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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023
OR

   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to ________

Commission file number: 001-12935
Logo2.jpg
DENBURY INC.
(Exact name of registrant as specified in its charter)

Delaware 20-0467835
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
5851 Legacy Circle,
Plano, TX 75024
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (972)673-2000

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:Trading Symbol:Name of Each Exchange on Which Registered:
None

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes    No ☐

The number of shares outstanding of the registrant’s Common Stock, $1.00 par value, as of November 2, 2023, was 1,000.





Denbury Inc.

Explanatory Note

On July 13, 2023, Denbury Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Exxon Mobil Corporation, a New Jersey corporation (“ExxonMobil”), and EMPF Corporation, a Delaware corporation and a wholly-owned subsidiary of ExxonMobil (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, on November 2, 2023 (the closing date of the Merger, as defined below), Merger Sub merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of ExxonMobil (the “Surviving Corporation”). The Company remains an ExxonMobil wholly-owned subsidiary as of the date of this filing.

Although the New York Stock Exchange (“NYSE”) on November 2, 2023 filed a Form 25-NSE with the U.S. Securities and Exchange Commission to remove the common stock, par value $0.001 per share, of the Company from listing on the NYSE, this Form 10-Q for the quarterly period ended September 30, 2023 is being filed because the delisting of the Company’s common stock and related suspension of reporting obligations under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), did not occur until November 12, 2023 (10 days after the NYSE’s filing of Form 25-NSE), which date occurred after the due date for filing of this Form 10-Q. Promptly following the filing of this Form 10-Q, the Company expects to file a Form 15 to suspend its remaining reporting obligations under the Exchange Act. Unless otherwise specified herein, all information in this report is provided as of September 30, 2023.




Denbury Inc.

Table of Contents

Page
 
 


3


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Denbury Inc.
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par value and share data)
September 30, 2023December 31, 2022
Assets
Current assets  
Cash and cash equivalents$803 $521 
Accrued production receivable161,953 144,277 
Trade and other receivables, net18,239 27,343 
Derivative assets98 15,517 
Prepaids13,204 18,572 
Total current assets194,297 206,230 
Property and equipment  
Oil and natural gas properties (using full cost accounting)  
Proved properties1,882,430 1,414,779 
Unevaluated properties119,557 240,435 
CO2 properties
199,609 190,985 
Pipelines223,779 220,125 
CCUS storage sites and related assets141,829 64,971 
Other property and equipment117,858 107,133 
Less accumulated depletion, depreciation, amortization and impairment(427,759)(306,743)
Net property and equipment2,257,303 1,931,685 
Operating lease right-of-use assets18,257 18,017 
Derivative assets26  
Intangible assets, net72,293 79,128 
Restricted cash for future asset retirement obligations49,027 47,359 
Other assets59,996 45,080 
Total assets$2,651,199 $2,327,499 
Liabilities and Stockholders’ Equity
Current liabilities  
Accounts payable and accrued liabilities$250,938 $248,800 
Oil and gas production payable79,496 80,368 
Derivative liabilities40,813 13,018 
Current maturities of long-term debt13  
Operating lease liabilities5,136 4,676 
Total current liabilities376,396 346,862 
Long-term liabilities  
Long-term debt, net of current portion70,336 29,000 
Asset retirement obligations350,448 315,942 
Derivative liabilities336  
Deferred tax liabilities, net110,556 71,120 
Operating lease liabilities14,797 15,431 
Other liabilities12,556 16,527 
Total long-term liabilities559,029 448,020 
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding
  
Common stock, $.001 par value, 250,000,000 shares authorized; 51,446,811 and 49,814,874 shares issued, respectively
51 50 
Paid-in capital in excess of par1,076,632 1,047,063 
Retained earnings639,091 485,504 
Total stockholders equity
1,715,774 1,532,617 
Total liabilities and stockholders’ equity$2,651,199 $2,327,499 
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4


Denbury Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per-share data)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenues and other income 
Oil, natural gas, and related product sales$325,870 $395,223 $943,305 $1,232,104 
CO2 sales and transportation fees
12,706 18,586 34,556 44,618 
Oil marketing revenues15,820 17,663 44,351 47,725 
Other income851 8,015 3,036 9,055 
Total revenues and other income355,247 439,487 1,025,248 1,333,502 
Expenses 
Lease operating expenses127,440 134,464 386,905 376,643 
Transportation and marketing expenses5,474 5,191 16,022 14,638 
CO2 operating and discovery expenses
2,138 2,066 4,931 6,564 
Taxes other than income29,072 33,789 85,047 101,487 
Oil marketing purchases15,519 19,095 43,909 47,162 
General and administrative expenses26,430 21,071 76,302 58,998 
Interest, net of amounts capitalized of $2,502, $1,044, $6,454 and $3,177, respectively
843 909 2,595 3,092 
Depletion, depreciation, and amortization52,917 37,680 144,716 108,425 
Commodity derivatives expense (income)85,251 (109,248)42,451 140,325 
Other expenses14,143 2,726 19,624 11,459 
Total expenses359,227 147,743 822,502 868,793 
Income (loss) before income taxes(3,980)291,744 202,746 464,709 
Income tax provision (benefit)(1,087)41,321 49,159 59,664 
Net income (loss)$(2,893)$250,423 $153,587 $405,045 
Net income (loss) per common share
Basic$(0.06)$4.89 $2.96 $7.86 
Diluted$(0.06)$4.66 $2.85 $7.43 
Weighted average common shares outstanding 
Basic52,417 51,182 51,916 51,512 
Diluted52,417 53,715 53,941 54,524 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


