However, the business model for a standalone CCUS business model is still relatively nascent, requiring hundreds of millions of dollars of investment and years before it could potentially reach cash flow sustainability separate from oil production activities. There’s already much in place now with 1,300 miles of pipeline and ten onshore sequestration sites, which was attractive to Exxon. However, things like the growth of offtake agreements, Section 45Q tax incentives (which I wrote about last year), and carbon storage contracts are not expected to generate net positive income for Denbury until several years in the future.

Nonetheless, this developmental potential and strategic location in the Gulf region have significantly contributed to Denbury’s stock price and Exxon’s interest. How much the CCUS is contributing to Denbury’s value is uncertain. But in an interesting article published a few days ago, Hart Energy interviewed Andrew Dittmar, a Director at Enverus, who estimated that (effectively) about 62% of Denbury’s value was based on their CCUS business.

In the meantime, Denbury’s upstream enhanced oil recovery (EOR) business has been pulling the income statement’s performance along. Nearly all profits for Denbury are generated through this business line. However, compared to other public upstream companies, Denbury’s profitability is comparably lower, production is smaller, and production costs are higher. This is not a recipe for high comparative valuations, certainly not over $100 thousand per flowing barrel, which only the likes of Exxon and Chevron imply. (While we’re on the topic of segments, it is not a clean comparison either since Exxon and Chevron are two integrated companies with many segments that contribute to their values too).

Denbury is primarily a regional oil producer with less than 50 thousand barrels per day of production and EBITDA margins lower than many public oil companies. To its credit, Denbury does have lower decline rates than other companies due to the maturity of the fields they produce from. However, the flip side is that it costs $35-$39 per barrel to produce. Those are expensive lease operating costs when many companies operate somewhere in the teens per barrel. All that said, Enverus’s estimate in their Hart Energy interview was that the EOR business contributed about 38% of Denbury’s value.

So, if Enverus’s analysis is to be applied here, that would put an adjusted value on Denbury’s production at around $39,000 per barrel and an adjusted value per pipeline mile of around $2.3 million. Take a look at these “adjusted” figures: