Q4 2022 Denbury Inc Earnings Call
Oh, and Nick Wood SVP of carbon solutions, Matt They hand, SVP of business development and technology is also here to participate in the Q&A.
With that I'll turn it over to Chris.
Thanks, Brad.
Good morning, everyone and thank you for joining us on today's call.
Then Barry isn't it amazing position as we enter 2023.
S policy support for <unk> has never been greater and we are just scratching the surface of the scale, we will see in <unk>.
The combination of the 45, Q <unk> tax credits and significant improvements in carbon capture technology is opening the door for a vast portion of current and future U S emissions to be captured economically.
It is also clear today that the world's need for secure sources of energy of all types continues to grow.
The past several years of Underinvestment in global oil production have begun to put stress on the industry's ability to supply the world's recovering oil demand.
<unk> and a stronger price environment than we've seen for many years and.
And an imbalance that I believe could exist for some time.
Considering that backdrop Denver, it could not be in a better place our unique carbon dioxide infrastructure and expertise put us in the center of the exciting high growth Ccs story, and we are just in the first chapter.
Our long lived Cotwo are focused oil business is providing an ever greater proportion of carbon negative blue oil.
And our multi year path toward development of the massive Cedar Creek anticline EUR resource.
We'll reach a key milestone with first <unk> production. This year beginning the first of many decades of significant production of carbon negative high margin oil from this great asset.
Our extensive use of industrial sourced cotwo operations, which increased to $4 3 million tons. In 2022 helped the company. Once again achieved net negative scope, one and two emissions for the year.
Then very uniquely situated to play an important part and meaningfully reducing carbon emissions, while also providing a valuable essential.
Low carbon intensity energy source.
This is an incredibly exciting time for the company.
We believe that <unk> will be a high growth industry and a high growth business for Denver.
Underscoring that conviction our results more than doubled our <unk> goals for 2022 exceeding 20 million tons per year, and cumulative transport and storage agreements and over 2 billion tons and poor space agreements.
We also believe that oil will be a vital part of the global energy mix for many decades and that Denver is blue oil produced through EUR using industrial sourced cotwo.
Should be preferred.
As it is the lowest carbon intensity oil produced today.
In 2022, we made investments in multiple attractive oil focused development projects.
And progressed, our crown Jewel CCA <unk> project, which we expect to drive company production growth beginning this year does that flood ramps up delivering 100% blue oil.
In reaching these achievements, we have never lost sight of the business fundamentals.
Kevin will touch on this more but keeping people safe remains our top priority.
I have long said that excellent safety performance is the foundation for excellent operations and our teams are proving this.
Year after year.
Our priorities for 2023 build on our 2022 successes at CCA, we're preparing for our largest ever EUR development to startup in just a few months.
We're investing in multiple high return oil focused projects across our portfolio and.
And we've more than doubled <unk> capital in line with our plans to rapidly grow that business.
I am more confident than ever that <unk> has the right strategy the right people and the right assets to deliver transformational growth for our shareholders.
I will now turn it over to Mark who will go over our 2022 financial results and our 2023 outlets.
Thank you, Chris and good morning, everyone. Today I'll provide a brief overview of them various financial results for 2022.
Our capital allocation priorities as we enter 2023 and address a few guidance items.
I will then hand, the call over to David for an operations update and more information on our plans for next year.
Our full year operating cash flow for 2022 was $521 million and $569 million before working capital changes.
This cash flow was generated on an average realized oil price of around $94 per barrel before hedges and $75 per barrel after hedges.
Cash flow before working capital changes significantly exceeded our combined oil and gas and Ccs capital expenditures, resulting in a 136 million of free cash flow for the year.
$100 million of its free cash was returned to shareholders should the repurchase of about 3% of our outstanding shares at a purchase price below $62 per share.
During 2022, we also allocated $34 million for plugging and abandonment costs proactively addressing some of our more mature assets and we invested $10 million on the seats U S. France and the development of a greenfield blue ammonia project to be built Donaldson, Louisiana.
As we move into 2023, our capital allocation priorities are unchanged.
First and foremost the health of our balance sheet is our top curve.
Particularly as we move into periods of higher capital spend for <unk> activities.
Last year, we increased the borrowing base of our credit facility to $750 million.
And at the end of 2022, we had only $29 million in bank debt.
Financial liquidity at year end was a robust $711 million. So we are entering the current year and a very strong financial position.
Based on our current 2023 projections.
<unk> a $75 per barrel oil price expected cash flows are relatively bounds with our planned investments which include our $510 million capital budget.
$36 million of TNA activity and $17 million in Ccs equity investments.
For sensitivity purposes, each $5 move in oil price results in approximately $45 million of additional cash flow.
Secondly, we will maintain the strength of our base oil operations targeting modest oil growth over the midterm through investments in our Sidoti flood at CCA and other high return oil weighted development projects.
Our investments in the CCA <unk> project, our focus on bringing phase one of this view cotr to production later this year and also be driving 2024 old growth for Denver.
Thirdly, we intend to prioritize the growth capital needs for Ccs.
As we laid out in our Ccs business outlook events last year.
We expect Ccs capital will continue to increase over the next several years as we build out what we believe will be the industry's leading cotr transportation and sequestration network.
Our 2023 Cts capital budget is more than double from last year, and we foresee further expansion in 2024 and 2025 as we continue the planned build out of this amazing system.
