10-Q 1 den-20220930.htm FORM 10-Q den-20220930
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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, 2022
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
den-20220930_g1.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:
Common Stock $.001 Par ValueDENNew York Stock Exchange

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
  (Do not check if a smaller reporting 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, $.001 par value, as of October 31, 2022, was 49,800,113.





Denbury Inc.

Table of Contents

Page
 
 


2


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, 2022December 31, 2021
Assets
Current assets  
Cash and cash equivalents$519 $3,671 
Accrued production receivable176,249 143,365 
Trade and other receivables, net19,035 19,270 
Derivative assets26,782  
Prepaids27,060 9,099 
Total current assets249,645 175,405 
Property and equipment  
Oil and natural gas properties (using full cost accounting)  
Proved properties1,325,866 1,109,011 
Unevaluated properties192,784 112,169 
CO2 properties
187,690 183,369 
Pipelines219,090 224,394 
CCUS storage sites and related assets32,348  
Other property and equipment102,627 93,950 
Less accumulated depletion, depreciation, amortization and impairment(270,593)(181,393)
Net property and equipment1,789,812 1,541,500 
Operating lease right-of-use assets17,065 19,502 
Derivative assets9,048  
Intangible assets, net81,410 88,248 
Restricted cash for future asset retirement obligations47,633 46,673 
Other assets48,718 31,625 
Total assets$2,243,331 $1,902,953 
Liabilities and Stockholders’ Equity
Current liabilities  
Accounts payable and accrued liabilities$259,015 $191,598 
Oil and gas production payable89,311 75,899 
Derivative liabilities33,868 134,509 
Operating lease liabilities4,392 4,677 
Total current liabilities386,586 406,683 
Long-term liabilities  
Long-term debt, net of current portion15,000 35,000 
Asset retirement obligations301,764 284,238 
Deferred tax liabilities, net54,940 1,638 
Operating lease liabilities14,726 17,094 
Other liabilities17,438 22,910 
Total long-term liabilities403,868 360,880 
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; 49,793,270 and 50,193,656 shares issued, respectively50 50 
Paid-in capital in excess of par1,042,438 1,129,996 
Retained earnings410,389 5,344 
Total stockholders equity
1,452,877 1,135,390 
Total liabilities and stockholders’ equity$2,243,331 $1,902,953 
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3


Denbury Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per-share data)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues and other income 
Oil, natural gas, and related product sales$395,223 $308,454 $1,232,104 $826,607 
CO2 sales and transportation fees
18,586 12,237 44,618 31,599 
Oil marketing revenues17,663 12,593 47,725 26,538 
Other income8,015 10,451 9,055 11,518 
Total revenues and other income439,487 343,735 1,333,502 896,262 
Expenses 
Lease operating expenses134,464 116,536 376,643 308,731 
Transportation and marketing expenses5,191 5,985 14,638 22,304 
CO2 operating and discovery expenses
2,066 1,963 6,564 4,487 
Taxes other than income33,789 24,154 101,487 65,499 
Oil marketing purchases19,095 11,940 47,162 25,763 
General and administrative expenses21,071 15,388 58,998 62,821 
Interest, net of amounts capitalized of $1,044, $1,249, $3,177 and $3,500, respectively909 669 3,092 3,457 
Depletion, depreciation, and amortization37,680 37,691 108,425 113,522 
Commodity derivatives expense (income)(109,248)41,745 140,325 330,152 
Write-down of oil and natural gas properties   14,377 
Other expenses2,726 4,553 11,459 9,913 
Total expenses147,743 260,624 868,793 961,026 
Income (loss) before income taxes291,744 83,111 464,709 (64,764)
Income tax provision (benefit)41,321 403 59,664 (135)
Net income (loss)$250,423 $82,708 $405,045 $(64,629)
Net income (loss) per common share
Basic$4.89 $1.62 $7.86 $(1.27)
Diluted$4.66 $1.51 $7.43 $(1.27)
Weighted average common shares outstanding 
Basic51,182 51,094 51,512 50,807 
Diluted53,715 54,714 54,524 50,807 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


