Denbury Inc (DEN) 2022 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Denbury's Third Quarter 2022 Results Conference Call. My name is Glenn, and I will be your moderator for today's call. (Operator Instructions) I would now like to turn the conference call over to your host for today's call, Brad Whitmarsh, Head of Investor Relations. Please proceed, sir.

Good morning, everyone, and thank you for joining us today. Over the last week, we've issued 3 news releases: 2 announcing significant CCUS agreements, and this morning, our Q3 earnings release. I hope you've had a chance to review them all in the supporting earnings materials that are available on our website at denbury.com. Results for the third quarter were very strong as we generated strong cash flow again above expectations.

I want to remind everyone that today's call will include forward-looking statements that are based on our best and most reasonable information. There are numerous factors that could cause actual results to differ materially from what is discussed on today's call. You can read our full disclosures on forward-looking statements and the risk factors associated with our business in the slides accompanying today's presentation, our most recent SEC filings and today's news release.

Also, please note that during the course of today's call, we may reference certain non-GAAP measures. Reconciliation and disclosure relative to these measures is provided in today's earnings release as well.

This morning, our prepared comments will come from Chris Kendall, President and CEO; Mark Allen, CFO; David Sheppard, COO; Nik Wood, SVP of Carbon Solutions; and Matt Dahan, SVP of Carbon Solutions; and Matt Dahan, SVP of Business Development and Technology, are all here to participate in the Q&A.

With that, I'll turn the call over to Chris.

Thanks, Brad, and good morning. It's hard to believe we are already in November and closing in on the end of 2022. As we begin the year, I mentioned that I believe this would be a transformational year for Denbury. And looking back now, I may have underestimated just how impactful 2022 could be.

This morning, I'll begin with a brief overview of the quarter and our outlook for the remainder of the year, then I'll touch on some business highlights, and we'll finish by opening the call for questions.

Starting with the quarter and our outlook. First and foremost, we've continued to keep our people safe. Our teams are doing a fantastic job of nurturing our great safety culture and we are tracking very well with last year's record low safety metrics, a testament to the sustained efforts of our team. We delivered robust financial and operating results in the third quarter, with $156 million in operating cash flow and slightly better-than-expected sales volumes in both the Gulf Coast and Rocky Mountain regions. Our development projects at Soso and Beaver Creek, along with growing EOR response at Grieve, were key drivers of this outperformance.

Fourth quarter production should be somewhat higher than the third quarter, putting us close to the midpoint of our original full year guidance, and we expect to enter 2023 with strong momentum. Due to supply chain challenges, some of our capital projects were pushed to the fourth quarter, but we still expect to be close to our full year capital guidance. We currently have 3 drilling rigs and 36 workover rigs operating across the company, the highest level of rig activity we've had in many years.

Through the first 9 months of this year, we've generated $153 million in free cash after development capital. Consistent with what we've said before, in addition to maintaining a top-tier balance sheet, our priorities on capital allocation are: first, to support our EOR operations and develop our significant EOR resource at CCA; second, to fully fund the capital needs of the CCUS business, which we expect to grow over the next several years as we build out CO2 storage sites and expand our pipeline network; and third, as strong oil prices provide additional cash flow beyond our anticipated near-term needs, we plan to return capital to our shareholders just as we've done this year.

About 2/3 of the free cash we have generated this year has been allocated to our share repurchase program, with the remaining 1/3 split evenly between debt reduction and abandonment activities in our more mature fields.

Our major EOR project at Cedar Creek Anticline continues to progress nicely, and first oil from that project is expected in less than a year. To handle that production, installation of the first 2 CO2 recycle facilities is in progress and expected to be completed in the first half of 2023. We've been focused on bringing EOR to the incredible CCA resource for a long time now, and it's very exciting to be so close to first oil there. Denbury's EOR business is fundamental to the execution of our CCUS vision, providing the financial, technical and operational capacity for us to grow substantially in CCUS.

Turning to our CCUS activity. We have made tremendous progress on the commercialization of our CCUS business. Earlier this week, we announced our participation with clean hydrogen works and the largest planned blue ammonia complex in the U.S., the Ascension Clean Energy, or ACE project. The ACE project is massive, projected to ultimately produce over 7 million tons of blue ammonia annually. It is expected to capture 6 million tons of CO2 annually by the end of 2027, with plans to expand to 12 million tons shortly thereafter, all of which will be transported and stored by Denbury.