Finally, as cash flows generated above and beyond our anticipated near term needs. We will continue to focus on returning capital to our shareholders.
We do believe that securing some price certainty is prudent for our business, especially as we move into a period of higher capital spend for us.
For 2023, 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.
For 2023 at an average oil price of $75 per barrel, we expect our hedges will benefit our cash flow by roughly $15 million a.
A nice change from last year.
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 and various costs.
G&A as a cost that we currently expect will be up 10% to 25% from last year and is really impacted by two drivers one a projected increase in head count, particularly those supporting our <unk> long term growth objectives and to the cumulative expense for long term equity awards with 2023 being the third full year.
<unk> expense following emergence.
We estimate that stock compensation expense will be between 22% and $26 million in 2023.
From $16 million in 2022.
On oil price differentials, we are guiding to a range of 50 to $1 50 below Nymex. This.
This is below the negative 10 differential we had in 2022.
But going back a couple of years, we had differentials of minus $1 40 to $1 80 per barrel.
The price we receive on various markets will depend on the underlying index pricing formulas and market dynamics and the different locations.
I would expect differentials to move around throughout the year.
But the first couple of months of this year are likely on the wider side of our differential range with January coming in around $2 per barrel below Nymex prices.
And on taxes, we expect our effective tax rate for 2023 to be temporary statutory rate of 25%.
Following our much lower effective tax rate in 2022 due to the offsetting valuation allowance release on certain of our deferred tax assets.
I do expect very little cash tax this year, assuming an oil price of around $75 per barrel.
As I turn it over to David.
I want to emphasize that our strong financial position gives us great confidence in our ability to execute our long term strategy.
David.
Okay.
Thanks, Mark and good morning, everyone.
My comments. This morning will include 2022 safety performance cover some highlights from last year's capital program.
An update on the CCA <unk> project and lastly, give some details on our 2023 outlook.
I'm very proud of how our teams executed throughout 2022 and I am certainly excited for 2023, as we will start to see the fruit of our efforts, including the milestone <unk> production response at CCA.
Safety and environmental stewardship will always be core to our operational success for.
For 2022, we achieved our second lowest combined company and contractor total reportable incident rate of 0.532nd only to the record low rate achieved in the previous year.
Earlier, Chris mentioned, our overall net negative scope, one and two emissions for 2022, but it is also important to point out that we are highly focused on reducing our scope one and scope two emissions in absolute terms.
While our full year emissions numbers have not yet finalized through the end of the third quarter, we achieved two 5% reduction in our scope, one and two emissions compared to 2021.
And our wind river assets, we Electively chose the shutdown natural gas fired electricity generation and instead purchase low carbon intensity electricity from the grid.
A great example of how innovative ideas helped drive this reduction.
It was an extremely active year for us in 2022, as we drove 19, new wells consisting of 12 producers and seven injectors, our highest total in the last four years.
In addition, we operated on average 34 workover rigs through the year on both LOE and capital projects.
As Mark referenced we also executed over $34 million and the <unk> projects, consisting of 144 <unk> wells.
Italy, abandoning 59 wells, along with 111 other projects, including surface restorations and facility closures.
A couple of the development projects that really stand out to me from our 2022 campaign or the social Rhodessa project in the Gulf Coast, and the Beaver Creek year Reservoir development and the Rocky Mountain region.
And our social field in Mississippi, where first you or production began in 2007, we converted 13 wells in the mature portion of the bally's yield to flood to the Rhodessa formation.
The results have been outstanding as total production from our non producers has climbed over 1000 barrels per day, yielding a highly economic projects within one of our most mature assets.
We expect response to continue and we will be adding another phase of this development in 2023.
Our wind River basin assets in Wyoming had been another outstanding story for them very.
You will recall that we closed the acquisition in early 2021 for around $20 million all in.
The assets were producing approximately 2200 Boe per day at the time and through our 2022 redevelopment activities in the Beaver Creek <unk> reservoir as well as the realignment of the Big Sandra <unk> flood, we've increased production within these fields by over 70%.
Reaching a quarterly high in the fourth quarter of nearly 3800 Boe per day.
This is another example of the outstanding work taking place across the organization to identify a new flood opportunities and create significant value from them.
As mentioned in our earnings release fourth quarter production was slightly lower than planned primarily due to the severe winter storms that impacted both our rocky mountain and Gulf Coast regions.
The production impact from <unk> was around 1150 Boe per day, and nearly all of that was backend loaded by mid January .
As expected fourth quarter oil and gas capital expenditures for our highest for the year at $121 million.
With the CCA EUR development, representing more than 40% of our development capital spend in the quarter.
Other key activities included a horizontal drilling program Webster in the Gulf Coast and several wells in the CCA area focused on the Charles Mission Canyon Horizons the Miss.
<unk> Canyon, well came online near the end of the year with a balance of the other projects coming online in the first quarter of 2023.
The combined drilling program is estimated to produce around 900 Boe per day net annualized for 2023.
I would now like to provide an update on the CCA <unk> project as we have had a full year of continuous cotwo injection into phase one.
As a reminder, we started cotwo injection on February one 2022, and since then have injected a cumulative 145 million metric tons of Sidoti.
We have been pleased to see cotwo injection rates higher than we anticipated, which was generally positive sign for flood performance.