4


Denbury Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended September 30,
 20222021
Cash flows from operating activities 
Net income (loss)$405,045 $(64,629)
Adjustments to reconcile net income (loss) to cash flows from operating activities 
Depletion, depreciation, and amortization108,425 113,522 
Write-down of oil and natural gas properties 14,377 
Deferred income taxes53,301 (34)
Stock-based compensation11,491 22,788 
Commodity derivatives expense140,325 330,152 
Payment on settlements of commodity derivatives(276,796)(179,466)
Debt issuance costs2,465 2,055 
Gain from asset sales and other(1,119)(7,026)
Other, net(11,543)(2,448)
Changes in assets and liabilities, net of effects from acquisitions 
Accrued production receivable(32,884)(52,948)
Trade and other receivables66 (1,809)
Other current and long-term assets(21,729)7,337 
Accounts payable and accrued liabilities28,359 47,484 
Oil and natural gas production payable13,412 23,168 
Asset retirement obligations and other liabilities(22,409)(4,966)
Net cash provided by operating activities396,409 247,557 
Cash flows from investing activities 
Oil and natural gas capital expenditures(217,834)(113,041)
CCUS storage sites and related capital expenditures(27,518) 
Acquisitions of oil and natural gas properties(874)(10,927)
Pipelines and plants capital expenditures(22,259)(19,123)
Net proceeds from sales of oil and natural gas properties and equipment237 19,053 
Equity investment(10,000) 
Other(9,746)5,797 
Net cash used in investing activities(287,994)(118,241)
Cash flows from financing activities 
Bank repayments(808,000)(697,000)
Bank borrowings788,000 627,000 
Pipeline financing repayments (50,676)
Common stock repurchase program(100,028) 
Other9,421 (2,426)
Net cash used in financing activities(110,607)(123,102)
Net increase (decrease) in cash, cash equivalents, and restricted cash(2,192)6,214 
Cash, cash equivalents, and restricted cash at beginning of period50,344 42,248 
Cash, cash equivalents, and restricted cash at end of period$48,152 $48,462 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5


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, 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 

Common Stock
($.001 Par Value)
Paid-In Capital in Excess of ParRetained Earnings (Accumulated Deficit)Treasury Stock
(at cost)
SharesAmountSharesAmountTotal Equity
Balance – December 31, 202049,999,999 $50 $1,104,276 $(50,658)— $— $1,053,668 
Stock-based compensation— — 19,172 — — — 19,172 
Tax withholding for stock compensation plans— — (1,467)— — — (1,467)
Issued pursuant to exercise of warrants5,620  195 — — — 195 
Net loss— — — (69,642)— — (69,642)
Balance – March 31, 202150,005,619 50 1,122,176 (120,300)— — 1,001,926 
Stock-based compensation— — 2,682 — — — 2,682 
Tax withholding for stock compensation plans— — (7)— — — (7)
Issued pursuant to exercise of warrants11,872  292 — — — 292 
Net loss— — — (77,695)— — (77,695)
Balance – June 30, 202150,017,491 50 1,125,143 (197,995)— — 927,198 
Stock-based compensation— — 2,686 — — — 2,686 
Issued pursuant to exercise of warrants103,404 — 201 — — — 201 
Net income— — — 82,708 — — 82,708 
Balance – September 30, 2021 50,120,895 $50 $1,128,030 $(115,287)— $— $1,012,793 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

Organization and Nature of Operations

Denbury Inc., a Delaware corporation, 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, use, and storage (“CCUS”) industry, supported by the Company’s CO2 EOR technical and operational expertise and its extensive CO2 pipeline infrastructure.

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 Securities and Exchange Commission (“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, 2021 (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 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, 2022, our consolidated results of operations for the three and nine months ended September 30, 2022 and 2021, our consolidated cash flows for the nine months ended September 30, 2022 and 2021, and our consolidated statements of changes in stockholders’ equity for the three and nine months ended September 30, 2022 and 2021.

