Basis of Presentation

6 Months Ended

Jun. 30, 2022

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 June 30, 2022, our consolidated results of operations for the three and six months ended June 30, 2022 and 2021, our consolidated cash flows for the six months ended June 30, 2022 and 2021, and our consolidated statements of changes in stockholders’ equity for the three and six months ended June 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 thousands	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	517	$	3,671

Restricted cash for future asset retirement obligations	46,869		46,673
Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statements of Cash Flows	$	47,386	$	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

average common shares outstanding until the vesting date. Basic weighted average common shares during the three and six months ended June 30, 2022 includes 1,404,649 performance-based and restricted stock units which are fully vested as of June 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, and series A and series B warrants.

For each of the three and six months ended June 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 Ended		Six Months Ended
	June 30,		June 30,
In thousands	2022	2021	2022	2021







Weighted average common shares outstanding – basic	51,757	50,999	51,680	50,661
Effect of potentially dilutive securities
Restricted stock, restricted stock units and performance stock units	603	—	591	—

Warrants	2,526	—	2,660	—
Weighted average common shares outstanding – diluted	54,886	50,999	54,931	50,661

For the three and six months ended June 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 net losses each period. Assuming the Company had recorded net income during the three and six months ended June 30, 2021, the weighted average diluted shares outstanding would have been 54.3 million (including the impact of 0.8 million restricted stock units and 2.4 million shares with respect to warrants) and 52.7 million (including the impact of 0.6 million restricted stock units and 1.4 million shares with respect to warrants), respectively.

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:


	June 30,
In thousands	2022	2021
Restricted stock, restricted stock units and performance stock units	124	1,255

Warrants	—	5,503

At June 30, 2022, the Company had approximately 3.4 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 1.6 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 six months ended June 30, 2022, 1,796,237 and 1,822,013 warrants were exercised for a total of 987,411 shares and 1,001,564 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 (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 six months ended June 30, 2022.

CCUS Storage Sites and Related Assets

Capitalized Costs. We capitalize various 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 a storage site is no longer deemed probable of being developed, all previously capitalized costs are expensed.

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