As the injected cotwo as move through the reservoir, we have observed Cotwo robl only early end of our expectations several producing wells.
Leading us to temporarily curtail production from those wells into slow Seo to injection rates and the surrounding areas, while progressing completion of the recycle facilities.
Curtailed volumes in the fourth quarter were around 500 Boe per day, and we anticipate these volumes increased slightly in the first quarter of 2023.
We expect to bring that production back online throughout the year as we startup recycle facilities.
The first of those facilities is expected to be operational later in the first quarter with three additional facilities coming online throughout the year.
We still expect phase one initial fee or or response in the second half of the year with production response ramping up overtime as we bring additional recycled facilities online.
While the exact timing of the production ramp will be calibrated by actual performance data as the flood progresses. Our latest estimates have us around 750 Boe per day incremental deal arch production response for the year.
The accident year, new near 2000 Boe per day.
And reaching our expected 7000, 512500 Boe per day range by late 2024.
Considering the <unk> injection performance and earlier, Rob will indicators, we have seen so far.
We remain very confident in the resource and the outlook for this multi decade opportunity set at CCA.
As Mark mentioned detailed guidance for various 2023 metrics can be found in our earnings supplement.
With respect to capital we've set the midpoint of our 2023 oil and gas capital expenditures at $360 million consistent with our 2022 spending.
Roughly 40% of this amount was planned for CCA, you're including $15 million of capitalized preproduction <unk>.
The remaining capital for CCA will mainly be focused on installing the recycle facilities I mentioned earlier accelerating.
Accelerating planned compression capacity expansion at these facilities.
Progressing additional well work for oil producers for Sidoti response, along with installing additional infield flow lines.
Our non CCA.
Our oil and gas development activities include projects across both of our operating regions focused on new development at Beaver Creek and Dakota.
As well as conventional development in our CCA combos and Webster fields.
Production volumes for 2023 are expected to range between 46 to 49000 barrels of oil equivalent per day.
The midpoint of this range is up from our 2022 actuals, mostly due to the expected CCA your impact in the second half of the year.
I expect we will see some minor fluctuations in our production profile for 2023 with the first quarter benefiting from some of our 2022 activities in the fourth quarter seeing uplift from CCA.
This should set us on a good path 2024 production ramping to over 50000 barrels of oil equivalent per day.
Lastly on operating expenses, we anticipate unit cost to be slightly higher than the average rate in 2022 expected to range between 29 and $31 per Boe.
The drivers of the increase are first the.
The purchase price of the industrial sourced Cotwo, we've received under our contract with air products increased this year with the exploration of the legacy 45, Q incentives at the end of 2022.
As typical for New York floods.
Unit LOE CCA would be temporarily higher during the initial stage of production.
As Cca's production response ramps up materially throughout 2024, I expect that CCA will ultimately become a strong driver to reduce our overall corporate LOE per Boe.
Wrapping up I just want to comment on how pleased I am with where our business is headed especially considering the industry challenges that we navigated through in the past year.
2023 will be a transformational year for our oil and gas business as we commenced your.
Production response at CCA.
We are certainly strengthening the foundation of our company I will now hand, it off to Mick for an update on our carbon solutions business.
Thanks, David.
Good morning, everyone.
Today, I'm going to provide an outlook for our 2023 players.
First I want to take a quick look back at the very successful 2022.
We announced six new <unk> transportation and storage agreements last year brings.
Bringing our cumulative Seo to offtake agreement volume to more than 20 million metric tons per year.
We mentioned it before but when you think about 20 million metric tons per year.
Volume represents about half what is captured worldwide today.
And clearly we have plans to increase the size of our business to a scale much larger than what we assigned to date.
In addition, we evaluated dozens of potential <unk> store sites in 2022.
And we executed agreements on six new sites last year.
Our store portfolio at the end of the year include sites in Alabama.
Mississippi.
Louisiana, and Texas totaling more than 2 billion metric tons of <unk> storage potential.
The relationships, we are building with our emissions customers and of course based owners form the foundation of what we expect to be long term mutually beneficial partnerships.
To complete these agreements requires extensive collaboration throughout and Barry.
This include support from lands legal government relations regulatory commercial development engineering and the county.
Near the end of the year, we submitted our first three class six permits to EPA for Alabama site.
These permits were deemed technically complete by the EPA in January and we expect to receive our first plastics will permit approval within two years.
The permanent included over 350 pages technical evaluations construction claims and risk mitigation procedures.
Our experience with these first permits will accelerate submission or future classics permit applications.
Building on our momentum from 2022 next I'll cover our outlook for 2023.
This morning, we announced our 2023 capital budget of between 140 and $160 million.
Which at the midpoint represents an $85 million increase compared to last year.
The largest item in our budget is allocated to the acquisition of additional strategically located.
<unk> storage sites.
The budget also includes stratigraphic test wells acquiring important right away and purchasing long lead time items.
This morning, we also communicated our 2023 goals, which are highly aligned with our long term objectives that we communicated in our <unk> business outlook last December .
Our first objective is to sign agreements with the industrial customers to reach a total of 30 million metric tons per year.
Based on our extensive number of ongoing negotiations with both brownfield and Greenfield customers I am encouraged with the opportunity to accomplish and whats again, hopefully exceed this year's goals.
As you may have seen in this morning's announcement, we assigned to new transportation agreements for a total of $2 5 million tons per year.