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

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, 2022December 31, 2021
Cash and cash equivalents$519 $3,671 
Restricted cash for future asset retirement obligations47,633 46,673 
Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statements of Cash Flows$48,152 $50,344 

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

7


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
average common shares outstanding until the vesting date. Basic weighted average common shares during the three and nine months ended September 30, 2022 includes 1,404,649 performance-based and restricted stock units which are fully vested as of September 30, 2022; however, the shares underlying these stock units are not included in shares currently issued or outstanding as actual delivery of the shares is not scheduled to occur until December 4, 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 series A and series B warrants.

For each of the three and nine months ended September 30, 2022 and 2021, there were no adjustments to net income (loss) for purposes of calculating basic and diluted net income (loss) per common share.

The following table reconciles the weighted average shares used in the basic and diluted net income (loss) per common share calculations for the periods indicated:
Three Months EndedNine Months Ended
September 30,September 30,
In thousands2022202120222021
Weighted average common shares outstanding – basic51,182 51,094 51,512 50,807 
Effect of potentially dilutive securities
Restricted stock, restricted stock units and performance stock units664 908 615  
Warrants1,869 2,712 2,397  
Weighted average common shares outstanding – diluted53,715 54,714 54,524 50,807 

For the nine months ended September 30, 2021, 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 for the period. Assuming the Company had recorded net income during the nine months ended September 30, 2021, the weighted average diluted shares outstanding would have been 53.4 million (including the impact of 0.8 million restricted stock units and 1.8 million shares with respect to warrants).

The following outstanding securities could potentially dilute earnings per share in the future, but were excluded from the computation of diluted net income (loss) per share, as their effect would have been antidilutive, as of the respective dates:
September 30,
In thousands20222021
Restricted stock, restricted stock units and performance stock units63 1,255 
Warrants 5,314 
Employee Stock Purchase Plan8  

At September 30, 2022, the Company had approximately 3.2 million warrants outstanding that can be exercised for shares of our common stock, at an exercise price of $32.59 per share for the 1.8 million Series A warrants outstanding and at an exercise price of $35.41 per share for the 1.4 million Series B warrants outstanding. The warrants may be exercised for cash or on a cashless basis. The Series A warrants are exercisable until September 18, 2025, and the Series B warrants are exercisable until September 18, 2023, at which times the warrants expire. During the three and nine months ended September 30, 2022, 119,367 and 1,941,380 warrants were exercised for a total of 71,440 shares and 1,073,004 shares, respectively, most of which were exercised on a cashless basis.

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

8


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(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 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 recognized a full cost pool ceiling test write-down of $14.4 million during the three months ended March 31, 2021. The write-down was primarily a result of the March 2021 acquisition of Wyoming CO2 EOR properties (see Note 2, Acquisition and Divestiture) which was recorded based on a valuation that utilized NYMEX strip oil prices at the acquisition date, which were significantly higher than the average first-day-of-the-month NYMEX oil prices used to value the cost ceiling. We did not record a ceiling test write-down during the three or nine months ended September 30, 2022.

CCUS Storage Sites and Other Assets

Capitalized Costs. We capitalize costs that we incur to acquire and develop storage sites for the injection of CO2. These costs generally include, or are expected to include, expenditures for acquiring surface and subsurface rights; third-party acquisition costs; permitting; drilling; facilities; environmental monitoring equipment for groundwater and storage site gas; engineering; capitalized interest; on-site road construction and other capital infrastructure costs. If it is determined that a storage site will no longer be pursued, developed or utilized, all previously capitalized costs associated with that site are expensed.

Amortization. Our CCUS storage sites are currently in the development stage and not yet operational. Accordingly, we currently have no amortization of capitalized costs. Amortization of these costs will begin when CO2 storage operations commence.

Investment in Project Development Company (“Clean Hydrogen Works”) of Planned Louisiana Blue Hydrogen Ammonia Project. In September 2022, we made a $10.0 million investment in the project development company of a planned blue hydrogen/ammonia multi-block facility, while also signing a definitive agreement for the transportation and sequestration of CO2 for the first two blocks of the proposed plant. We have committed to invest another $10.0 million when certain project milestones are achieved. The investment is included in “Other assets” in the Unaudited Condensed Consolidated Balance Sheet as of September 30, 2022.