5


Denbury Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended September 30,
 20232022
Cash flows from operating activities 
Net income$153,587 $405,045 
Adjustments to reconcile net income to cash flows from operating activities 
Depletion, depreciation, and amortization144,716 108,425 
Deferred income taxes39,436 53,301 
Stock-based compensation18,145 11,491 
Commodity derivatives expense42,451 140,325 
Receipt (payment) on settlements of commodity derivatives1,074 (276,796)
Debt issuance cost amortization1,594 2,465 
Gain from asset sales(403)(1,119)
Other, net(4,413)(11,543)
Changes in assets and liabilities, net of effects from acquisitions 
Accrued production receivable(17,676)(32,884)
Trade and other receivables9,106 66 
Other current and long-term assets5,340 (21,729)
Accounts payable and accrued liabilities9,738 28,359 
Oil and natural gas production payable(872)13,412 
Asset retirement obligations and other liabilities(26,413)(22,409)
Net cash provided by operating activities375,410 396,409 
Cash flows from investing activities 
Oil and natural gas capital expenditures(320,422)(217,834)
CCUS storage sites and related capital expenditures(69,891)(27,518)
Acquisitions of oil and natural gas properties(1,427)(874)
Pipelines and plants capital expenditures (22,259)
Net proceeds from sales of oil and natural gas properties and equipment 237 
Equity investments(18,817)(10,000)
Other(17,993)(9,746)
Net cash used in investing activities(428,550)(287,994)
Cash flows from financing activities 
Bank repayments(1,399,000)(808,000)
Bank borrowings1,440,000 788,000 
Common stock repurchase program (100,028)
Other14,090 9,421 
Net cash provided by (used in) financing activities55,090 (110,607)
Net increase (decrease) in cash, cash equivalents, and restricted cash1,950 (2,192)
Cash, cash equivalents, and restricted cash at beginning of period47,880 50,344 
Cash, cash equivalents, and restricted cash at end of period$49,830 $48,152 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6


Denbury Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity
(Dollar amounts in thousands)
Common Stock
($.001 Par Value)
Paid-In Capital in Excess of ParRetained EarningsTreasury Stock
(at cost)
SharesAmountSharesAmountTotal Equity
Balance – December 31, 202249,814,874 $50 $1,047,063 $485,504  $ $1,532,617 
Issued pursuant to stock compensation plans268,748 — — — — — — 
Stock-based compensation— — 5,320 — — — 5,320 
Tax withholding for stock compensation plans(16,281)— (2,683)— — — (2,683)
Issued pursuant to exercise of warrants209,185 — 130 — — — 130 
Net income— — — 89,199 — — 89,199 
Balance – March 31, 202350,276,526 50 1,049,830 574,703   1,624,583 
Forfeited pursuant to stock compensation plans(1,013)— — — — — — 
Stock-based compensation— — 7,246 — — — 7,246 
Employee stock purchase plan11,115 — 815 — — — 815 
Issued pursuant to exercise of warrants186,373 — 228 — — — 228 
Net income— — — 67,281 — — 67,281 
Balance – June 30, 202350,473,001 50 1,058,119 641,984   1,700,153 
Forfeited pursuant to stock compensation plans(1,211)— — — — — — 
Stock-based compensation— — 7,359 — — — 7,359 
Issued pursuant to exercise of warrants975,021 1 11,154 — — — 11,155 
Net loss— — — (2,893)— — (2,893)
Balance – September 30, 202351,446,811 $51 $1,076,632 $639,091  $ $1,715,774 

Common Stock
($.001 Par Value)
Paid-In Capital in Excess of ParRetained Earnings (Accumulated Deficit)Treasury Stock
(at cost)
SharesAmountSharesAmountTotal Equity
Balance – December 31, 202150,193,656 $50 $1,129,996 $5,344  $ $1,135,390 
Issued pursuant to stock compensation plans141,581 — — — — — — 
Stock-based compensation— — 3,142 — — — 3,142 
Tax withholding for stock compensation plans— — (58)— — — (58)
Issued pursuant to exercise of warrants14,153 — 47 — — — 47 
Net loss— — — (872)— — (872)
Balance – March 31, 202250,349,390 50 1,133,127 4,472   $1,137,649 
Stock repurchase program(457,549)— — — 457,549 (28,751)(28,751)
Forfeited pursuant to stock compensation plans(3,264)— — — — — — 
Stock-based compensation— — 4,400 — — — 4,400 
Tax withholding for stock compensation plans— — (5)— — — (5)
Issued pursuant to exercise of warrants987,411 1 53 — — — 54 
Net income— — — 155,494 — — 155,494 
Balance – June 30, 202250,875,988 51 1,137,575 159,966 457,549 (28,751)$1,268,841 
Stock repurchase program(1,157,807)— — — 1,157,807 (71,277)(71,277)
Net issued pursuant to stock compensation plans3,684 — — — — — — 
Stock-based compensation— — 4,691 — — — 4,691 
Retired treasury shares— (1)(100,029)— (1,615,391)100,030 — 
Tax withholding for stock compensation plans(35)— — — 35 (2)(2)
Issued pursuant to exercise of warrants71,440 — 201 — — — 201 
Net income— — — 250,423 — — 250,423 
Balance – September 30, 202249,793,270 $50 $1,042,438 $410,389  $ $1,452,877 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

7


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

Organization and Nature of Operations

Denbury Inc., a Delaware corporation (the “Company”) is an independent energy company with operations focused in the Gulf Coast and Rocky Mountain regions of the United States. The Company is differentiated by its focus on CO2 enhanced oil recovery (“EOR”) and the emerging carbon capture, utilization, and storage (“CCUS”) industry, supported by the Company’s CO2 EOR technical and operational expertise and its extensive CO2 pipeline infrastructure.

On July 13, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Exxon Mobil Corporation, a New Jersey corporation (“ExxonMobil”), and EMPF Corporation, a Delaware corporation and a wholly-owned subsidiary of ExxonMobil (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, on November 2, 2023, Merger Sub merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of ExxonMobil (the “Surviving Corporation”).

On November 2, 2023 (the “Effective Time”), each share of Company common stock, par value $0.001 per share (the “Denbury Common Stock”) issued and outstanding immediately prior to the Effective Time (including the unvested restricted stock of the Company, but excluding shares of Denbury Common Stock held (1) in treasury (excluding Denbury Common Stock subject to or issuable in connection with a Company employee benefit plan) or (2) by ExxonMobil or Merger Sub, which were cancelled at the Effective Time) was cancelled and converted into the right to receive 0.840 shares of ExxonMobil common stock, without par value (“ExxonMobil Common Stock”) (together with cash in lieu of fractional shares, the “Merger Consideration”), without interest and subject to any applicable withholding taxes, in accordance with the Merger Agreement.

Additionally, each Company restricted stock unit (each, a “Denbury RSU”), each Company deferred stock unit (each, a “Denbury DSU”) and each Company performance stock unit whose vesting was subject to performance goals related to absolute or relative total shareholder return (each, a “Denbury TSR Performance Award”) that was outstanding immediately prior to the Effective Time, whether vested or unvested, automatically became fully vested and was canceled and converted into the right to receive the Merger Consideration in accordance with the Merger Agreement in respect of the total number of shares of Denbury Common Stock subject to each respective Denbury RSU, Denbury DSU and Denbury TSR Performance Award (in the case of the Denbury TSR Performance Awards, with such number determined based on actual performance levels, calculated in accordance with the underlying award agreements), without interest and subject to any applicable withholding taxes.