The first agreement is with HHS <unk> to their <unk> facility in Matagorda County, Texas.
The second is with monarch.
To transfer to their sites and Freeport in Beaumont, Texas.
Yes.
The second objective is to add multiple new strategically located dedicated storage sites to our portfolio.
Our three distinct factors that make a storage site strategic for Jim Barry.
First some sites, we will improve our pipeline capacity because they are placement serves as an offering for <unk> and pipeline segments that are approaching their current capacity.
This will reduce the need for additional capital for line moves for pump stations for that thing.
While also increasing our reliability and total storage.
Secondly, some sites will shorten the distance from emissions customers to our network.
These sites will serve at stepping stones for the continued extension of our NIM.
And finally, we will be securing sites in new markets outside the Gulf Coast.
A good example is the storage site, we announced this morning in the Rockies region.
This is our first rocky mountain dedicated storage site.
It is located directly underneath our greencore pipeline in northeast Wyoming.
You will see a steadily as strategically located storage sites over the year progressing our plans to offer the most reliable and capital efficient Ccs network available.
Our third key objective. This year has progressed, our EPA classics permitting with new applications and drilling test wells.
We have set a goal for this year submit permits on for additional storage sites.
I expect we will have several permits submitted to the EPA before the midpoint of the year.
We will also drill at least two stratigraphic test wells in support of our classics permitting this year.
And I'm pleased that our first well is currently drilling on our Orion site in Alabama.
Our fourth goal is to continue to progress strategic partnerships.
Today, we announced that we have made minor equity investments and two carbon capture technology companies.
Our investments in clean energy and <unk>, one and aiming based solution and the other a membrane based technology will expand the service offering that we can bring to our customers.
These two companies are on the leading edge of reducing the cost of capture for a whole host of types and sizes of emissions.
We look forward to working with both companies, providing our customers with the most economic and reliable takeaway.
Takeaway solutions.
The <unk> team is highly energized and excited to achieve our goals in 2023.
<unk> is a transformative growth opportunity for <unk>, and we will do everything in our capacity to deliver it to our shareholders.
Operator, we'd now like to open the call for questions.
We will now begin the Q&A session.
Please.
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First question comes from Leo Mariani, Please on mute yourself to ask a question.
Yes. Thanks.
Wanted to just follow up a little bit on the cadence of production in 2023, I think you sort of alluded to this a little bit and some of the prepared comments I think if I heard it right do we expect some growth in the first quarter on production as some of the wells that came on late in 2017, you start to contribute and it sounds like production.
Might start falling a little bit in <unk> and <unk> of 23 before it goes up in <unk> as a result of the production response from CCA.
Generally right in terms of what I heard.
Hey, Leo Good morning, this is Chris absolutely.
The way, we think about it.
You have an impact from the program that David talked about that will have.
Somewhat of an impact on the early part of this year and then the real driver is hitting the end of the year and that that ramp that we'll see in CCA. When we see that flood coming so we expect most of that.
Late in the year.
That's kind of how it shapes up but I would say leading up to that it'll be moderate changes throughout the year.
Okay. That's helpful.
And then just wanted to follow up on CCA you guys talked in your prepared comments about getting some early.
<unk> breakthrough, which you guys call it was an encouraging sign.
Could you maybe speak to maybe other analogs of projects, where you have had in the past.
And if you had a similar situation when does that typically lead to does that show that you guys are getting really good sort of admissibility.
The <unk> does that increase your confidence on your ability to hit those volume targets as you look out a couple of years, which obviously significant growth there in CCA.
So I'll say, a couple of things and I'm going to ask Matt to weigh in a bit more on what we've seen historically, but.
No.
I kind of think back on when we first started injection in this field and in February of last year.
I recall one of the first things we talked about was that the injection was going much better than we had expected it.
The flip side of that is that you'd see.
The movement through the reservoir faster than than we expected.
That's a good thing that's on the high end of our expectations. It means of the floods working and moving in the right direction and.
Accordingly, we accelerated the recycle facilities. So we'd have those in place as close to the time is the arrival of the <unk> as we could and.
Right here right now and so that's kind of how I see it.
But I'll ask Matt to weigh in on other thoughts that he'd add to your question Hey, good.
Good morning Leo.
Yes, I mean, typically we see every field respond slightly differently, but great encouragement from CCA that.
And in activity is one of the big drivers of value and we're very happy with what we're seeing there and it will know very shortly.
Once those compressors come on about kind of what early response looks like but all signs indicate we are on track and.
Rodrigo.
Okay. It sounds like those compressors are getting ready to start up in the next couple of months is that right.
But thats right. We have the first of those this quarter I think we are actually less than a month from today, we should have that operational if all goes well.
Okay. Thank you.
Thanks Leo.
Our next question comes from Charles Meade. Please.
Ask your question.
Yes, good morning, Chris and Matt and the rest of the timber team I Wonder if I could just actually pick up where you left off there.
You'll forgive me if some of these questions are kind of basic but I think most of us on the <unk>.
<unk>.
The depth of experience with these.
Obviously, you guys do it.
Is it is it is it the right inference to make that that these higher injection rates and seeing the seeing the cotwo to producing them sooner does that mean that the permeability is.
The reservoir is higher than you modeled in.
What suggestions does that.
Does that.
Does that.
Does that mean that possibly more oil was produced under under primary recovery or does that mean that that your <unk> is going to be more effective.
Can you tell me tell me whats.
Kind of possibilities that opens up.
Yes.
Yeah. Charles this is Matt again.
Yes, I mean, you think about what were flooding in CCA CHS itself is about 55000 acres.
So we're in a reservoir quality varies throughout the field no doubt.
We've got a pretty good handle on how much of that was in place and how much has been produced so that's that's really not an issue. It's just a little bit of variability across the field.
Some wells take more injection and others and we'll see response, a little bit quicker in some areas.
Not uncommon to what we've seen across our portfolio.
Over the last two and a quarter century of what we're doing this.
Got it. Thank you and then if I could ask Chris on the Ccs side of the business.
And this is really about the class six well propane.
Can you.
It seems to me that with all the success that you guys have had on both signing up storage sites.
And capture agreements.
The connecting piece between those two the injection permits really has moved more to centers to do so.
I'm curious is that the way is that the way it looks to you guys. In is the fast six permitting process is that and the critical path or is that is that the bottleneck now or if not now is it going to become that very soon.
Hi, Charles this is Nate thanks for the question.
I think it's an important topic to discuss on where the critical path lies I wanted to first say that the classics progress is going great. So been very right now.
You know we submitted our first class six well permit there at the end of 2022, and we are processing classics permits on all of the storage sites that we've acquired so far and the process is going great.
What you can kind of think about is that as we as we.
Went through the first permitting process, we learned a lot and so as the next permits come through will be going faster and faster and as we as we progressed through the year I would say you can expect us to get our classics for at least one class six permanent out about every quarter.
Those classics permits will be going both in Mississippi, and Louisiana, and hopefully in Texas as we progress some site acquisitions is as the year goes on.
I still say we are on track for having classic storage very much available in multiple places in 2025, and so therefore I don't think that this necessarily will be the critical path for the whole six U S value chain, I think that theres going to be.
More time necessary for some other components to add to get executed on the capture side. So I think we're going to be ready in.
Willing to take the Cotwo from our capture partners when it's done.
And Charles This is Chris just one thing I would add to what Nick shared is.
What we love about what <unk> is able to provide is not just the extensive portfolio of.
Class six storage that he is working towards right now that will be incredible.
Those permits are approved and we add those to that network, but what you have today is this fall back with significant capacity within our EUR.
<unk> on the Gulf coast to take Cotwo and so.
Thinking is what we really want any any industry who is contemplating.
Capturing our missions.
Getting the tax credit putting them into storage.
Is that we have a fallback that can release them to move forward with their project without the risk of waiting.
For a period on classic storage. So we think we have something pretty special that well.
Have the class six storage out there, but I'll fall back that's very much ready today as we speak.
That gives them the confidence to go forward.
Thank you.
Outgrew elaboration on how are you guys looking at it appreciate it.
Thanks Ross.
Thanks, Scott we have a question from Sam Margolin from Pete Parnell answer question.
Hello, Thanks, a lot for taking the question.
Okay.
First one on.
On the reserve extension I guess this is a little more 101 on EUR for people more familiar with.
With our conventional in the lower 48.
You did report a reserve extension and in.
Extreme and I was just wondering if you could talk about the mechanics of how that works and how it's differentiated from I guess a normal.
A&P if it.
It doesn't seem like it's now from a price if it is just based on CCA development timeline or if there's something going on operationally that.
That generates that.
Yes, Sam this is Matt <unk>.
Yes reserves increase.
Certainly very pleasing what we saw this year a lot of that driven by price that we had some as the revisions.
David mentioned, the strong performance at our wind River assets in particular Beaver Creek. So we had some additions there.
Along with the performance in the Gulf Coast and those redevelopment projects.
The price was a significant driver.
<unk>.
<unk>.
Okay. Thank you and then just a quick one on <unk>.
On <unk> in the equity investments you made on the capture technology.
Technology players.
Im wondering if thats.
Proactive effort to maybe capture more of a fee pool.
<unk> or if there is feedback from emitters that theyre looking for more of a <unk>.
Value chain solution and.
It's in the best interest of driving the volume target.
To take on that position. Thank you.
Yes, I mean as always Matt again, Sam always a part of our plan to work the entire value chain of Cc U S.
When we look we did a deep dive into the different technologies that were available.
The big players in each of them.
Do the two investments May do service different parts of this business. So I on really on the on the larger side.
On post combustion capture these are bigger half million to million ton or better.
And then Aqua along being a membrane driven company. They are really focused on stuff below the $5 million.
Mark even even as low as in the tens of thousands so they do capture different.
Different targets, but what they do add to US is a couple of things one they've been out.
Chasing emitters and talking to them and some folks we've overlapped with some we have so that expands our opportunity set there to be the off take that cotwo.
And then as we work with emitters and looking what they've done by themselves to two progressed capture in some instances we can point them in a direction that is perhaps going to save them. Some money both on a capex and opex side.
As these technologies has really proven that are on the low end of the captured cost.
Fantastic. Thanks, so much.
Okay.
Our next question comes from Nathan Pendleton click on the ask your question.
Good morning, Thanks for taking my question.
Maybe for Nick regarding your classics permits can you speak to the path going forward for your Orion development and potential timing given that theres only one other operator with a completed permit and the EPA region for that we can see at least also beyond receiving initial permit what other milestones or your team and working towards to keep commercial injection.