Note 2. Acquisition and Divestiture

2021 Acquisition of Wyoming CO2 EOR Properties

On March 3, 2021, we acquired a nearly 100% working interest (approximately 83% net revenue interest) in the Big Sand Draw and Beaver Creek EOR fields located in Wyoming from a subsidiary of Devon Energy Corporation, including surface facilities and a 46-mile CO2 transportation pipeline to the acquired fields. The acquisition purchase price was $10.9 million (after final closing adjustments) plus two contingent $4 million cash payments if NYMEX WTI oil prices average at least $50 per Bbl during each of 2021 and 2022. We made the first contingent payment in January 2022 and if the price condition is met, the second $4 million payment will be due in January 2023. The fair value of the contingent consideration recorded on our Unaudited Condensed Consolidated Balance Sheets was $3.9 million as of September 30, 2022.

The fair values allocated to our assets acquired and liabilities assumed for the acquisition, based on significant inputs not observable in the market and considered level 3 inputs, were finalized during the third quarter of 2021, after consideration of

9


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
final closing adjustments and evaluation of reserves and liabilities assumed. The following table presents a summary of the fair value of assets acquired and liabilities assumed in the acquisition:

In thousands
Consideration:
Cash consideration$10,906 
Fair value of assets acquired and liabilities assumed:
Proved oil and natural gas properties60,101 
Other property and equipment1,685 
Asset retirement obligations(39,794)
Contingent consideration(5,320)
Other liabilities(5,766)
Fair value of net assets acquired$10,906 

2021 Divestiture of Hartzog Draw Deep Mineral Rights

On June 30, 2021, we closed the sale of undeveloped, unconventional deep mineral rights in Hartzog Draw Field in Wyoming. The cash proceeds of $18 million were recorded to “Proved properties” in our Consolidated Balance Sheets. The proceeds reduced our full cost pool; therefore, no gain or loss was recorded on the transaction, and the sale had no impact on our production or proved reserves.

Note 3. 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 revenues received and the associated expenses 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.


10


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Disaggregation of Revenue

The following table summarizes our revenues by product type for the three and nine months ended September 30, 2022 and 2021:
Three Months EndedNine Months Ended
September 30,September 30,
In thousands2022202120222021
Oil sales$389,543 $305,093 $1,217,377 $818,714 
Natural gas sales5,680 3,361 14,727 7,893 
CO2 sales and transportation fees
18,586 12,237 44,618 31,599 
Oil marketing revenues17,663 12,593 47,725 26,538 
Total revenues$431,472 $333,284 $1,324,447 $884,744 

Note 4. Long-Term Debt

Senior Secured Bank Credit Agreement

On September 18, 2020, we entered into a $575 million credit agreement for a senior secured revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders party thereto (the “Bank Credit Agreement”). Availability under the Bank Credit Agreement is subject to a borrowing base, which is redetermined semiannually on or around May 1 and November 1 of each year. The borrowing base is adjusted at the lenders’ discretion and is based, in part, upon external factors over which we have no control. If our outstanding debt under the Bank Credit Agreement exceeds the then-effective borrowing base, we would be required to repay the excess amount over a period not to exceed six months. The undrawn portion of the aggregate lender commitments under the Bank Credit Agreement is subject to a commitment fee of 0.5% per annum. Our outstanding borrowings under the Bank Credit Agreement, totaled $15.0 million and $35.0 million as of September 30, 2022 and December 31, 2021, respectively.

On May 4, 2022, we entered into a Second Amendment to the Bank Credit Agreement, which among other things:

Increased the borrowing base and lender commitments from $575 million to $750 million;
Extended the maturity date from January 30, 2024 to May 4, 2027;
Modified the interest provisions on loans under the Bank Credit Agreement to (1) reduce the applicable margin for alternate base rate loans from 2% to 3% per annum to 1.5% to 2.5% per annum and (2) replace provisions referencing LIBOR loans with Secured Overnight Financing Rate loans, with an applicable margin of 2.5% to 3.5% per annum; and
Permitted us to pay dividends on our common stock and make other unlimited restricted payments and investments so long as (1) no event of default or borrowing base deficiency exists; (2) our total leverage ratio is 1.5 to 1 or lower; and (3) availability under the Bank Credit Agreement is at least 20% of the borrowing base.