The issuance of ExxonMobil Common Stock in connection with the Merger was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to ExxonMobil’s registration statement on Form S-4, as amended (File No. 333-274252), which was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on September 29, 2023.

The foregoing description of the Merger, the Merger Agreement, and the transactions contemplated thereby, is a summary only, does not purport to be complete, and is subject to and qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached as Annex A to the Company’s Proxy Statement on Schedule 14A, filed with the SEC on September 29, 2023.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Denbury Inc. and its subsidiaries have been prepared in accordance with the rules and regulations of the SEC and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”).  Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Denbury,” refer to Denbury Inc. and its subsidiaries.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end, and the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year.  In

8


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of our consolidated financial position as of September 30, 2023, our consolidated results of operations for the three and nine months ended September 30, 2023 and 2022, our consolidated cash flows for the nine months ended September 30, 2023 and 2022, and our consolidated statements of changes in stockholders’ equity for the three and nine months ended September 30, 2023 and 2022.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on our reported net income (loss), current assets, total assets, current liabilities, total liabilities or stockholders’ equity.

Cash, Cash Equivalents, and Restricted Cash

We consider all highly liquid investments to be cash equivalents if they have maturities of three months or less at the date of purchase. The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported within the Unaudited Condensed Consolidated Balance Sheets to “Cash, cash equivalents, and restricted cash at end of period” as reported within the Unaudited Condensed Consolidated Statements of Cash Flows:
In thousandsSeptember 30, 2023September 30, 2022
Cash and cash equivalents$803 $519 
Restricted cash for future asset retirement obligations49,027 47,633 
Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statements of Cash Flows$49,830 $48,152 

Restricted cash for future asset retirement obligations in the table above consists of escrow accounts that are legally restricted for certain of our asset retirement obligations.

Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Basic weighted average common shares exclude shares of nonvested restricted stock (although nonvested restricted stock is issued and outstanding upon grant). As these restricted shares vest, they will be included in the shares outstanding used to calculate basic net income (loss) per common share.  Restricted stock units and performance stock units are also excluded from basic weighted average common shares outstanding until the vesting date. Basic weighted average common shares during the three and nine months ended September 30, 2023 includes 1,775,182 performance-based and restricted stock units which are fully vested as of September 30, 2023; however, the shares underlying these awards are not included in shares currently issued or outstanding as actual delivery of the shares had not occurred as of September 30, 2023.

Diluted net income (loss) per common share is calculated in the same manner but includes the impact of all potentially dilutive securities. Potentially dilutive securities include restricted stock, restricted stock units, performance stock units, shares to be issued under the employee stock purchase plan (“ESPP”), and warrants.

For each of the three and nine months ended September 30, 2023 and 2022, there were no adjustments to net income (loss) for purposes of calculating basic and diluted net income (loss) per common share.

9


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

For the three months ended September 30, 2023, the weighted average common shares outstanding used to calculate basic earnings per share and diluted earnings per share were the same, since the Company recorded a net loss during the period. The following table sets forth the weighted average shares used for purposes of calculating basic and diluted net income (loss) per common share for the periods indicated:
Three Months EndedNine Months Ended
September 30,September 30,
In thousands2023202220232022
Weighted average common shares outstanding – basic52,417 51,182 51,916 51,512 
Effect of potentially dilutive securities
Restricted stock, restricted stock units and performance stock units 664 440 615 
Warrants 1,869 1,584 2,397 
Employee Stock Purchase Plan  1  
Weighted average common shares outstanding – diluted52,417 53,715 53,941 54,524 

For purposes of calculating diluted weighted average common shares, unvested restricted stock units, unvested restricted stock, unvested performance stock units, unissued ESPP shares and unexercised warrants are included in the diluted shares computation using the treasury stock method.

The following outstanding securities were excluded from the computation of diluted net income (loss) per share for the three months ended September 30, 2023 and September 30, 2022, as their effect would have been antidilutive, as of the respective dates:
September 30,
In thousands20232022
Restricted stock, restricted stock units and performance stock units(1)
966 196 
Warrants992  
Employee Stock Purchase Plan6 8 

(1)    Antidilutive shares for the three-month periods ended September 30, 2023 and 2022 reflect total shares excluded from the computation of diluted net income per share that are potentially dilutive in the future, assuming performance stock units at the target level. Shares disclosed for the period ended September 30, 2022 have been revised to be consistent with the current year presentation.

At September 30, 2023, the Company had 1.0 million Series A warrants outstanding exercisable for shares of our common stock, on a cash or cashless basis, at an exercise price of $32.59 per share for each of the Series A warrants outstanding. Outstanding Series B warrants expired on September 18, 2023, in accordance with the Series B warrant agreement. From issuance through September 30, 2023, a total of 1.6 million Series A warrants and a total of 2.7 million Series B warrants have been exercised for a total of 2.7 million shares, most of which were exercised on a cashless basis. During October 2023, 1.0 million Series A warrants were exercised resulting in the issuance of 0.8 million shares, and any remaining unexercised Series A warrants expired prior to the effective time of the Merger.

Oil and Natural Gas Properties

Write-Down of Oil and Natural Gas Properties. Under full cost accounting, the net capitalized costs of oil and natural gas properties are limited to the lower of unamortized cost or the cost center ceiling. The cost center ceiling is defined as (1) the present value of estimated future net revenues from proved oil and natural gas reserves before future abandonment costs (discounted at 10%), based on the average first-day-of-the-month oil and natural gas price for each month during a 12-month rolling period prior to the end of a particular reporting period; plus (2) the cost of properties not being amortized; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) related income tax effects. Our future net revenues from proved oil and natural gas reserves are not reduced for development costs related to the cost of drilling for and developing CO2 reserves nor those related to the cost of constructing CO2 pipelines, as we

10


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
do not have to incur additional CO2 capital costs to develop the proved oil and natural gas reserves. Therefore, we include in the ceiling test, as a reduction of future net revenues, that portion of our capitalized CO2 costs related to CO2 reserves and CO2 pipelines that we estimate will be consumed in the process of producing our proved oil and natural gas reserves. The fair value of our oil and natural gas derivative contracts is not included in the ceiling test, as we do not designate these contracts as hedge instruments for accounting purposes. The cost center ceiling test is prepared quarterly.

