the <unk> value chain.
Combined between 2020 , one and the first part of 2022, we signed Sidoti transportation storage and utilization agreements for an industry, leading total of 5 million tons a few two per year.
The earliest anticipated offtake from these agreements will begin in 2024.
We are negotiating transportation and storage agreements for over 50 million tons of Sidoti per year based on our success to date and the great potential we see for reaching additional agreements with industry partners. We set a target to reach accumulative agreement total in excess of 10 million tons of <unk> two per year by the end of 2022.
Turning to our storage side objectives on our last earnings call, we announced the joint development plan for a large storage site in Texas on.
On the Texas site, we've made steady progress over the last quarter with our JV partner progressing the sites due diligence preliminary engineering design and continuing the classic permitting process.
We've made two significant additions to our portfolio of permit sequestration sites.
The Alabama site, we announced earlier this year is a very large and attractive site with an estimated storage capacity in excess of 300 million tons of Sidoti.
This site offers the sequestration opportunity from nearby industrial plants, and we believe greenfield capture projects will be attracted to this site due to the availability of <unk> sequestration and the convenient access to deepwater ports.
We started the classics permitting process with anticipated first injection in 2026.
And this morning, we announced the definitive agreement with a large land owner to develop a <unk> store site near Dallas will Bill Louisiana.
Located less than 10 miles from our existing infrastructure. The site demonstrates high integrity containment due to its structural trap and added shield barriers with great expected injective, resulting from its extensive reservoir thickness permeability.
This site has the potential to store over 150 million tonnes of Cotwo targeting first injection in 2025.
The close proximity of this site to our network minimizes the interconnecting pipeline investment and we are nearing agreements on multiple additional sites with similar proximity to our pipeline infrastructure.
We've already started to take action to develop our storage sites. Our team is progressing geologic and reservoir analysis required for classics, well injection and is actively engaged in communication with the EPA on the classics permitting process.
In 2022, we plan to evaluate seismic drill stratigraphic wells start core analysis and secure the lateral right of ways as the first of many steps required to progress each of our sites toward first injection.
To date, we have signed agreements, giving Jim Barry the rights to evaluate and develop a cumulative total of over 850 million metric tons of <unk> storage capacity in Texas, Louisiana and Alabama.
With our strategy to build a portfolio of safe highly reliable and redundant permanent sequestration options for our customers.
In 2022, we are targeting to acquire Cumulus <unk> storage capacity of $1 2 billion metric tons.
I'll wrap up my update with a few key thoughts.
Our focus in developing and managing <unk> and <unk> fields for the past 20 years stands alone in the industry.
We believe that experience directly translates into the development of a broad portfolio of geographically diverse high quality sequestration sites.
Second the geology of the Gulf Coast create some of the most suitable for space for <unk> storage in the U S and our existing infrastructure provides the perfect footprint to integrate the best sequestration sites into a far reaching network that will provide unmatched reliability and flexibility and our transportation and storage and utilization services.
Yeah.
Third Rocky mountain opportunities, although less mature an important market for our six U S strategy. Our team is actively working on agreements in the region as we've demonstrated this morning and the announcement and.
And finally 2022 will be a year of significant progress, Virginia carbon solutions as we execute new agreements that continue to build on our strong advantages firmly establishing Jim Barry as the industry's preferred seats U S partner.
We are looking forward to keeping you updated as we continue to build on our early successes throughout the year.
Operator, we'd now like to open the call for questions.
Thank you if he would like to ask a question. Please press star one on your telephone keypad.
She told me.
They can't your line is in the question queue.
Press Star two if he would like to remove your question from the queue for participants using speaker equipment.
Necessary to pick up your handset before pressing the star Keys. Our first question is from Doug Leggate with Bank of America. Please proceed.
Thank you appreciate you taking my questions guys. So I guess with the Cedar Creek getting up and running I guess first oil in the unit two.
What do you think the current view of sustainable inventory is when you talk about maintenance capital little bit of growth ahead of you. What are we thinking in terms of the inventory visibility you have for the base business today.
