Broader tax breaks in the recently enacted Inflation Reduction Act of 2022 (IRA) will entice more sectors of the U.S. economy to embrace carbon sequestration, according to Denbury Inc.
The independent, a carbon dioxide (CO2) pipeline and enhanced oil recovery specialist, is positioning itself for anticipated market growth, management said during the recent second quarter earnings call.
“I mean, number one, I think that you will see a lot of new industry coming in and just the total market getting much bigger,” Denbury’s CEO Chris Kendall told analysts.
The far reaching legislation became law shortly after the Plano, TX-based producer reported 2Q2022 earnings. A major IRA provision is the expansion of Internal Revenue Service Section 45Q tax credits for carbon capture, utilization and storage (CCUS).
Kendall said management is “excited” about the IRA, which would raise 45Q credits “up into a level that can really start to get into cement and steel and natural gas power, among many others.”
He added that “to me, the big win is that you incentivize the additional capture. But, secondarily, there is a bigger pie” in terms of CCUS market size. When you think about…the country wanting to make a big difference in our decarbonization, this is the path to get there.”
Potential Louisiana Projects
Reflecting greater anticipated CCUS demand, Denbury in July signed a lease for an 18,000-acre site near Donaldsonville, LA, for future CO2 storage within the “emissions-intensive” industrial corridor, management said.
“With multiple ongoing industrial customer negotiations, we remain on track to substantially exceed our 2022 goals for CO2 offtake,” said Kendall. “Our proven track record in providing highly reliable CO2 transportation and secure underground injection, combined with our ideally-placed infrastructure, is unmatched in the industry and positions us well for continued success and growth in CCUS.”
Earlier this year Denbury signed a preliminary CO2 transport and storage deal for a potential Nutrien Ltd. “CCUS-enabled clean ammonia” project in Geismar, LA.
Denbury, whose operations span the Gulf Coast and Rocky Mountain regions, reported 2Q2022 oil sales of 45,104 b/d, compared with 47,653 b/d year/year. Natural gas output also edged downward from the year-ago period, from 8.9 MMcf/d in 2Q2021 to 8.7 MMcf/d.
The company’s average realized oil price was $108.81/bbl for oil in 2Q2022, up from $64.70 in 2Q2021. For natural gas the realized price was $6.76/Mcf in 2Q2022, compared with $2.64 year/year.
Capital spending earmarked for oil and natural gas development was $86 million in 2Q2022, compared with $143.9 million from the year-ago level. CCUS-related expenditures for storage sites and related assets totaled about $3 million for 2Q2022; Denbury’s financials show no CCUS capital spending for 2Q2021 but $23.4 million in outlays for the first half of this year.
Net income for 2Q2022 was $155.5 million ($3.00/share), swinging from a $77.7 million loss (minus $1.52) year/year. Revenues totaled $482 million, up from $301.4 million in 2Q2021.