We did not record a ceiling test write-down during the three or nine months ended September 30, 2023 or September 30, 2022.

Equity Method Investments

In accordance with equity method accounting, we record our initial equity investments at cost and periodically adjust the value of the investment balance to recognize (1) the proportionate share of the investee’s net income or losses after the date of investment, (2) additional contributions made and dividends or distributions received, and (3) impairment losses resulting from adjustments to net realizable value. The investments are included in “Other assets” in the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023. We evaluate our equity method investments for other-than-temporary impairment on a periodic basis.

Note 2. Revenue Recognition

We record revenue in accordance with Financial Accounting Standards Board (“FASB”) Codification (“FASC”) Topic 606, Revenue from Contracts with Customers. The core principle of FASC Topic 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount of consideration that it expects to be entitled to receive for those goods or services. Once we have delivered the volume of commodity to the delivery point and the customer takes delivery and possession, we are entitled to payment and we invoice the customer for such delivered production. Payment under most oil and CO2 contracts is received within one month following product delivery, and for natural gas and NGL contracts, payment is generally received within two months following delivery. Timing of revenue recognition may differ from the timing of invoicing to customers; however, as the right to consideration after delivery is unconditional based on only the passage of time before payment of the consideration is due, upon delivery we record a receivable in “Accrued production receivable” in our Unaudited Condensed Consolidated Balance Sheets. In certain situations, the Company enters into marketing arrangements for the purchase and subsequent sale of crude oil from third parties. We recognize the revenue received and the associated expense incurred on these sales on a gross basis, as “Oil marketing revenues” and “Oil marketing purchases” in our Unaudited Condensed Consolidated Statements of Operations, since we act as a principal in the transaction by assuming control of the commodities purchased and responsibility to deliver the commodities sold. Revenue is recognized when control transfers to the purchaser at the delivery point based on the price received from the purchaser.

Disaggregation of Revenue

The following table summarizes our revenues by product type for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
September 30,September 30,
In thousands2023202220232022
Oil sales$324,236 $389,543 $938,351 $1,217,377 
Natural gas sales1,634 5,680 4,954 14,727 
CO2 sales and transportation fees
12,706 18,586 34,556 44,618 
Oil marketing revenues15,820 17,663 44,351 47,725 
Total revenues$354,396 $431,472 $1,022,212 $1,324,447 


11


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3. Long-Term Debt

The table below reflects long-term debt outstanding as of the dates indicated:

In thousandsSeptember 30, 2023December 31, 2022
Senior Secured Bank Credit Agreement$70,000 $29,000 
Finance lease obligations349  
Total debt principal balance70,349 29,000 
Less: current maturities of long-term debt(13) 
Long-term debt and finance lease obligations$70,336 $29,000 

Senior Secured Bank Credit Agreement

In September 2020, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders party thereto (as amended, the “Bank Credit Agreement”). The Bank Credit Agreement is a senior secured revolving credit facility with a maturity date of May 4, 2027. The weighted average interest rate on borrowings outstanding as of September 30, 2023 under the Bank Credit Agreement was 8.2%. The undrawn portion of the aggregate lender commitments under the Bank Credit Agreement is subject to a commitment fee of 0.5% per annum. Cash interest, including commitment fees paid on the Company’s bank credit facility but excluding debt issue costs, were $2.8 million and $7.5 million during the three and nine months ended September 30, 2023, respectively, and $1.4 million and $3.8 million during the corresponding prior-year periods. As of September 30, 2023, we had $10.4 million of outstanding letters of credit. As of September 30, 2023, we were in compliance with all debt covenants under the Bank Credit Agreement. On October 27, 2023, we entered into a Fourth Amendment to the Bank Credit Agreement, which allowed us to borrow an amount exceeding the existing $75 million “excess cash” limitation for purposes of liquidity ahead of the closing of the Merger.

In connection with the consummation of the Merger, on November 2, 2023, the Company terminated all outstanding lender commitments, including commitments of the lenders to issue letters of credit, under the Bank Credit Agreement. In connection with the termination of the Bank Credit Agreement, on November 2, 2023, all outstanding obligations for principal, interest and fees under the Bank Credit Agreement were paid off in full, and all liens securing such obligations and any letters of credit or hedging obligations permitted by the Bank Credit Agreement to be secured by such liens and guarantees of such obligations were released.

Note 4. Investments

Equity Method Investments

Our equity-method investments and their book value balances consisted of the following:

In thousandsSeptember 30, 2023December 31, 2022
Equity method investments(1)
Clean Hydrogen Works, LA-1, L.L.C.$20,000 $10,218 
Libra CO2 Storage Solutions LLC
1,926  
Total equity method investments$21,926 $10,218 

(1) Investment balances include capitalized transaction costs.

Clean Hydrogen Works. In April 2023, based on the achievement of certain milestones, we invested the remaining $10 million of our total $20 million commitment to invest in Clean Hydrogen Works (“CHW”), the project development company of a planned blue hydrogen/ammonia multi-block facility for which we have signed a definitive agreement for the transportation and storage of CO2 for the first two blocks of the proposed plant. We account for the investment in CHW under the equity method of accounting.


12


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
When an entity makes an investment that qualifies for the equity method of accounting, there may be a difference in the cost basis of the investment and the proportional interest in the underlying equity in the net assets of the investee (“basis difference”). At the acquisition date, the Company identified a basis difference of $17.7 million associated with its investment in CHW. The basis difference was allocated to finite lived intangible assets identified and equity method goodwill. The Company will amortize the basis differences attributable to finite lived intangible assets and record the amortization as a reduction of earnings from equity method investments, net in the accompanying Unaudited Condensed Consolidated Statements of Operations.

Libra CO2 Storage Solutions LLC. During the second quarter of 2023, we invested $1.5 million in Libra CO2 Storage Solutions LLC in connection with a joint venture related to a CO2 sequestration project in St. Charles Parish, Louisiana.

Other Investments

During the first quarter of 2023, we made two investments in carbon capture technology companies, including a $2 million investment in Aqualung Carbon Capture AS and a $5 million investment in ION Clean Energy, Inc.

All investments are included in “Other assets” in the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023.

Note 5. Stockholders’ Equity

2022 Share Repurchases

In May 2022, our Board of Directors authorized a common share repurchase program for up to $250 million of outstanding Denbury common stock. During June and July 2022, the Company repurchased 1,615,356 shares of Denbury common stock under this program for approximately $100 million, at an average price of $61.92 per share. No share repurchases have been made under this program since that time.

Retirement of Treasury Stock

During the year ended December 31, 2022, we retired 1.6 million shares of existing treasury stock, with a carrying value of $100 million, acquired through our stock repurchase program. Upon the retirement of treasury stock, we reduce common stock by the par value of common stock retired, and we reduce additional paid-in capital by the value of those shares in excess of par value.

Tax Withholding and Treasury Stock Retirement in Connection with Stock Compensation Plans

During the nine months ended September 30, 2023, employees surrendered 16,281 shares of common stock, with a carrying value of approximately $1.4 million, to cover employee tax withholdings upon vesting of restricted stock awards, which shares were concurrently retired. As awards for restricted stock units (“RSUs”) are settled, the Company issues the net shares of common stock, reduced by the units surrendered to cover tax withholding. For the nine months ended September 30, 2023, we decreased additional paid in capital by $1.3 million for tax withholdings on RSUs.

Note 6. Income Taxes

We make estimates and judgments in determining our income tax expense for financial reporting purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities that arise from differences in the timing and recognition of revenue and expense for tax and financial reporting purposes. Significant judgment is required in estimating valuation allowances, and in making this determination we consider all available positive and negative evidence and make certain assumptions. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in the applicable carryback or carryforward periods. In our assessment, we consider the nature, frequency, and severity of current and cumulative losses, as well as historical and forecasted financial results, the overall business environment, our industry’s historic cyclicality, the reversal of existing deferred tax assets and liabilities, and tax planning strategies.


13


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
We assess the valuation allowance recorded on our deferred tax assets on a quarterly basis, which was $59.2 million at December 31, 2022. This valuation allowance relates primarily to our Louisiana net deferred tax assets of $55.4 million, as well as our Alabama net deferred tax assets and certain Mississippi tax credits totaling $3.8 million. We have concluded that the benefits of such deferred tax assets were not more likely than not to be realized due to lack of sufficient taxable income to fully realize the benefits of such deferred tax assets.

We evaluate our estimated annual effective income tax rate based on current and forecasted business results and enacted tax laws on a quarterly basis and apply this tax rate to our ordinary income or loss to calculate our estimated tax liability or benefit. Our income taxes are based on an estimated combined federal and state statutory rate of approximately 25% in 2023 and 2022. Our effective tax rate for the three months ended September 30, 2023 was slightly higher than our estimated statutory rate primarily due to the effects of a small pretax loss; our effective tax rate for the nine months ended September 30, 2023 was slightly lower than our estimated statutory rate primarily due to excess stock compensation deductions that were recorded discretely in the first quarter. Our effective tax rate for the three and nine months ended September 30, 2022 was significantly lower than our estimated statutory rate due to the release of a portion of the valuation allowance on our deferred tax assets.

Note 7. Commodity Derivative Contracts

We do not apply hedge accounting treatment to our oil and natural gas derivative contracts; therefore, the changes in the fair values of these instruments are recognized in income in the period of change.  These fair value changes, along with the settlements of expired contracts, are shown under “Commodity derivatives expense (income)” in our Unaudited Condensed Consolidated Statements of Operations.

Historically, we have entered into various oil and natural gas derivative contracts to provide an economic hedge of our exposure to commodity price risk associated with anticipated future oil and natural gas production and to provide more certainty to our future cash flows. We do not hold or issue derivative financial instruments for trading purposes. Over the last few years these contracts have consisted of fixed-price swaps and costless collars. The production we hedge has varied from year to year depending on our levels of debt, financial strength and expectation of future commodity prices, and occasionally requirements under our bank credit facility. We currently have no hedging requirements under our bank credit facility.

We manage and control market and counterparty credit risk through established internal control procedures that are reviewed on an ongoing basis.  We attempt to minimize credit risk exposure to counterparties through formal credit policies, monitoring procedures and diversification, and all of our commodity derivative contracts are with parties that are lenders under our Bank Credit Agreement (or affiliates of such lenders). As of September 30, 2023, all of our outstanding derivative contracts were subject to enforceable master netting arrangements whereby payables on those contracts can be offset against receivables from separate derivative contracts with the same counterparty. It is our policy to classify derivative assets and liabilities on a gross basis on our balance sheets, even if the contracts are subject to enforceable master netting arrangements.


14


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes our commodity derivative contracts as of September 30, 2023, none of which are classified as hedging instruments in accordance with the FASC Derivatives and Hedging topic:
MonthsIndex PriceVolume (Barrels per day)Contract Prices ($/Bbl)
Weighted Average Price
SwapFloorCeiling
Oil Contracts:   
2023 Fixed-Price Swaps
Oct – DecNYMEX18,000$78.51 $— $— 
2023 Collars
Oct – DecNYMEX9,000$— $68.33 $100.69 
2024 Fixed-Price Swaps
Jan – JuneNYMEX19,000$75.36 $— $— 
July – DecNYMEX3,00076.50 — — 

On October 24, 2023, the Company and the counterparties to all of our outstanding derivative contracts mutually agreed to terminate the contracts, resulting in a cash payment by the Company to the counterparties aggregating $26.9 million.

Note 8. Fair Value Measurements

The FASC Fair Value Measurement topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (often referred to as the “exit price”). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the income approach for recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We are able to classify fair value balances based on the observability of those inputs. The FASC establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. Instruments in this category include non-exchange-traded oil derivatives that are based on NYMEX. Our costless collars are valued using the Black-Scholes model, an industry standard option valuation model that takes into account inputs such as contractual prices for the underlying instruments, maturity, quoted forward prices for commodities, interest rates, volatility factors and credit worthiness, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 – Pricing inputs include significant inputs that are generally less observable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

We adjust the valuations from the valuation model for nonperformance risk, using our estimate of the counterparty’s credit quality for asset positions and our credit quality for liability positions. We use multiple sources of third-party credit data in determining counterparty nonperformance risk, including credit default swaps.