Hey, Doug Good morning, this is Chris a great.
Great question and certainly when we start with just CCA as David mentioned, we see potential there in excess of 400 million barrels which is.
More than double our current proved reserves so that alone is a it's something pretty special.
You know also though as we look across just the inventory that we have of our existing fields that we've talked about our Webster field South of Houston, there that's one that the pipeline.
<unk> right up to and that's one that is prime for.
Starting up in an AOR and they are not too distant future I would say so that's that's more greenfield type development inventory.
And then on top of it I think of a couple of other areas that are that are interesting. The first is just within the remainder of our field. How these great teams that we have continued to find new ways to a.
Flood and different patterns to flood in different horizons, and youre seeing some of that in the capital program for this year.
And then of course, our wood.
I see on top of that is just the numerous fields that we can access that may not even be in our inventory today, Doug, but they can be added.
Put into EUR with the C O two infrastructure, we have and the access to C. O. Two so I see it broadly are certainly we love, where we sit we love having the pipeline into CCA that really unlocks all of the potential up there, but much more beyond that.
Okay I appreciate the answer I know Theres a lot of.
There's a lot of background and actually my second question is really wanted to go.
I'll go back in the archives a bit Chris.
In April 2008, you did a very detailed analyst presentation I don't know, it's a long time ago for a lot of people.
But a lot of the the current visibility in the portfolio around Ccs was also lead out 15 years ago or less and my point is clearly takes a long time for this stuff too.
Evolve to a meaningful level EBITDA or value that the market will recognize so my question is something that last year, a number of times before and I just wanted to get your latest thoughts on it.
You firm up the visibility of some of these anthropogenic opportunities are you the right owner of the infrastructure and what do you think the value of that infrastructure is today.
Yeah, there's a lot of a lot of great to elements of your question there Doug.
First I'd say, it's a interesting you go all the way back to 2008.
We've talked about that quite a bit here.
The view of what could happen with Ccs has been held by Danbury is being very positive for many years I think just in the last two years really we've seen policy catch up in a way that are that can support the type of acceleration that we're that we're seeing right now so that's a.
That's something that as we as we look at where we are today, it's fundamentally different to.
Where we were in 2008, but it's something that we've been building for.
You know when we think of just the the path of that growth I certainly agree with you that.
It is a long game that we're that we're in here. These are projects that will be implemented but.
Over a period of years, but once they are they will be running for decades, just as just as the plants run the offtake of Cotwo on a.
Run along with them. So we're excited about that.
You asked about the owner of the appropriate owner of the of the infrastructure and.
To have a very large degree Doug we feel that we have that infrastructure and that what we can do to enhance that to reinforce it with classic storage along the way.
To provide that redundancy that we've talked about quite a bit.
It's just something that.
All of that expertise that was developed leading up to that point in 2008 that you that you talked about.
But then honestly even in the in the 14 years. Since then that we've built and become just that much better really puts us in a position where we feel.
Right.
The center and right at home doing exactly that.
So sorry, Kristen I'll you what do you think replacement volume resilient infrastructure today are.
Great question on the replacement value I mean, so we look at a few different elements of it I can just point to what we spent.
More than a decade ago on the green pipeline as being in the neighborhood of $1 billion. When we add that to the remainder of the infrastructure up there and Mississippi, primarily when we add the infrastructure that we have in our Rocky Mountain region.
I get.
I get to some pretty high numbers and those are based on just the cost of putting them in in the first place when I look at today's environment.
Costs are higher.
Permitting complexity is higher I think it's it's well well above.
What we spent in the first place certainly certainly a few billion dollars.
I'm, just gonna stay above your market capitalization, but yeah.
Yeah.
Chris Thanks, very much indeed.
Thanks, Doug.
Our next question is from Charles Meade with Johnson Rice. Please proceed.
Good morning, Chris to you and the rest of your team there.
Carl.
Picking up on that on that thread of permitting complexity.
You guys did.
Address some of the class six well per meeting in your in your remarks, but I was wondering if you could give us a sense of of you know.