As part of our Fall 2022 semiannual borrowing base redetermination, the borrowing base and lender commitments for our Bank Credit Agreement were reaffirmed at $750 million, with our next scheduled redetermination around May 1, 2023.

The Bank Credit Agreement also limits our ability to, among other things, incur and repay other indebtedness; grant liens; engage in certain mergers, consolidations, liquidations and dissolutions; engage in sales of assets; make acquisitions and investments; make other restricted payments (including redeeming, repurchasing or retiring our common stock); and enter into commodity derivative agreements, in each case subject to certain exceptions to such limitations, as specified in the Bank Credit Agreement. Our Bank Credit Agreement required certain minimum commodity hedge levels in connection with our emergence from bankruptcy; however, these conditions were met as of December 31, 2020, and we currently have no ongoing hedging requirements under the Bank Credit Agreement.

The Bank Credit Agreement is secured by (1) our proved oil and natural gas properties, which are held through our restricted subsidiaries; (2) the pledge of equity interests of such subsidiaries; (3) a pledge of our commodity derivative agreements; (4) a pledge of deposit accounts, securities accounts and our commodity accounts; and (5) a security interest in substantially all other collateral that may be perfected by a Uniform Commercial Code filing, subject to certain exceptions.

11


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

The Bank Credit Agreement contains certain financial performance covenants including the following:

A Consolidated Total Debt to Consolidated EBITDAX covenant (as defined in the Bank Credit Agreement), with such ratio not to exceed 3.5 times; and
A requirement to maintain a current ratio (i.e., Consolidated Current Assets to Consolidated Current Liabilities) of 1.0.

For purposes of computing the current ratio per the Bank Credit Agreement, Consolidated Current Assets exclude the current portion of derivative assets but include available borrowing capacity under the Bank Credit Agreement, and Consolidated Current Liabilities exclude the current portion of derivative liabilities as well as the current portions of long-term indebtedness outstanding. As of September 30, 2022, we were in compliance with all debt covenants under the Bank Credit Agreement.

The above description of our Bank Credit Agreement is qualified by the express language and defined terms contained in the Bank Credit Agreement and amendments thereto.

Note 5. Stockholders’ Equity

Share Repurchase Program

In early 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. In August 2022, the Board increased Denbury’s stock repurchase authorization by $100 million, thus a total of $250.0 million of common stock currently remains authorized for future repurchases under this program. The program has no pre-established ending date and may be suspended or discontinued at any time. The Company is not obligated to repurchase any dollar amount or specific number of shares of its common stock under the program.

Retirement of Treasury Stock

During the quarter ended September 30, 2022, we retired 1.6 million shares of existing treasury stock, with a carrying value of $100.0 million, acquired primarily 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.

Employee Stock Purchase Plan

On June 1, 2022, the Company’s stockholders approved the Denbury Inc. Employee Stock Purchase Plan authorizing the sale of up to 2,000,000 shares of common stock thereunder. In accordance with the ESPP, full-time employees may contribute up to 10% of their base salary, subject to certain limitations, to purchase previously unissued Denbury common stock. Participants in the ESPP may purchase common stock at a 15% discount to the fair market value of a share of common stock determined as the lower of the closing sales price on the first or last trading day of each offering period. The first offering period under the ESPP commenced on September 1, 2022 and will end on December 31, 2022. The plan is administered by the Compensation Committee of our Board of Directors.

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.

12


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

We assess the valuation allowance recorded on our deferred tax assets, which was $125.5 million at December 31, 2021, on a quarterly basis. This valuation allowance on our federal and certain state deferred tax assets was recorded in September 2020 after the application of fresh start accounting, as (1) the tax basis of our assets, primarily our oil and gas properties, was in excess of the carrying value, as adjusted for fresh start accounting and (2) our historical pre-tax income reflected a three-year cumulative loss primarily due to ceiling test write-downs and reorganization items that were recorded in 2020. While we continued to be in a cumulative three-year-loss position through the first quarter of 2022, we initially determined as of March 31, 2022, that there was sufficient positive evidence, primarily related to a substantial increase in worldwide oil prices, to conclude that $64.9 million of our federal and certain state deferred tax assets are more likely than not to be realized. Accordingly, we reversed $5.9 million, $18.8 million and $29.2 million of this valuation allowance during the three months ended March 31, June 30, and September 30, 2022, respectively, and currently expect to reverse the remaining $11.0 million during the fourth quarter of 2022, resulting in a reduction to our annualized effective tax rate. We continue to maintain a valuation allowance of $60.6 million for certain state tax benefits that we currently do not expect to realize before their expiration.

