Basis of Presentation

6 Months Ended

Jun. 30, 2023

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.

Proposed Merger of the Company with Exxon Mobil Corporation. On July 13, 2023, we entered into a definitive merger agreement (“Merger Agreement”) with Exxon Mobil Corporation (“ExxonMobil”), providing for Denbury to merge with a wholly owned subsidiary of ExxonMobil (the “Merger”) and survive as a wholly owned subsidiary of ExxonMobil. Under the terms of the Merger Agreement, each issued and outstanding share of our common stock (other than certain excluded shares held by us as treasury stock or owned by ExxonMobil or its merger subsidiary), par value $0.001 per share, will be converted into the right to receive 0.84 shares of ExxonMobil common stock, without par value (the “Exchange Ratio”).  Completion of the Merger remains subject to certain conditions, including the approval of the Merger by our stockholders, as well as certain governmental and regulatory approvals.  The Merger is currently expected to close in the fourth quarter of 2023; however, no assurance can be given as to when, or if, the Merger will occur.

In connection with the Merger, any Company restricted stock awards, deferred stock awards, and performance shares that are outstanding immediately prior to completion of the Merger will generally become vested and converted into the right to receive shares of ExxonMobil common stock based on the Exchange Ratio. Any unexercised Series A warrants remaining at the closing date will be canceled for no consideration in accordance with the terms of the underlying warrant agreements. In order for the shares of Denbury common stock underlying the warrants to be converted into the right to receive shares of ExxonMobil common stock in the Merger, the holders must exercise their warrants in accordance with the time periods and under the terms specified in the applicable warrant agreement to receive shares of Denbury common stock prior to the closing of the Merger.

The Merger Agreement contains termination rights for each of the Company and ExxonMobil, including, among others: (1) if the consummation of the Merger does not occur on or before July 13, 2024 (the “End Date”); except that if the effective time of the Merger has not occurred by July 13, 2024 due to the fact that all required applicable regulatory approvals have not been obtained on acceptable terms but all other conditions to closing have been satisfied (other than those conditions that by their terms are to be satisfied at the closing, each of which is capable of being satisfied) or (to the extent permitted by law) waived, the End Date may be extended by either party to January 13, 2025; (2) subject to certain conditions, if the Company wishes to terminate the Merger Agreement to enter into a definitive agreement with respect to a Superior Proposal; and (3) subject to certain conditions, if ExxonMobil wishes to terminate the Merger Agreement upon the occurrence of a Specified Pipeline Event. Upon termination of the Merger Agreement under specified circumstances, including, among others, the termination by ExxonMobil in the event of a change of recommendation by the Board of Directors of the Company or by the Company in order to enter into a definitive agreement with respect to a Superior Proposal, the Company would be required to pay ExxonMobil a termination fee of $144,000,000. In addition, upon termination of the Merger Agreement by ExxonMobil due to the occurrence of a Specified Pipeline Event, ExxonMobil would be required to pay the Company a reverse termination fee of $144,000,000.

The above description of the Merger Agreement and the transactions contemplated thereby, including certain referenced terms, is a summary of certain principal terms and conditions contained in the Merger Agreement.

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 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 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, 2023, our consolidated results of operations for the three and six months ended June 30, 2023 and 2022, our consolidated cash flows for the six months ended June 30, 2023 and 2022, and our consolidated statements of changes in stockholders’ equity for the three and six months ended June 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 thousands	June 30, 2023		June 30, 2022
Cash and cash equivalents	$	531	$	517

Restricted cash for future asset retirement obligations	48,405		46,869
Total cash, cash equivalents, and restricted cash shown in the Unaudited Condensed Consolidated Statements of Cash Flows	$	48,936	$	47,386

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 per Common Share

Basic net income per common share is computed by dividing the net income 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 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, 2023 includes 1,775,182 performance-based and restricted stock units which are fully vested as of June 30, 2023; however, the shares underlying these awards 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 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 six months ended June 30, 2023 and 2022, there were no adjustments to net income for purposes of calculating basic and diluted net income per common share.

The following table sets forth the weighted average shares used for purposes of calculating basic and diluted net income per common share for the periods indicated:


	Three Months Ended		Six Months Ended
	June 30,		June 30,
In thousands	2023	2022	2023	2022







Weighted average common shares outstanding – basic	51,817	51,757	51,661	51,680
Effect of potentially dilutive securities
Restricted stock, restricted stock units and performance stock units	475	603	418	591

Warrants	1,706	2,526	1,802	2,660
Employee Stock Purchase Plan	1	—	1	—
Weighted average common shares outstanding – diluted	53,999	54,886	53,882	54,931

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 per share for the six months ended June 30, 2023 and June 30, 2022, as their effect would have been antidilutive, as of the respective dates:


	June 30,
In thousands	2023	2022
Restricted stock, restricted stock units and performance stock units (1)	5	191

(1) Antidilutive shares for the six-month periods ended June 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 June 30, 2022 have been revised to be consistent with the current year presentation.

At June 30, 2023, the Company had 2.6 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 0.8 million Series B warrants outstanding. The warrants may be exercised for cash or on a cashless basis. The Series A warrants are exercisable until the earliest of (1) September 18, 2025, (2) the date of consummation of a Sale Transaction (as defined in the applicable warrant agreement), and (3) a Winding Up (as defined in the applicable warrant agreement), at which time the Series A warrants expire. The Series B warrants are exercisable until the earliest of (1) September 18, 2023, (2) the date of consummation of a Sale Transaction (as defined in the applicable warrant agreement), and (3) a Winding Up (as defined in the applicable warrant agreement), at which times the Series B warrants expire. Through June 30, 2023, a total of 0.9 million Series A warrants and a total of 2.1 million Series B warrants have been exercised for a total of 1.7 million shares, most of which were exercised on a cashless basis. During July 2023, 0.6 million Series A warrants were exercised resulting in the issuance of 0.4 million shares, leaving 1.2 million Series A warrants outstanding as of July 31, 2023. If the Merger with ExxonMobil is consummated, any unexercised warrants remaining at the closing date will be canceled for no consideration in accordance with the terms of the underlying warrant agreements. In order for the shares of Denbury common stock underlying the warrants to be converted into the right to receive shares of ExxonMobil common stock in the Merger, the holders must exercise their warrants in accordance with the time periods and under the terms specified in the applicable warrant agreement to receive shares of Denbury common stock prior to the closing 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 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 six months ended June 30, 2023 or June 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 Sheet as of June 30, 2023. We evaluate our equity method investments for other-than temporary impairment on a periodic basis.