What the timeline is and what the what the maybe the posture of the EPA is in that and we had a senator from Louisiana recently came out called out the EPA for Est.
Essentially.
You know I don't want to say.
Milwaukee, but just but not being responsive on classics permits. So can you talk about what that what that looks like and set some expectations for us on.
And when we should be looking for these permits which are key to do the sequestration side of the.
Of the CCA U S.
You bet Charles.
I'll just say something briefly here then I'll ask Nick to weigh in as that is a right front and center in his view right now.
Yeah, you know, perhaps the frustration of the Senator from Louisiana Might've been related to a delay in the granting of primacy.
Louisiana has been working towards.
What we're hearing.
Recently is that that granting of primacy to wear Louisiana can actually grant the classics permits.
Might be delayed to later in the year. So it's possible that that's that's what he's thinking about but I'll ask Nick to give a more a broad overview of just where we are and what we see in the classic process.
Sure. Thanks for the question Charles.
First I just want to say how excited we are to <unk>.
Wire this portfolio of sites that we that we have.
Built so far and that excitement is of course led to us moving quickly on getting a class six permitting process, rolling which we which we've done we've done already.
That's gonna include site characterization, which includes evaluating geology are doing a lot of geologic description building a reservoir simulation evaluating seismic.
Working with the EPA to each one of these steps and making sure. They are informed and understand the next steps that are coming and agree with with how they all work together we are optimistic that the whole process should should take as short as 18 months to get through the prop.
With the EPA as we as we get to a point where privacy is taken over by the states. We hope to see that that timeline continues to decrease.
That is helpful. That's a helpful color.
My my follow up I wanted to ask about the CCA development and I noticed in your slide deck.
You talked about you repurpose the water injection system for for C. O two injection, but it looks like you guys are the way I read it looks like you're going to be drilling some new horizontal producers in and I'm wondering if that's the right interpretation and what the.
You know what the benefits are and is that something that you can see back on the Gulf coast.
Hey, Charles This is David I'll take that question. Appreciate the question there yeah, Yeah, we are.
Inverting our injection wells are existing conjecture wells from water injection to C. O two injection, but yes part of the beauty of this phase one project is that we are utilizing the existing inventory of horizontal wells that are going to be able to produce directly from them. Yeah. So there'll be some real requirements what the.
Some of the wellhead trim and et cetera, and it fit for service for C O two but but really low expected well conversion cost there.
Got it thank you.
Our next question is from Jeffrey language, John with Tudor Pickering Holt. Please proceed.
Good morning, and thanks for taking my questions.
<unk> solutions.
Carbon solutions business, obviously, you've got a lot of news on boats to offtake and sequestration, but maybe just a thought on the sequestration aside a bit higher since it seems to get I think a bit underappreciated, you've got several sites now kind of spread out in terms of geography and also in terms of variability and what each site might be close close to when thinking about infrastructure or.
Industrial facilities. So can you maybe just talk a little bit about the strategy, there and building out that portfolio and what we should envision for future pore space leasing.
Think about the balance between types that are very close to infrastructure and existing emissions.
Even just frame what existing ambitions are around the Texas Gulf Coast siding and the downhole build news from this morning and sites that expanded footprint overall I like the <unk> question of mobile that may be better suited for greenfield.
Yeah, great. Thanks, Geoffrey this is Nick again, and I'll be taking this question.
So from a strategic standpoint, the way we look at our strategy.
Our strategy for acquiring these sites is to put them in kind of an even distance throughout our infrastructure that allows us to optimize deliverability to those sites from a pipeline standpoint, it effectively reduces the constraint we would have on that pipeline because if you think about where the emissions are coming on and then coming off.
The quicker we can take them off the more the more capacity we have on that line and that really provides a big benefit for us to continue to aggregate a lot of volumes. So that's kind of the general strategy around our acquisition I'll say that we're very lucky to have our infrastructure where it's at.
The geology for the Gulf Coast is amazing. It is so large that we kind of look at it from a standpoint of where is the actual best position and given the proximity to our mirrors along our infrastructure and so if you can if you think about Dallas a bill in particular, you can think about the large volumes of emissions.