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 2022 and 2021. Our effective tax rate for the three and nine months ended September 30, 2022 was significantly lower than our estimated statutory rate primarily due to the release of the valuation allowance that was recorded in the three and nine months ended September 30, 2022.

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. Generally, these contracts have consisted of various combinations of price floors, costless collars, three-way collars, fixed-price swaps, fixed-price swaps enhanced with a sold put, and basis swaps. The production that we hedge has varied from year to year depending on our levels of debt, financial strength and expectation of future commodity prices.

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, 2022, 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.


13


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes our commodity derivative contracts as of September 30, 2022, 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:   
2022 Fixed-Price Swaps
Oct – DecNYMEX9,500$57.52 $— $— 
2022 Costless Collars
Oct – DecNYMEX11,500$— $52.39 $67.29 
2023 Fixed-Price Swaps
Jan – JuneNYMEX7,500$75.29 $— $— 
July – DecNYMEX5,00076.26 — — 
2023 Costless Collars
Jan – JuneNYMEX17,500$— $69.71 $100.42 
July – DecNYMEX9,000— 68.33 100.69 

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 and regional pricing other than NYMEX (e.g., Light Louisiana Sweet). 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.


14


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, 2022 
Assets
Oil derivative contracts – current$ $26,782 $ $26,782 
Oil derivative contracts – long-term 9,048  9,048 
Total Assets$ $35,830 $ $35,830 
Liabilities
Oil derivative contracts – current$ $(33,868)$ $(33,868)
Oil derivative contracts – long-term    
Total Liabilities$ $(33,868)$ $(33,868)
December 31, 2021    
Liabilities
Oil derivative contracts – current$ $(134,509)$ $(134,509)
Total Liabilities$ $(134,509)$ $(134,509)

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, 2022 and December 31, 2021 was $15.0 million and $35.0 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. While we currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations or cash flows, litigation and regulatory proceedings are subject to inherent uncertainties.  We accrue for losses from litigation and claims if we determine that a loss is probable and the amount can be reasonably estimated.

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 pipeline failure near Satartia, Mississippi in our CO2 pipeline running between the Tinsley and Delhi fields. The NOPV proposed a preliminarily assessed civil penalty of $3.9 million in connection with the incident, which

15


Denbury Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
we recorded in our second quarter of 2022 financial statements. We have responded to the NOPV and are pursuing discussions with PHMSA regarding the probable violations alleged in the NOPV, the proposed civil penalty, and the nature of the compliance order contained in the NOPV.

Note 10. Additional Balance Sheet Details

Accounts Payable and Accrued Liabilities

In thousandsSeptember 30, 2022December 31, 2021
Accounts payable$61,643 $25,700 
Accrued derivative settlements13,378 27,336 
Accrued lease operating expenses32,507 27,901 
Accrued asset retirement obligations – current40,000 18,373 
Accrued compensation30,963 23,735 
Taxes payable18,823 14,453 
Accrued exploration and development costs18,418 18,936 
Other43,283 35,164 
Total$259,015 $191,598 





16


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, 2021 (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, along with Forward-Looking Information at the end of this section for information on the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements.

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, use, and storage (“CCUS”) industry, supported by the Company’s CO2 EOR technical and operational expertise and its extensive CO2 pipeline infrastructure. The utilization of captured industrial-sourced CO2 in EOR significantly reduces the carbon footprint of the oil that Denbury produces, making the Company’s Scope 1 and 2 CO2 emissions negative today, with a goal to be net-zero on its Scope 1, 2, and 3 CO2 emissions by 2030, primarily through increasing the amount of captured industrial-sourced CO2 used in its operations.