15


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis as of the periods indicated:
 Fair Value Measurements Using:
In thousandsQuoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
September 30, 2023 
Assets
Oil derivative contracts – current$ $98 $ $98 
Oil derivative contracts – long-term 26  26 
Total Assets$ $124 $ $124 
Liabilities
Oil derivative contracts – current$ $(40,813)$ $(40,813)
Oil derivative contracts – long-term (336) (336)
Total Liabilities$ $(41,149)$ $(41,149)
December 31, 2022    
Assets    
Oil derivative contracts – current$ $15,517 $ $15,517 
Total Assets$ $15,517 $ $15,517 
Liabilities
Oil derivative contracts – current$ $(13,018)$ $(13,018)
Total Liabilities$ $(13,018)$ $(13,018)

Since we do not apply hedge accounting for our commodity derivative contracts, any gains and losses on our assets and liabilities are included in “Commodity derivatives expense (income)” in the accompanying Unaudited Condensed Consolidated Statements of Operations.

Other Fair Value Measurements

The carrying value of our loans under our Bank Credit Agreement approximate fair value, as they are subject to short-term floating interest rates that approximate the rates available to us for those periods. The estimated fair value of the principal amount of our debt as of September 30, 2023 and December 31, 2022, excluding financing lease obligations, was $70.0 million and $29.0 million, respectively. We have other financial instruments consisting primarily of cash, cash equivalents, U.S. Treasury notes, short-term receivables and payables that approximate fair value due to the nature of the instrument and the relatively short maturities.

Note 9. Commitments and Contingencies

Litigation and Regulatory Proceedings

We are involved in various lawsuits, claims and regulatory proceedings incidental to our businesses.  We are also subject to audits for various taxes (income, sales and use, and severance) in the various states in which we operate, and from time to time receive assessments for potential taxes that we may owe. We accrue for losses from litigation and claims if we determine that a loss is probable and the amount can be reasonably estimated.


16


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
On May 26, 2022, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) of the U.S. Department of Transportation issued a Notice of Probable Violation, Proposed Civil Penalty, and Proposed Compliance Order (“NOPV”) relating to the February 2020 CO2 release from a pipeline failure near Satartia, Mississippi in our CO2 pipeline running between the Tinsley and Delhi fields, and assessed a preliminary civil penalty of $3.9 million, which the Company recorded in its financial statements in the second quarter of 2022. On March 24, 2023, Denbury and PHMSA entered into a final Consent Order and Consent Agreement that settled all of the allegations in the NOPV and also reduced the assessed penalty to $2.9 million. The $1.0 million reduction was reflected in “Other expenses” in our Unaudited Condensed Consolidated Statements of Operations in the first quarter of 2023.

Note 10. Additional Balance Sheet Details

Trade and Other Receivables, Net

In thousandsSeptember 30, 2023December 31, 2022
Trade accounts receivable, net$15,904 $19,619 
Federal income tax receivable, net 597 
Other receivables2,335 7,127 
Total$18,239 $27,343 



17


Denbury Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and Notes thereto included herein and our Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”), along with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Form 10-K.  Any terms used but not defined herein have the same meaning given to them in the Form 10-K.

Our discussion and analysis includes forward-looking information that involves risks and uncertainties and should be read in conjunction with Risk Factors under Item 1A of the Form 10-K and disclosures in all subsequent filings made thereafter under the Securities Exchange Act of 1934.

On July 13, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Exxon Mobil Corporation, a New Jersey corporation (“ExxonMobil”), and EMPF Corporation, a Delaware corporation and a wholly-owned subsidiary of ExxonMobil (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, on November 2, 2023, Merger Sub merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of ExxonMobil (the “Surviving Corporation”).

On November 2, 2023 (the “Effective Time”), each share of Company common stock, par value $.001 per share (the “Denbury Common Stock”) issued and outstanding immediately prior to the Effective Time (including the unvested restricted stock of the Company, but excluding shares of Denbury Common Stock held (1) in treasury (excluding Denbury Common Stock subject to or issuable in connection with a Company employee benefit plan) or (2) by ExxonMobil or Merger Sub, which were cancelled at the Effective Time) was cancelled and converted into the right to receive 0.840 shares of ExxonMobil common stock, without par value (“ExxonMobil Common Stock”) (together with cash in lieu of fractional shares, the “Merger Consideration”), without interest and subject to any applicable withholding taxes, in accordance with the Merger Agreement.

Additionally, each Company restricted stock unit (each, a “Denbury RSU”), each Company deferred stock unit (each, a “Denbury DSU”) and each Company performance stock unit whose vesting was subject to performance goals related to absolute or relative total shareholder return (each, a “Denbury TSR Performance Award”) that was outstanding immediately prior to the Effective Time, whether vested or unvested, automatically became fully vested and was canceled and converted into the right to receive the Merger Consideration in accordance with the Merger Agreement in respect of the total number of shares of Denbury Common Stock subject to each respective Denbury RSU, Denbury DSU and Denbury TSR Performance Award (in the case of the Denbury TSR Performance Awards, with such number determined based on actual performance levels, calculated in accordance with the underlying award agreements), without interest and subject to any applicable withholding taxes.

The foregoing description of the Merger, the Merger Agreement, and the transactions contemplated thereby, is a summary only, does not purport to be complete, and is subject to and qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached as Annex A to the Company’s Proxy Statement on Schedule 14A, filed with the SEC on September 29, 2023.

OVERVIEW

Denbury is an independent energy company with operations focused in the Gulf Coast and Rocky Mountain regions. The Company is differentiated by its focus on CO2 enhanced oil recovery (“EOR”) and the emerging carbon capture, utilization, and storage (“CCUS”) industry, supported by the Company’s CO2 EOR technical and operational expertise and its extensive CO2 pipeline infrastructure.

Oil Price Impact on Our Business.  Our financial results are significantly impacted by changes in oil prices, as 97% of our sales volumes are oil. Changes in oil prices impact all aspects of our business; most notably our cash flows from operations, revenues, capital allocation and budgeting decisions, and oil and natural gas reserves volumes. Oil prices have historically been volatile and can fluctuate significantly over short periods of time for many different reasons, such as global supply, demand, and geopolitical events, such as the Hamas/Israel war. Average NYMEX WTI oil prices were approximately $82 per Bbl during the third quarter of 2023, an increase from $74 per Bbl in the second quarter of 2023 and a decrease from $91 per Bbl in the third quarter of 2022.