They're in and I think we pointed to around 50 million tons per year of of.
I guess potential emissions that were in conversations with right now I would say that there's much larger potential.
Potential and even in that area by itself and so we look forward to continue to build that portfolio of of emissions with our industry partners there.
Terms of extensions you in our Alabama site, we look forward to our first all building a hub there for for the emissions that are nearby and so because of the close proximity to those missions to the that particular store site. We believe we can make a very economic.
Our business out of the infrastructure, we would build there that of course could lead to us connecting all of our infrastructure with compounds. The network effect of the value of all of those sites and what we can aggregate across the whole system.
That's great I really appreciate all the detail on that and also I appreciate the reiteration of the over 50 million tonnes per annum that you've talked about being in discussions for I guess, maybe just for my follow up a couple of questions around that.
The movement I guess been like four counterparties in two out of in around that list of potential candidates that you're in discussions with them.
If you can just speak to how you've arrived at the 10 million tons per annum target or $10 million for the year that'd be helpful.
Great. Yeah. So of course, our list of potential industry partners is very long and it it's somewhat changes over time, but I would say that there there are potential emitters that are very close to being.
Being complete in terms of knowing that they're going to be getting to F. I D. And we'll have a capture project that we'll be able to be able to work with and provide our service to and so.
That list continues to mature and I'll say, a large portion of that list. Just continues to move forward towards completion I'll say that there are a few and very limited few that do come off but we're continually adding to the list in a way that I would say is much more fast and then emitters are actually come.
Off the list and so that's kind of how you can think about the queue of mirrors or the pipeline of business that we're working through and as you think about where we're where we're headed in terms of negotiations are sticking points. We really don't we really don't see a whole lot of the sticking points to the negotiating process, but there is a bit of a timeline that our meters need to get to the point where their comfort.
Well with their capture process that allows them to actually execute the deal and so when you think about the 10 million tons per year that we that we pointed out there it's more of it maybe a timing around the 10 million tons per year versus the amount of total emissions that will be getting from the 25 ish million tons that were currently engaged.
With detailed discussions and so we just predict that there's a particular amount that we'll actually get to the investment decision necessary for us to actually eat that term sheet. This year not necessarily saying that that's the only amount of Sidoti <unk> be coming out of that larger volume.
Understood. Thank you.
Our next question is from Richard Tullis with capital one. Please proceed.
Hey, Thanks, Good morning, everyone. Good morning, Chris.
Chris I know you talked a little bit about it.
Maybe it was mark talked some about preferences for use of excess cash how do you view.
The landscape for potential.
Share buyback given where the current stock price is relative to recent oil price performance.
Okay.
Yeah, you bet, Richard and it's it's it's something that we've been thinking about quite a bit especially.
It really just in the last couple months or so when we've seen oil prices just continued to strengthen.
We set a budget for the year at $70 oil and you can see where where oil is today. So we're feeling good about that.
Certainly as Mark mentioned, we want to focus are our primary.
Capital deployment or are thinking about where capital is going to go in the future towards this great CCA us opportunity that nicks talking about.
We're spending some money on that today, we expect that to ramp into the coming years.
And honestly the more it ramps the better the business is and so we feel that that's something that is exciting and we will have a path to where that where that is going when we when we get to those years, but in the meantime, we have thought about weather.
It's the appropriate time to consider some form of return of capital whether its share buyback like you mentioned or otherwise and it's something that's in our conversations right now and we're going to continue to to think about that.
Just want to make sure that we primarily cover our ability to organically fund the projects that nicks teams coming up with and.
It'll be interesting to see how the next few months ago, but.
It's definitely front and center on our minds Richard.
No that's helpful. Chris Thank you and.
<unk>.
I know in the release. This morning, It was mentioned about regarding the equity option.
And one of the projects.
Level of comfort do you have.
And for a total maybe investment in some of the <unk> related projects over the next couple of years, what sort of range might you might you look at without without giving too much information way of course.