The ACE facility location along the Mississippi River is ideal for exporting ammonia and is less than 2 miles from our CO2 pipeline. With the land secured and initial offtake agreements in place supporting 75% of the planned ammonia production, we feel very good about this project.

We're also excited to continue working with Lake Charles Methanol, whose innovative project is designed to capture 1 million tons of CO2 per year beginning in 2027, while producing nearly 4 million tons per year of blue methanol. In connection with this new agreement, we plan to extend our pipeline network into a heavy industrial area near Lake Charles, with both a high concentration of existing CO2 emissions, which we estimated over 20 million tons per year, and strong potential for new build projects that would benefit from nearby CO2 infrastructure.

Our recent agreements highlight the incredible benefits of our Gulf Coast network, beginning with the certainty of a 900-mile CO2 pipeline system that is in place and in service today, our customers are joining a unique expansive network, with unmatched reliability and flexibility for transporting CO2 and storing that CO2. The network effect, originating with a broad reach of our Gulf Coast pipeline system, supplemented by more than a dozen EOR injection locations and multiple strategically located sequestration locations, allows us to amplify the capacity of this system far beyond the nameplate capacity.

As an example, for the ACE project, we expect to have at least 5 options, including 2 nearby planned sequestration sites that are already secured for moving the 12 million tons of annually captured CO2 emissions from the plant. Several of these options would use little, if any, capacity on the existing pipelines. It's this network effect that generates massive scale, while providing our customers with unbeatable reliability.

You'll recall that for 2022, we set a target to execute CO2 offtake agreements totaling a cumulative 10 million metric tons per year, along with pore space agreements totaling a cumulative 1.2 billion metric tons. With our recent announcements, we now have 20 million metric tons per year under various offtake agreements, double our goal for the year, and we've executed pore space agreements for over 1.5 billion tons, significantly above our annual goal. And our build-out of the CCUS business is just getting started.

By the end of this year, we expect to start drilling the first well in our stratigraphic test well program supporting our EPA Class VI permitting process and we have multiple additional offtake and pore space agreements in detailed negotiations with new opportunities arising every week. The recent increase in 45Q CCUS tax incentives opens up even more carbon capture opportunities in a number of industries that were not previously economic, including cement, steel, certain power generation, industrial heat and others. And with those new capture opportunities, we see a significant expansion of the potential market. A market that was already very exciting even before the 45Q increases.

It's a very exciting time at Denbury. Our EOR business is generating strong cash flow, we have virtually no debt on our balance sheet and our CCA EOR project is progressing nicely toward first production. At the same time, we are making rapid progress towards building an industry-leading CCUS business. I continue to believe that this company is in the right place at the right time, perfectly positioned to lead in the challenge of delivering the energy we all need today while decarbonizing the future.

Thanks again for joining us today, and we'll now open the call for your questions.

(Operator Instructions) We have our first question comes from Tim Rezvan from KeyBanc Capital Markets.

It sounds like it's been a pretty calm quarter for everybody. My first question, it's almost more of a request. All of us here in the investment community, we've been grasping at straws trying to really understand the value proposition of the CCUS business. And for media reports, it sounds like other entities may be trying to do the same thing. Now that you've more than doubled that threshold, your 20 million tons per annum of agreements in place, when or how do you plan to pull back the curtain a little bit on kind of economics to help investors sort of appreciate the embedded value of CCUS?

And certainly, I agree with you that the build-out of this business is something that deserved to be shared more broadly with our investors and with analysts. And that's something that we're working towards. And as you mentioned, we're now at a point where we have a decent scale that we think is one of the steps that we needed to get to, to be at a point where we could actually come out and hold an event like that. So we're in the process of planning that right now. We haven't set a date yet, and when we do, we'll be sure to share that.

One thing I'd say along the way is that we do plan at this point specifically to focus on the CCUS business. We think the broader business needs to wait for the budget cycle and approval by our Board. And so I'd look more for outlook on our business on the EOR side when we get to our fourth quarter earnings in February. But we're working right now towards the CCUS piece, and we'll let you and others know as soon as we're ready to schedule that.