Carbon Capture, Use and Storage. CCUS is a process that captures CO2 from industrial sources and either reuses or stores the CO2 in geologic formations in order to prevent its release into the atmosphere. We utilize CO2 from industrial sources in our EOR operations, and our extensive CO2 pipeline infrastructure and operations, particularly in the Gulf Coast, are strategically located in close proximity to large sources of industrial emissions. During the nine months ended September 30, 2022, approximately 39% of the CO2 utilized in our oil and gas operations was industrial-sourced CO2, equivalent to an annualized average usage rate of over 4 million metric tons in 2022. This compares to 34% utilized during the nine months ended September 30, 2021, with the increase related to commencing CO2 injection in the first phase of our Cedar Creek Anticline (“CCA”) EOR project. We believe that the assets and technical expertise required for CCUS are highly aligned with our existing CO2 EOR operations, providing us with a significant advantage and opportunity to lead in the emerging CCUS industry, as the building of a permanent carbon capture and sequestration business by others requires both time and capital to build assets such as those we own and have been operating for years.

We have been seeking to build our CCUS business and pursue new CCUS opportunities on two fronts: first, we have been engaged with existing and potential third-party industrial CO2 emitters regarding CO2 transportation and storage solutions under long term agreements; second, we have been identifying and securing potential future sequestration sites for permanent storage. We continue to make material progress in both of these pursuits, and we currently have signed term sheets and definitive agreements for the potential future transportation and storage of up to 20 million tons of CO2 per annum from the planned capture of CO2 emissions from existing and proposed industrial plants. On the sequestration front, we have also signed agreements securing the rights to five future sequestration sites which we believe have the potential to store up to 1.5 billion metric tons of CO2.

While our use of CO2 in EOR is the only CCUS operation reflected in our historical financial and operational results (as a cost), we believe the incentives offered under Section 45Q of the Internal Revenue Code and the expansion of those incentives under the August 2022 Inflation Reduction Act will drive demand for CCUS and allow us to collect a fee for the transportation and storage of captured industrial-sourced CO2, including CO2 utilized in our EOR operations. Although we believe our first revenues associated with the sequestration of CO2 will likely occur in 2024 or 2025, we are currently incurring costs to develop and permit storage sites and will continue to advance those efforts over the next several years. During the nine months ended September 30, 2022, we capitalized $32.3 million in “CCUS storage sites and related assets” in our Unaudited Condensed Consolidated Balance Sheets, primarily consisting of acquisition costs associated with sequestration sites. In addition, during the third quarter we made a $10.0 million investment in the project development company (“Clean Hydrogen Works”) of a planned blue hydrogen/ammonia multi-block facility, while also signing a definitive agreement for the transportation and sequestration of CO2 for the first two blocks of the proposed plant. The investment is included in “Other assets” in the

17


Denbury Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unaudited Condensed Consolidated Balance Sheet as of September 30, 2022. We have committed to invest another $10 million when certain project milestones are achieved.

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 example, average NYMEX WTI oil prices increased from the mid-$70s per Bbl range in the fourth quarter of 2021 to an average of approximately $109 per Bbl during the second quarter of 2022 before declining to an average of approximately $91 per Bbl during the third quarter of 2022. The increases in oil prices from 2021 levels were due in part to worldwide oil supply disruptions associated with the Russian invasion of Ukraine.

The table below outlines selected financial items and sales volumes, along with changes in our realized oil prices, before and after commodity derivative impacts, for our most recent comparative quarterly periods:
Three Months Ended
In thousands, except per-unit dataSept. 30, 2022June 30, 2022March 31, 2022Dec. 31, 2021Sept. 30, 2021
Oil, natural gas, and related product sales$395,223 $451,970 $384,911 $333,348 $308,454 
Payment on settlements of commodity derivatives(55,780)(127,959)(93,057)(97,774)(77,670)
Oil, natural gas, and related product sales and commodity derivative settlements, combined$339,443 $324,011 $291,854 $235,574 $230,784 
Average daily sales (BOE/d)47,109 $46,561 46,925 48,882 49,682 
Average net realized oil prices   
Oil price per Bbl - excluding impact of derivative settlements$92.77 $108.81 $93.17 $75.68 $68.88 
Oil price per Bbl - including impact of derivative settlements79.49 77.6370.4353.21 51.35 