That's a good question and it's something that it's part of our strategy that where we can find ways to participate in the value chain beyond.
Really just our wheelhouse, which is transporting and storing C O two which on its own we feel great about as you know.
So.
In certain areas, we've looked at that opportunity to invest as an equity partner in some of the developments.
And there is some level of appetite that we have for that.
Richard I would say that we're going to be pretty thoughtful about it just recognizing them.
What we really want to spend a lot of our time and focus and.
And in resources on is building out the the transportation storage side of the business, but we will look at those kind of opportunities and I'd say that they would come in.
And at a lower level than most of our other investments, but certainly something that we're thinking about.
Okay.
And one more for me.
I'll drop off.
The $115 million.
Targeted for CCA Capex in 2022, roughly how much of next year's Capex was pulled into <unk>.
2022, and at this point whats the expected Capex range for next year at CCA.
Hey, Richard This is David again, I'll take that question, Yeah, I, just I can't underscore enough how pleased I am with the project execution and that too we were able to complete the pipeline and are in the infield infrastructure.
Ahead of schedule and under budget there. So I think that's a good key important point.
Two in that we've started the.
C O two injection and I would just say that initial responses is we're happy with that right now so in light of that based on those good progress we saw the potential to pull our recycled facilities associated.
Associated with those first targeted areas and to our 2022.
<unk> spend.
There are some other factors that are going on too as well there's some inflationary.
Top concerns that we're seeing some elevated cost in 2022, and we've also carried them.
Through our 2023 and beyond.
Plans too as well so as I think about pulling those recycled facilities in 2022.
Some of that offset is going to be impacted by the inflationary pressures in 2023.
And beyond there so all things being equal with no further project acceleration no. Other inflationary pressures now along the way, we still expect to see our CCA 2023 capital to be lower than 2022. So I hope that gives you some good guidance there and it's also.
Lower than what we've actually shared in some of our most recent corporate presentations.
Thanks, very much that's all from me.
Okay.
Thanks Richard.
Our next question is from Leo Mariani with Keybanc. Please proceed.
Hey, guys I wanted to delve a little bit more into some of the deals from 'twenty. One I know you gave a little bit of color around the Mitsubishi deal, but I think obviously when the deal was originally signed it was a term sheet can you can you talk more about with key hurdles.
We're really out there to kind of making this more of a definitive contractual agreement would you anticipate achieving.
Cheating that here in 2022 and can we also get a bit of an update on the Mitsui deal.
And that deal I believe you guys are kind of searching for some new EUR opportunities not around the Gulf coast.
You bet, Leo and what I'd say I'm going to turn your first question over to Nick and then your second question over to Matt.
It to some degree in both of those deals we are going to be limited just by the confidentiality of the agreement that we have with with those counterparties, but we'll do the best we can to put some color on that so Nick.
Yes. Thank you for the question so with Mitsubishi you know, we're working we're working with them towards.
Putting together a more robust plan on how exactly we're going to be connecting to their plants in and working through their process that includes the steps necessary from an engineering design standpoint to get to and really from for thinking about when will we kind of take it to the next step of a more definitive agreement you can.
Contemplate debt before our Counterparties generally want to move into the more definitive agreement they want to get pass through.
On their capture site.
Sure.
Okay.
And Leo this is Matt Dan I'll handle the Mitsui question.
Our teams are working alongside our Mitsui counterparts.
Really scaring the Gulf Coast region within our Ami.
They have narrowed it down to several.
Preferred targets and we're kind of working the final technical work here in the next couple of months before we bring that to a potential decision.
Okay.
And then I guess just a question around the classics permitting process you spoke about this earlier.
Do you anticipate a file.
Filing some classics permits here in 2022 around some of the sites you've announced or do you think thats more maybe next year.
Yes. This is Nick again, so yes.
So when you think about the way the classics permitting process works I would call it more of an interactive.
<unk> of the permit meaning we'll be actually working with the EPA or the state if a state has primacy on on the steps that we will be taking to get to the submission of the permit and so if you can kind of picture. How this looks if there is a long checklist of items that you have to get through for example, the site characterization I mentioned.