Sure. Thanks for the question Nathan So the steps that we go through to get any general permit ill quickly go through and then kind of emphasized the next steps there on Orion. So we spend months preparing the permit to to.
To build the Geo models and doing the stimulation reservoir work in and doing a lot of evaluation of the particular site characterizing the site.
<unk>.
Emergency procedures and things of that of that nature and then once we submit the permit we have a bit of an iterative process with EPA, where they will ask a few questions and then that leads to a milestone.
Kind of the verdict of completeness and so when we get done with the completeness of the EPA then goes back to really dig into all the details of the site and we will receive questions back and forth from the EPA from this point forward, we expect the timeline from now until we receive the permit to construct.
Six well, which will be the next milestone to be about a year, we're hoping it's going to be about a year, maybe it'll be a little faster.
<unk>.
From that back and forth, we will receive this classics permit to construct and at that point, we will drill our first class six well.
That drilling procedures should take about a month.
Once we drill the well because we already have.
Core and because we already have a lot of seismic that we've been able to purchase on the site will be able to move relatively quickly.
We will drill the well and do some injection testing for the EPA that we will deliver back to them and also kind of deliver to ourselves and run our evaluation and make sure that some of our predictions matched what we expected before which would be which were highly competent and since we deal with a lot of these reservoirs frequently and have been for about 20 years. So we.
Pretty well on how the injection will go and how some of those tests will turn out but from that point, we will receive the class six permit to inject.
We expect that to take anywhere from six months to year from the time that we receive.
The classic permit to construct once we have the classic permit to inject we of course will have the ability to start moving to into our storage intervals.
All of that time in parallel we will be building our commercial business. So we will be building up the volumes not just with the Orion site, but for all the sites that we have in our portfolio, which will which will mean effectively coming to milestones around definitive agreements for having offtake for COC for transportation storage.
Okay.
Thanks, That's really helpful and then regarding <unk> and the Rockies can you speak to how you view the supply of anthropogenic cotwo compared to the demand from both here at EUR developments and now your new Ccs site.
On the structure of legacy contracts would you potentially inject cotwo from existing industrial sources.
Or could you provide any color on some of the most promising sources you highlighted on slide 20.
Yes, so we're very excited about our new site underneath our greencore pipeline.
They are in the North region. It gives us a very economic dedicated storage site.
They are in the Rockies to really utilize that 400 miles of pipeline and we already have in the ground there as well we have a.
Lot of emissions around that 400 miles of pipe like like we have probably not quite as much as in the Gulf Coast as you know.
Coast, but a lot of <unk>.
Emissions there near US a lot of those emissions are coal fired power generation.
Are diligently working to get their economics to casualty. That's you too so economically work underneath the current 45 skus.
This site should be very helpful to making those economics.
Reality, because it should be one of the most economic available sites to put <unk> in the ground and the Rocky region, if not the most economically.
Economically viable dedicated storage site in the region. So we're very happy to be able to provide that we also see a big market and the soda ash industry, we're exploring opportunities with that with a company right now so there's a whole new kind of market that really really we don't see a whole lot of in the Gulf coast. They are opening up in the Rocky Mountain region.
Theres also emissions associated with a lot of gas processing in the area.
That type of <unk> emission capture source.
Probably economic right now and so we will be working with those companies very soon to work out how we might be able to bring those those emissions into our system.
And then one final point there is there is a lot of Greenfield development in the Rockies.
We've already signed a term sheet with a hydrogen production.
They are in the Rocky Mountain region that we're excited to bring into our system, but there's also a new hydrogen hub that is expected to go in south Central Wyoming that we're looking very hard at and working with that group to bring us two emissions into the system.
And Nathan this is Chris just one thing I'd add to that.
Description that mix shared it's just the unique advantage that we have with this pipeline network both in the Rockies and in the Gulf Coast.
Expansiveness of those systems allows us to put sequestration sites very close to the pipe.
Anyone who comes into our system can touch those sites, even if theyre not anywhere near the sites themselves.
Doing that over and over again and I just think it's a great advantage that we have as a system and you're seeing.
Just an example through what Nick was describing right there.
Absolutely I appreciate the color and thanks for your time.
Thanks.
Next up we have a question from Sam Burwell.
Please ask your question.
Hey, guys.
Wanted to ask a question about.
Like what's your latest estimate of maintenance Capex in the ER business.
The 2023 budget, if you back out the $145 million for <unk> you get to 215 is that the right number to think about I mean does that change much TCA is online and if like maintenance Capex isn't the right way to think about I just wanted to.
Better frame, how we should.
<unk> <unk> capex going forward as the Capex on gcs ramps up.
Hey, Nate this is David I'll take that question.
Yes maintenance Capex, we generally think about it.
<unk>.
I would say $225 million give or take no for our base business right now.
We have been I guess, saying around 200, historically, we've seen inflation and some other impacts there.
They are they have lifted that number.
Some degree so.
We're really excited to CCA.
Does come all we're going to be able to make some decisions on investment.
Perhaps in the future in our in our business, but that would be the gimbal.
Yes, I would use in our thinking for that base maintenance capital.
Okay, Great that's very helpful.
A follow up on the incremental off take to get to the 30 <unk> by the end of this year I understand you don't want to give specifics and there's only so much you know at this time, but could you give us your best guess as to like how that ultimately gets achieve as it.