As shown in the table above, our oil and natural gas revenues have increased dramatically during 2022 due to the increase in oil prices. However, the benefit of the increase in revenues during the first half of 2022 was offset in part by the impact of higher cash payments on our commodity derivative contracts which were settled during that period. These contracts were largely required to be entered into during the fourth quarter of 2020 under the one-time requirement of our September 18, 2020 bank credit facility. During the third quarter of 2022, less of our production was hedged, and our hedges for the second half of 2022 are at more favorable prices and with a greater mix of collars, providing the potential for us to realize a greater portion of increased oil prices. We paid $55.8 million during the third quarter of 2022 related to the expiration of commodity derivative contracts and expect to make additional payments on the settlement of our contracts expiring during the remainder of 2022.

Third Quarter 2022 Financial Results and Highlights. We recognized net income of $250.4 million, or $4.66 per diluted common share, during the third quarter of 2022, compared to a net income of $82.7 million, or $1.51 per diluted common share, during the third quarter of 2021. The primary drivers of the comparative third quarter operating results include the following:

Oil and natural gas revenues increased $86.8 million (28%) due primarily to an increase in oil prices;
Commodity derivatives expense decreased by $151.0 million consisting of a $129.1 million increase in noncash fair value changes ($165.0 million gain during the third quarter of 2022 compared to a $35.9 million gain in the prior-year period), and a $21.9 million decrease in cash payments upon derivative contract settlements;

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Denbury Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Lease operating expenses increased $17.9 million (15%), primarily due to higher power and fuel costs and workover costs; and
Income tax expense increased by $40.9 million.

Common Share Repurchase Program. In early 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. In August 2022, the Board increased Denbury’s stock repurchase authorization by $100 million, thus a total of $250 million of common stock currently remains authorized for future repurchases under this program. The program has no pre-established ending date and may be suspended or discontinued at any time. The Company is not obligated to repurchase any dollar amount or specific number of shares of its common stock under the program.

Commencement of Cedar Creek Anticline CO2 Injection. In early February 2022, we commenced CO2 injection in the first phase of our CCA EOR project. In order to stay ahead of potential supply chain delays, we have increased capital investment in the second half of the year at CCA to accelerate our procurement of compression equipment and construction of CO2 recycle facilities to ensure facilities are in place to handle anticipated production from the field. We continue to expect tertiary oil production response from CCA in the second half of 2023. In addition, drilling and facility construction at the Company’s Pennel CO2 pilot, in advance of Phase 2 development of CCA, commenced during the third quarter.

Warrant Exercises. In September 2020 we issued 2,631,579 Series A warrants with an exercise price of $32.59 per share and 2,894,740 Series B warrants with an exercise price of $35.41 per share. The warrants may be exercised for cash or on a cashless basis. The Series A warrants are exercisable until September 18, 2025, and the Series B warrants are exercisable until September 18, 2023, at which times the warrants expire. During the three and nine months ended September 30, 2022, 119,367 and 1,941,380 of Series A and B warrants were exercised for a total of 71,440 shares and 1,073,004 shares, respectively, most of which were exercised on a cashless basis. At September 30, 2022, the Company had approximately 3.2 million warrants outstanding, 1.8 million of Series A and 1.4 million of Series B, which represents approximately 58.7% of the aggregate Series A and B warrants issued in September 2020.


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. As of September 30, 2022, we had $15.0 million of outstanding borrowings and $11.4 million of outstanding letters of credit under our $750 million senior secured bank credit facility, leaving us with $723.6 million of borrowing base availability and approximately $724.1 million of total liquidity including our cash position at September 30, 2022. This liquidity is more than adequate to meet our currently planned operating and capital needs.

Nine Months Ended September 2022 Sources and Uses of Cash Flow. During the nine months ended September 30, 2022, we generated cash flows from operations of $396.4 million, while utilizing net cash of $288.0 million in investing activities, primarily related to oil and gas and CCUS, and utilizing net cash of $110.6 million in financing activities, $