Before the seismic evaluation the reservoir description.
Then move into environmental baseline evaluations and measurements and then plan and drill a stratigraphic well test and then build development plans. This will all be done hand in hand with the authority. The EPA in this case and by the time you get to the point of actual submission.
You are effectively done with the permitting process and so that submission.
He is a little difficult to land in 2022.
It'll probably be a bit later than that but once you get past all of those steps, we don't see there being a big iterative process that may or may have been seen in past permitting processes.
Okay. That's helpful and I guess, maybe just on the timeline that you spoke about the roughly 18 months can you just kind of wrap that.
Into the same discussion here. So is it 18 months after submit all our 18 months. After a lot of these steps have already begun just wanted to clarify that.
Yes, so just to clarify that we've started the steps to get to classics permitting and that 18 months is from the time we start.
So now.
Thank you.
And our final question is from Michael Gallo with Stifel. Please proceed.
Yeah.
Yeah, Hi.
Hi, everybody.
The address this a little bit in your remarks, but I know you've said in the past you're welcome competition.
Ccs business given the size of the opportunity a couple of companies formed the partnership recently for Ccs projects and that Donaldson Ville area, where you now have a couple of agreements just wanted to get your latest thoughts on competition in the space is it causing you to approach it differently than you have in the past.
Yes, no that's a good question Mike.
And as I've said before certainly believe.
In CCA us as being something that will be very very large and will grow for years.
Starting from here really.
And so there will be others, who will do this and they may be the supermajors on one end or.
Independents and smaller than us on the other.
Well I think about it competitively I'm very happy with where we are we.
First of all we're just doing this this is something that has been our bread and butter for decades, and the comfort that we have and everything to do with C. O. Two we feel just can't be matched I mean moving.
10000 tons into reservoirs.
Day, we're doing that today, and we did it yesterday and it'll continue.
The emergency response, the construction teams the evaluation team yeah.
Just name it we have it and so I feel good about it but I also realize it's competitive and it's something that where we need to provide the best service possible to our industrial partners and I think that.
Honestly I think that what we have.
Does just that the redundancy that Nick talked about the.
Flawless supply offtake that David talked about over many years that that's part of the service, we provide and so I feel good about it.
Having competition means that this is a good thing we're involved in and we're going to do our best to.
A big Mark in it Mike.
I appreciate that.
Wanted to see if you could talk about the agreement.
And with the chemical plant in Louisiana.
It sounds like that's doing into geologic storage was was there any discussion.
And potentially putting a emissions into a an EUR project.
In order to speed up the timeline.
And do you think that agreement will help you in the door with any additional agreements in that area.
That's a good question, Mike and one thing that I meant to mention earlier in the call. It's just.
The certainty that we can provide today for Sidoti.
C O two emissions going into EUR and qualifying for 45 Q at that different level.
That is something that can provide that is unique and it allows.
These industrial partners to make those investment decisions that Nick was talking about now rather than waiting for the class six permitting to be approved and so we think that gives us a great advantage and generally all of the agreements that we have.
<unk> talked about so far allow us the flexibility to go into EUR or into dedicated storage or alternatively to go into EUR until dedicated storage is available and so that's something that is contemplated in every one of these.
The conversations were having and in the agreements that we've.
Been putting together.
Is that option at the.
Is that the emitters option or is that at your discretion to take it into your or how does that work.
It is generally our option Mike.
Uh huh.
Great. Thanks, Chris.
Thanks.
We have reached end of our question and answer session I would like to turn the conference back over to Brad for closing comments.
I want to thank you all for joining us today as we close I also want to express my gratitude gratitude to Susan James for her work and I are at Danbury.
Susan is taking on a new role within our Ccs function and I'm sure. She is going to contribute meaningfully to that team joining <unk> as the best Bier Haus an engineered previously working in our large CCA field I'm certainly looking forward to you all getting to know Beth.
Should you have any follow on questions today, please don't hesitate to reach out to us.
Thank you again.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
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Hum.
Yeah.
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