DNR Earnings CC and the comments on the 45Q Tax Credit. Extremely positive for DNR.
Comments below were extracted from CEO Chris Kendall at the conference call.
I did not see it commented anywhere in spite of the very positive potential impact for DNR. I am not sure I understand the very short term effect on DNR once the last outstanding issues are clarified with IRS.
I guess this 35$/Ton of CO2 injected tax credit will apply only to new projects otherwise it would have an immediate effect of over 100 millions tax credit for DNR.
But even if it is only for new projects, the profitability of their new projects would increase very significantly.
This may be the other reason why they have decided to postpone by a few months their major new EOR investment for a capex of approximately 150 millions $. The first reason being the volatility of the market.
" In any case the reading of the transcript is very interesting. I extracted below what is specific to this 45Q tax credit but the rest of the transcript is also very interesting. The management seems to really develop a very sound and prudent strategy with 70% of the procustion in 2020 hedged at above 60$.
At the price where it is now, seems to be a no-brainer.
Denbury is uniquely well positioned to be a meaningful part of this CO2 solution. Our current EOR business already makes a significant impact, injecting over three million metric tons of industrial CO2 per year. This is equivalent to taking 700,000 cars off the road. We see our impact growing significantly, as more captured industrial CO2 becomes available. Equally exciting is the emerging carbon capture use and storage business or CCUS, where industrial CO2 is captured and is not necessarily only used for EOR, but may also be stored in non-hydrocarbon underground reservoirs. Denbury is uniquely qualified to become a leader in this business, both through our expertise and our assets.
On the technical side, our staff has experienced in the unique challenges of handling CO2 and ensuring that it is safely contained in underground reservoirs. Our in-house 4D seismic expertise is a powerful advantage that we have refined over two decades of EOR operations, helping us frequently monitor how CO2 is moving in reservoirs, a vital step in ensuring that CO2 remains effectively sequestered after injection.
Denbury's assets are perfectly situated for CCUS. In particular, our Gulf Coast pipeline system was strategically located to be close to both current and expected industrial CO2 sources along the Gulf Coast and our 24-inch CO2 pipeline through Louisiana and Southeast Texas has the capacity of transporting at least 20 million tons of CO2 per year from industrial sources to sequestration reservoirs while generating significant and sustained cash flow.
Because CO2 EOR and CCUS are both highly impactful solutions to reducing CO2 emissions, they receive broad and bipartisan support from the U.S. and local governments. And recent steps by the U.S. government further demonstrate that support through the expanded and extended 45Q tax credit.
When this tax credit was enacted in 2018, it provided for a credit of $35 per ton for CO2 captured for EOR use and $50 per ton for that captured and placed in non-EOR sequestration. Lack of clarity and other provisions of the original tax credit did not spur significant CCUS investment, but Denbury and many others have been working with other stakeholders to improve and clarify 45Q to where it can be a useful incentive for investment in this critical effort.
I'm excited to say that I see very good recent progress on this front. Earlier this month, the IRS provided clarity on two key outstanding provisions and we expect the remaining outstanding items to be clarified in the near future.
Once this clarity is finalized, I believe that a very exciting new business opportunity will rapidly emerge. I expect that multiple new capture projects will be sanctioned both along the Gulf Coast and across the U.S. The opportunity to provide a full capture solution receiving captured CO2 from industrial emitters then safely and efficiently transporting it to storage sites, injecting it into those reservoirs and monitoring its placement will be a necessary and valuable service. I believe Denbury can quickly become a leader in this evolving new area, providing new opportunities to expand our future growth potential."