Okay. That's good to know. And then I guess second question is a bit underappreciated or not discussed as much these days, but Cedar Creek Anticline is a massive project. I know it's taken new years to get to this point. You took color here in the release and the slide deck about starting work on Phase 2 already. So clearly, you're encouraged by what you're seeing. Are you willing at this point to kind of give any more color on sort of the capital that project will need over the next couple of years? And what sort of production response you might see from Phase 1 and 2 as we look over the medium term?

Tim, this is David Sheppard. I'll take that question. Yes, thanks for calling out CCA. It's just a great assets for us and really excited about the EOR potential that is becoming a reality soon there as we continue to anticipate our production response in that second half of 2023 from Phase 1 specific. You asked about Phase 2 in particular, we have a drilling rig actively working in our CCA field right now, had just wrapped up operations drilling the pilot well that is going to test Phase 2 there.

So there'll be a couple of wells involved with that and an injector producer, we'll install recycle facilities there in that project. I think midyear 2023 time frame, we'll begin injection, see how that responds. And those results are really going to custom tailor how we plan to flood Phase 2. It's a big resource, though. If you recall, it's a 100 million-barrel target compared to the 30 million-barrel target in our Phase 1 that is currently under flood there.

So really excited with what we're seeing right now in Phase 1. Injection has been ongoing since February. We're 9 months into that. Now there are some learnings that are coming out of that. We're making some adjustments. We've accelerated some capital into 2022 and 2023 as we want to accelerate our recycle facilities and manage some of the supply chain impacts that are out there.

Now I definitely don't want to anchor in on any capital projections just yet. As Chris has said, we're working those plans right now, and we'll be looking to roll those out more in that February time frame during our fourth quarter earnings update.

Thanks, David. And Tim, I'd just add on there just how great it is to actually be working EOR at this asset right now and just the panorama of opportunities that it opens up with Phase 1 and working through that right now, as David said, and then having Phase 2 with the resource right behind it, it's -- we've gone many years where we're not starting up new floods. And so it's very exciting for several reasons, but a lot to come in the future on that.

We have our next question that comes from Nate Pendleton from Stifel.

My first question, maybe for Nik, regarding your network of sequestration sites, can you speak to where your projects stand on the Class VI permit submissions? And regarding the upcoming stratigraphic well test, is there any indication when you'll be able to share those results and if that well is designed to be converted to a Class VI injection well over time?

Yes. Thanks for the question. So the Class VI process is going great on all our sequestration sites. We're progressing all the sites that we're operating right now. Expect to see a first completed permit application submittal in the very near future. The stratigraphic well test, we expect to spud in December. We expect to see results from that in the first couple of months. We'll probably give some details on that in the first quarter earnings. So we expect to have good results there, and we will continue to drill stratigraphic wells in sequence on our additional sites as they come up.

And then just -- what I'd add to that, Nate, just the utilization of those wells. We would likely construct those wells, so that they would have some future utility in the site, whether it's as an injector or as a monitor well. We see that expenditure is something that will pay off in the development of the field as well.

Great. I appreciate the detail. As my follow-up, regarding the continued strong results from Grieve using enhanced CO2 flood design on Slide 6, can you speak to what those enhancements are and whether that approach can be applied to other fields?

Yes, Nate, this is Matt Dahan. Yes, Grieve is really taken off for us. We're very happy about what's taking place there with more potential to come. Basically, what we did is we reconfigured injection and putting CO2 at the bottom as to the top. And that's really -- it's really specific to given reservoir. So does it apply to other places? Yes, but not everywhere.

We have our next question comes from Charles Meade from Johnson Rice.

Chris, I wanted -- this is kind of a big picture question. As I look back at you guys and your stock price over the last year, I mean, you guys have -- I mean, you've made the point, you've doubled your targets on what you guys were going to do for sequestration or capture deals over the course of '22. You've seen new kinds of deals. You've hit a lot of great milestones. But at the same time, it seems like a lot of the value that the market was putting in your shares for the CCUS deal has diminished. And that's even after whatever we doubled the 45Q.

And so can you just give -- share some of your thoughts about how you and the Board are thinking about the right structure or the right setting for the CCUS business long term? I mean, it's, for now, what's really intimately tied to your EOR, and it probably will be for the next several years. But how are you and the Board dealing with that? What I imagine is kind of a unsatisfactory response in the share price to the accomplishments you guys have made to date.