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Denbury Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The table below outlines selected financial items and sales volumes, along with changes in our realized oil prices, before and after commodity derivative impacts, and NYMEX oil differentials for our most recent comparative quarterly periods:
Three Months Ended
In thousands, except per-unit dataSept. 30, 2023June 30, 2023March 31, 2023Dec. 31, 2022Sept. 30, 2022
Oil, natural gas, and related product sales$325,870 $302,946 $314,489 $346,578 $395,223 
Receipt (payment) on settlements of commodity derivatives(6,148)5,157 2,065 (38,956)(55,780)
Oil, natural gas, and related product sales and commodity derivative settlements, combined$319,722 $308,103 $316,554 $307,622 $339,443 
Average daily sales (BOE/d)44,964 46,982 47,655 46,641 47,109 
Average net realized oil prices   
Oil price per Bbl - excluding impact of derivative settlements$80.73 $72.59 $74.87 $82.54 $92.77 
Oil price per Bbl - including impact of derivative settlements79.20 73.8375.3673.13 79.49 
Average NYMEX oil differential per Bbl$(1.25)$(1.14)$(1.28)$0.03 $0.82 

As shown in the table above, our oil and natural gas revenues have decreased since 2022 primarily due to the decrease in oil prices. During 2022, the benefit of high oil prices was offset in part by the impact of higher cash payments on our commodity derivative contracts.

Third Quarter 2023 Financial Results and Highlights. We recognized a net loss of $2.9 million, or $0.06 per diluted common share, during the third quarter of 2023, compared to net income of $250.4 million, or $4.66 per diluted common share, during the third quarter of 2022. Drivers of the comparative operating results between the third quarters of 2023 and 2022 include the following:

Oil and natural gas revenues decreased $69.4 million (18%) during the third quarter of 2023 primarily due to lower oil prices and sales volumes; and
Commodity derivatives expense increased $194.5 million ($85.3 million of expense during the third quarter of 2023 compared to $109.2 million of income during the third quarter of 2022) due to the changes in oil prices relative to the strike prices of our derivatives.

June 2023 West Yellow Creek Divestiture. On June 30, 2023, we closed on a transaction exchanging our 49% non-operated interest in West Yellow Creek Field for a term overriding royalty interest in the field (7% for the first 8 years and 3.4% for the next 5 years). Our existing CO2 sales contract to supply CO2 to the field was also amended as part of the transaction, so that we will continue to supply CO2 to the West Yellow Creek Field for a fee. As a result of this transaction, our production during the third quarter of 2023 decreased by approximately 375 Bbls/d with a corresponding reduction in revenues, and we are no longer obligated for lease operating expenses or capital expenditures for this field.

Cedar Creek Anticline CO2 EOR Development. During the nine months ended September 30, 2023, we incurred $126.1 million of our oil & gas development capital expenditures on the CCA EOR project, primarily focused on the construction of four planned CO2 recycle facilities, well conversions, and drilling the Interlake Pennel CO2 pilot. Commissioning of the initial CO2 recycle facility within the Cedar Hills South Field was completed late in the first quarter of 2023, and commissioning of

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Denbury Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
the second facility was completed during the second quarter of 2023. Initial EOR production commenced during the second quarter of 2023, averaging 953 Bbls/d for the third quarter.

Carbon Capture, Utilization and Storage Activities. During the nine months ended September 30, 2023, we invested $74.4 million of development capital into CCUS assets, primarily for the acquisition of new sequestration sites (including the third quarter acquisition of the right to develop a 34,000 acre dedicated CO2 sequestration site in Avoyelles and St. Landry Parishes, Louisiana), the drilling of a stratigraphic test well in our Alabama sequestration site, and the acquisition of seismic data. During the nine months ended September 30, 2023, we made several investments in CCUS companies totaling $18.5 million. These investments are included in “Other assets” in the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023.
CAPITAL RESOURCES AND LIQUIDITY

Overview. Our cash flows from operations and availability under our senior secured bank credit facility are our primary sources of capital and liquidity. Our most significant cash capital outlays relate to our oil and gas development capital expenditures and CCUS initiatives. During the nine months ended September 30, 2023, we generated $375.4 million in cash flow from operations. We invested cash of $428.6 million, primarily in oil and gas and CCUS activities, including equity investments during the first nine months of 2023, and financing activities supplemented our cash flow by $55.1 million, primarily from borrowings under our bank credit facility. As of September 30, 2023, we had $70.0 million of outstanding borrowings, down from $85.0 million at June 30, 2023, and $10.4 million of outstanding letters of credit under our senior secured bank credit facility.

Senior Secured Bank Credit Agreement. In September 2020, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders party thereto (as amended, the “Bank Credit Agreement”). The Bank Credit Agreement is a senior secured revolving credit facility with a maturity date of May 4, 2027. As of September 30, 2023, we were in compliance with all debt covenants under the Bank Credit Agreement. On October 27, 2023, we entered into a Fourth Amendment to the Bank Credit Agreement, which allowed us to borrow an amount exceeding the existing $75 million “excess cash” limitation for purposes of liquidity ahead of the closing of the merger.

In connection with the consummation of the Merger, on November 2, 2023, the Company terminated all outstanding lender commitments, including commitments of the lenders to issue letters of credit, under the Bank Credit Agreement. In connection with the termination of the Bank Credit Agreement, on November 2, 2023, all outstanding obligations for principal, interest and fees under the Bank Credit Agreement were paid off in full, and all liens securing such obligations and any letters of credit or hedging obligations permitted by the Bank Credit Agreement to be secured by such liens and guarantees of such obligations were released.

Commitments, Obligations and Off-Balance Sheet Arrangements. There have been no material changes to our commitments, obligations and off-balance sheet arrangements detailed in our Form 10-K for the year ended December 31, 2022.


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Denbury Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS

Financial and Operating Results Tables

Certain of our operating results and statistics for the comparative three and nine months ended September 30, 2023 and 2022 are included in the following table:
Three Months EndedNine Months Ended
September 30,September 30
In thousands, except per-share and unit data2023202220232022
Financial results
Net income (loss)$(2,893)$250,423 $153,587 $405,045 
Net income (loss) per common share – basic(0.06)4.89 2.96 7.86 
Net income (loss) per common share – diluted(0.06)4.66 2.85 7.43 
Net cash provided by operating activities144,397 156,301375,410 396,409
Average daily sales volumes   
Bbls/d43,653 45,639 45,220 45,404 
Mcf/d7,862 8,815 7,823 8,770 
BOE/d(1)
44,964 47,109 46,524 46,866 
Oil and natural gas sales   
Oil sales
$324,236 $389,543 $938,351 $1,217,377 
Natural gas sales1,634 5,680 4,954 14,727 
Total oil and natural gas sales
$325,870 $395,223 $943,305 $1,232,104 
Commodity derivative contracts(2)
   
Receipt (payment) on settlements of commodity derivatives$(6,148)$(55,780)$1,074 $(276,796)
Noncash fair value gains (losses) on commodity derivatives(79,103)165,028 (43,525)136,471 
Commodity derivatives income (expense)$(85,251)$109,248 $(42,451)$(140,325)
Unit prices – excluding impact of derivative settlements   
Oil price per Bbl$80.73 $92.77 $76.01 $98.21 
Natural gas price per Mcf2.26 7.00 2.32 6.15 
Unit prices – including impact of derivative settlements(2)
 
Oil price per Bbl$79.20 $79.49 $76.10 $75.88 
Natural gas price per Mcf2.26 7.00 2.32 6.15 
Oil and natural gas operating expenses  
Lease operating expenses$127,440 $134,464 $386,905 $376,643 
Transportation and marketing expenses5,474 5,191 16,022 14,638 
Production and ad valorem taxes28,172 33,080 82,628 99,093 
Oil and natural gas operating revenues and expenses per BOE  
Oil and natural gas revenues$78.78 $91.19 $74.27 $96.30 
Lease operating expenses30.81 31.03 30.46 29.44 
Transportation and marketing expenses1.32 1.20 1.26 1.14 
Production and ad valorem taxes6.81 7.63 6.51 7.75 
CO2 – revenues and expenses
   
CO2 sales and transportation fees
$12,706 $18,586 $34,556 $44,618 
CO2 operating and discovery expenses
(2,138)(2,066)(4,931)(6,564)
CO2 revenue and expenses, net
$10,568 $16,520 $29,625 $38,054 

(1)Barrel of oil equivalent using the ratio of one barrel of oil to six Mcf of natural gas (“BOE”).
(2)See also Commodity Derivative Contracts below and Item 3. Quantitative and Qualitative Disclosures about Market Risk for information concerning our derivative transactions.



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Denbury Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Sales Volumes

Average daily sales volumes by area for each of the four quarters of 2022 and for the first three quarters of 2023 are shown below:
 Average Daily Sales Volumes (BOE/d)
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Operating Area2023202320232022202220222022
Tertiary oil sales volumes    
Gulf Coast region
Delhi2,302 2,151 2,514 2,528 2,557 2,478 2,675 
Hastings4,299 4,502 4,450 4,198 4,211 4,304 4,430 
Heidelberg3,486 3,481 3,539 3,670 3,571 3,528 3,653 
Oyster Bayou3,453 3,615 3,832 3,417 3,490 3,423 3,745 
Tinsley2,516 2,686 3,205 2,248 3,133 3,050 3,015 
Other(1)
5,290 5,606 5,585 5,652 5,541 5,422 5,498 
Total Gulf Coast region21,346 22,041 23,125 21,713 22,503 22,205 23,016 
Rocky Mountain region
Bell Creek3,143 3,300 3,808 3,767 3,975 4,122 4,474 
Wind River Basin3,674 3,866 3,872 3,726 3,121 2,703 2,517 
Cedar Creek Anticline953 574 — — — — — 
Other(2)
2,345 2,501 2,744 2,824 2,759 2,361 2,229 
Total Rocky Mountain region10,115 10,241 10,424 10,317 9,855 9,186 9,220 
Total tertiary oil sales volumes31,461 32,282 33,549 32,030 32,358 31,391 32,236 
Non-tertiary oil and gas sales volumes
Gulf Coast region
Total Gulf Coast region3,415 3,506 3,398 3,666 3,727 3,566 3,630 
Rocky Mountain region
Cedar Creek Anticline8,614 9,661 9,316 9,366 9,593 10,224 9,721 
Other(3)
1,474 1,533 1,392 1,579 1,431 1,380 1,338 
Total Rocky Mountain region10,088 11,194 10,708 10,945 11,024 11,604 11,059 
Total non-tertiary sales volumes13,503 14,700 14,106 14,611 14,751 15,170 14,689 
Total sales volumes44,964 46,982 47,655 46,641 47,109 46,561 46,925 

(1)Includes Brookhaven, Cranfield, Eucutta, Little Creek, Mallalieu, Martinville, McComb, and Soso fields. In addition, volumes include production from West Yellow Creek Field prior to its divestiture during the second quarter of 2023 and production related to our overriding royalty interest beginning in the third quarter of 2023 (see OverviewJune 2023 West Yellow Creek Divestiture above).
(2)Includes tertiary sales volumes related to our working interest positions in the Salt Creek and Grieve fields.
(3)Includes non-tertiary sales volumes from Wind River Basin, as well as Hartzog Draw and Bell Creek fields.

Total sales volumes during the third quarter of 2023 averaged 44,964 BOE/d, down approximately 4% from the second quarter of 2023. Changes in sales volumes compared to the second quarter of 2023 and other prior periods are shown in the table above.

Our sales volumes during the three and nine months ended September 30, 2023 were 97% oil, consistent with our sales during the comparable prior-year periods.


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Denbury Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Oil and Natural Gas Revenues

Our oil and natural gas revenues during the three and nine months ended September 30, 2023 decreased 18% and 23%, respectively, compared to these revenues for the same periods in 2022.  The changes in our oil and natural gas revenues are primarily due to lower realized commodity prices (excluding any impact of our commodity derivative contracts), coupled with a decline in sales volumes, as reflected in the following table:
Three Months EndedNine Months Ended
September 30,September 30,
2023 vs. 20222023 vs. 2022
In thousandsDecrease in RevenuesPercentage Decrease in RevenuesDecrease in RevenuesPercentage Decrease in Revenues
Change in oil and natural gas revenues due to:    
Decrease in sales volumes$(17,994)(5)%$(8,988)(1)%
Decrease in realized commodity prices(51,359)(13)%(279,811)(22)%
Total decrease in oil and natural gas revenues$(69,353)(18)%$(288,799)(23)%

Excluding any impact of our commodity derivative contracts, our average net realized commodity prices and NYMEX differentials were as follows during the first three quarters and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
March 31,June 30,September 30,September 30,
 20232022202320222023202220232022
Average net realized prices      
Oil price per Bbl
$74.87 $93.17 $72.59 $108.81 $80.73 $92.77 $76.01 $98.21 
Natural gas price per Mcf
2.80 4.66