Few fairly large projects, maybe not the size of Asia, but multi MTA projects for a lot of small ball like fairly small projects, but you can really.
To get a lot of the signs or something in between just how should we expect that to be achieved over the course of this year.
Hi, Thanks. Thanks for the question, Yes. This is Nick again so.
We plan on.
Think about that is right now we're engaged with.
Well over 50 different emission sources approaching more towards the 100.
Emission sources, both Greenfield and brownfield projects and they are all moving at different paces and sometimes be sometimes one accelerates a lot faster than the others. So we don't know exactly which one will come on next.
But we definitely see the.
The end game here in 2023 is getting to that 30 million tons per year.
We're very excited about the $2 5 million tons per year, we've already signed.
We are engaged with many projects that are in the same realm of the type.
Type of scale that you see there, but we also have some very large projects that debt.
Kind of with the size of of the project you indicated before that we signed with cleaner iron works and so.
It may go either way and it may be both greenfield and brownfield projects.
That come into the system.
In any case, we're happy to accommodate any of those projects. We think our system is flexible enough to handle any type of scale that would that may come in at any given point.
April to accommodate that different varying scale with any of our storage in any of our hydraulics that go through our pipeline. So we're happy to accommodate whoever goes first and we won't really we don't really.
Prioritize one versus the other other than trying to accommodate everyone's schedule.
Yes, Sam this is Chris I just think.
Based on what Nick said, just the opportunity set both on the brownfield and Greenfield side that we see.
There is enormous the amount of emissions that are out there.
Right now is enormous and the greenfield projects that are incentivized through energy transition policy also enormous it's just a really big opportunity set.
Got it thanks guys.
Thanks Sam.
Next up we have a question from Jeffrey Foundation.
Yeah.
Hey, good morning, everyone. I appreciate you all taking my questions just a couple on the Ccs at me. So the first one just on the Capex outlook here over the near term I guess first I was hoping you can break down the 2023, all up there for CCR specifically in some more detail just speaking out the different buckets are contributing this year and then second.
Wanted to focus on the magnitude of 2024 and 2025 as you all see things today, just with all the processes that are ongoing in the background as John spoke to and just as we think about those years being relatively heavier in comparison to the annual average I'll put out there back in December .
Sure Alright. Thanks, Thanks, Eric This is Nick.
Again, the breakdown of the capital this year, we're looking at the $150 million of Capex on <unk> U S is mostly focused on on storage sites and I'll say, mostly focused on the acquisition of store site. So we will continually add to our strategic located portfolio.
Dedicated storage and that usually includes an upfront bonus that goes into play and that's that's the large portion of our of our $150 million, but within that you can also think about all the previously acquired storage sites that we have as having kind.
Kind of a pre injection payment or maybe you can think of it as a rental that will be ongoing. So as we continue to acquire these sites. We had these rental payments that come into play. That's also associated dedicated storage. So we can keep that option to develop any one of these sites over time and so that's another portion.
We will be drilling strat wells there'll be a varying amount of strat wells that we may or may not drill depending upon what we think we need to drill based on the evaluations that are ongoing on our classics permitting process. So we could we could spend a good amount of money drilling stratigraphic well test across our portfolio of storage sites.
That's another big a big bucket, we also have a bit of land work that's ongoing to continue to acquire additional acreage on storage sites. We've already acquired so when we when we announce these storage sites will usually give an acreage position that is associated to the amount of total storage associated that site.
As you can imagine.
There is there is a lot more storage site to be had and the offset acreage to that particular store site. So what we do is we continually acquire additional small leases that are connecting up to that site and continue to add to the total storage available for that site. We don't necessarily announce every time, we continue to add.
Those are smaller portions, but just know in the background that the store sites are continually growing. So those are those are the big items that go into the go into the storage side of the business I want to also point out that we will be spending a good amount of money on acquiring strategic right away and that's really important because right.
Now, we're getting to the point, where we need to start making some some big.
Progress on putting in pipe to connect our emitters and our storage sites up to our system and we're happy to do that and so what we're doing right now is going out and doing the due diligence on who owns right away that will attach our 900 miles of pipe to those storage sites in those emitters and.
And buying that and so once we have that acquired we will be buying the pipe and installing it and so.
This year, we will have a lot of that right away purchased but as we move into the 24 and 'twenty five time period, Youll see us buying pipe and so that will be a big addition to the kind of.
$150 million you see this year, that's kind of the continuation and growth of last year. We will have this additional amount of capital necessary to buy the materials that are necessary for us to build this business and so the building and installation of that pipe will come into play in the 'twenty four 'twenty five timeframe and that will make them a bit.
Heavier on the capital side.
Okay.
Yeah.
Understood. That's really helpful. And then maybe just a quick follow up here and thinking about some of the operations that will take place on the storage sites over the next couple of months thinking about that the strat wells that are planned for the year can you speak to expect and learnings that you make progress on those and how that will inform plans for developing those sites.
Yes, so as we as we drilled the strat wells, we will be learning about the seals in the permeability in the reservoir characteristics of our storage site.
That will inform a few things one it will add to our confidence that we have on the seals already so we've been working in these areas for like we've mission for for two decades, and we know the seals, we know the shale barriers. We know these formations really really well.
What we want is to is to absolutely verify them. So these these test wells will allow us to do that it will allow us to core.
Formations and annualize them to verify that that seal is containing so that's point number one and then the next point is understanding the injection rate that comes with each one of these wells and the storage sites that will allow us to plan for the right amount of wells in the future. So as we sign of our missions.
We'll always be staggering al are well development three store site based on the information we gain from the stratigraphic well test a lot of times, we know really well what our injection rates are going to be because we're injecting and hundreds of wells that are in the same type of formation across the Gulf coast. So there's there's not.
Kind of where it was but we do expect to potentially get surprises and if we do we will accommodate the surprises with additional wells if necessary or maybe less wells. If we find out that we are actually getting higher injection rates than expected.
I appreciate it.
Next we have a question from Tim race right.
And.
Hi, good afternoon everybody.
On the hour.
Give me a quick first question was a clarification you talked about that $30 million.
Tons per annum target is that an incremental 30, our cingal to get from 20 to 30 this year.
It's another aggregation Tim so it would be to get to 30 in the aggregate.
Okay. Okay I appreciate that.
And then on.
On the CCA or ramp.
So I am clear you talked about potential 2000 barrel a day exit rate in 2023 and.
If I heard you correctly, you said you thought you could hit peak production at the end of 2024 so.
Is that a kind of I know each flooded itself.
Anthony do.
Do you expect a linear ramp and then or they're starting to kind of milestones with compression or other things and then how do we think about the existing production there would that be impacted by the CCA ramp.
Hey, Tim This is David I'll take that question, yes, we do.
At CCA expect to be at an exit rate of around 2000 barrels a day.
At the end of the year and you know as we go throughout 2024.
Think of them that we will actually be in our bandwidth of 7500 barrels to 12500 barrels near the end of 2024. So.
What the characters.
That ramp is going to look like just just be real candid no as we see response from producing wells, we're going to make decisions to focus the goto.
Injection in certain areas and pull levers if you will to optimize the floods. So it's going to have some choppy character.
It will not be a perfectly linear ramp, but I do think you're going to see a jumbo overall.
Uplift.
Yes.
If I'm, putting together a model.
To your perspective from that 2000 to that.
And that gateway of 70 512000.
100 barrels per year and Tim This is Chris the only thing I'd add to what David shared is that that's not necessarily the peak.
It's that range that.
But we've targeted but we're going to keep working it.
As David said, depending on the performance that we see and how we can do with the Cotwo that were objecting there if we could do.
Even better over time, depending on how that all goes.
And then if conventional production I'm, sorry is that impacted at all yes.
Yes, I was about to jump in and add on to that we talked about the 400 barrel a pop on the barrels excuse me.
Has been impacted in the fourth quarter that will roll back.
The system here.
As we turn on those recycled facility as Chris talked about the first ones to come online.
Hum.
March here, so just within a few weeks, we expect a few of those barrels to roll back in into the system. We havent touched all of CHS, you and all of the lob yet in our conversion process of that base waterflood production now we will maintain and continue on.
Okay.
Thank you very much.
Thanks, Tim.
And our last question comes from pulmonary ask Brian .
Hey, I appreciate guys. Thanks for getting me on I've got two here.
First one just wanted to get your updated thoughts on your expectations for the expected IRS guidance. Some 45 Q I think that's later in the spring because as it stands your offtake agreements are left over to greenfields, rather than brownfields that define the broader market opportunity. So I'm wondering if this is going to shift and if not why not.
Thanks, Glenn this is Chris.
Yes, we're interested in seeing what the IRS guidance looks like as well.
We have a couple of good markers out there first is the IRS garden guidance around the original 45 Q program that came out in.
2020.
<unk>.
What I see so far everything that we're hearing.
Don't really see anything that makes me think that there will be a significant.
Shift in <unk>.
How that would work compared to what we've seen before.
But it is the U S government and we'll just have to see what comes out there.
We will stay engaged and work within that.
Got it I appreciate that my second one is a follow up to Sam's question. When you guys define maintenance capital at 225, I'm wondering if that includes CCA and does it impact hold production flat and I asked that question because spending has been around this level yet production has been trending lower.
Yes, you bet and the way I think about that clay is that the.
We look at maintenance capital over a number of years.
Take any particular year.
It may be higher or lower just depending on what led up to that year.
With CCA.
Of course, we start by thinking of new Greenfield type projects as being growth capital and that would come in outside of a typical.
Type of maintenance run rate, but then I would expect it to feather in to that maintenance capital over time. So if you look at where we are today. We've spent many years I think.
Nine or so years since we last.
Brought in a new flood on.
And so we've had we've been working with existing fields that we have over that time now we have a new field that we are.
That we're going to be working in a whole new set of opportunities kind of along the lines of what David mentioned with those wind river assets and what we can do with those.
I still think it works that way it's just.
Looking at it in any particular year.
It's going to be a little different just depending on what led up to the year.
And the specifics of what we did during that year.
And I would add one more comment.
To that just as our base production rate rises as we see a performance come into the mix in our base maintenance capital level will rise.
Keep that production level flat.
Got it I appreciate it guys. Thank you alright, thanks clay.
No further questions at this time I will now hand over to Rebecca with boss the closing remarks.
Sure. Thanks, I want to thank everybody for joining us today on this webcast should you have any follow up over the coming days. Please don't hesitate to reach out to the best and I.
Thanks again for joining us.