Sure, Charles. So the first thing I'd say, when I think about our share price, is it something that we can't control and it's going to change over time with the market? And so what we think about is just how can we continue to drive value in this company and how the share price eventually reflect that.

Now when it does get out of sync, like you suggested, that's where we put in the share repurchase program, and it gave us an opportunity to buy shares, honestly, well below where they are today. And I think we did a good thing there. And certainly, in the future, there will be a potential for that as well as the Board's authorized us to do even more.

But honestly, what we see is that we will continue to drive this business. There are many, many more opportunities beyond what we've announced already, and we're thrilled with what we've announced already. But we believe this business will be huge, and we're going to keep working toward making it huge.

When you talk about structure, along the way, we will continue to evaluate how do we set up the company in the way to attract the best investments out there. And along the way, there could be a potential to create a separately investable entity for CCUS. But we're not quite ready to do that yet. We want to continue building this, and I think most investors can look through the combination of the 2 businesses and see the composite value and just see the incredible opportunity there.

Got it. That's helpful. That's helpful, Chris. And it's going to be a bone -- well, I guess we all have to -- we're all going to have to gnaw on for a while.

But second question, and this is more specifically -- specific to 4Q and what it means for '23. So it makes sense that you had some -- basically, the CapEx rate for 4Q makes sense if you had some projects slip from 3Q into 4Q. Is the 4Q CapEx rate a good indication for what the quarterly run rate will be in '23?

Probably not, Charles. We have a lot of activity right now, some of which was pushed a bit just because of availability of equipment and services. And so that gives us a pretty heavy 4Q. So I don't necessarily think that's a good number going forward. Of course, we're going to get through our whole planning process for next year and roll that out at the right time.

But just what we see here right now is David has 3 rigs working and a lot of activities that are going to drive some nice production from those type of wells, like he's drilling at Mission Canyon up in the North or at Webster in the Gulf Coast. So that program will deliver some results, but we don't necessarily intend to keep that level of rig activity going throughout next year.

That is a helpful detail, Chris. Is there someone else?

Yes. Charles, this is David. I was just going to add, too, as well that there are several key milestone payments associated with some of the recycled facilities in our Phase 1 CCA project as well that will provide some uplift in that fourth quarter. We don't expect that to continue on.

We have our next question comes from Brian Velie from Capital One.

A couple of quick questions on the CCUS business. I'm trying to better understand how the network effect amplifies nameplate capacity for the CO2 pipe. I know the stated capacity, or I believe the stated capacity for Green Pipeline is $16 million per year. I also know, based on comments from you guys last year that there are ways to double or even triple that with relatively modest CapEx, I guess. Can you walk me through those opportunities to expand stated capacity of the pipe? And am I right to think that, that capacity could be significantly higher than the $16 million?

You're absolutely right. And so there's a couple of things that I described that should help with that, Brian. The first is just -- I think of it as analogous to a subway where you have people getting on a subway and going to the next stop, and people getting on at the next stop. But that you don't need to have people riding the subway from one end to the other. And as a result, you can have multiples of how many people you could actually fit in the train at any point in time. And the same applies for us. It's just instead of subway stops, it is where emissions are sourced and they come on to the system, and where they are stored and come off of the system. So that in itself allows us to amplify the capacity without really doing anything to the system.

But going even further, I'll just give you an example of our plans for the massive storage site we have that's East of New Orleans, is there would be ultimately a pipeline connection from near the junction of the Green Line and the NEJD that will be able to draw emissions to the east. And that would be a new line. And it in itself, we can see a capacity of up to 25 million tons a year or so. That's not even on the system that you think about right now anyhow. And so that's new. And that adds capacity, but it does at the same time as having the redundancy of still being connected to that system to provide you with the optionality to do other things along the way.

We can do that same thing in several locations. We can draw CO2 up into Mississippi. And as we look further west, we can do the same thing in other parts of Louisiana and Texas. So doing all of that just amplifies what we can move on the whole system. Again, we don't need to move a molecule of CO2 from one end to the other.

The last thing I'd point out on that, Brian, that I think is important is the fungibility of CO2 in this system. Just as you'd have with green power, if you want green power to your home, there's not specific electrons of green power that are coming to your home. It's being allocated in a broad system. The same principle applies in CO2. So when we are moving CO2 in our system, we can use storage sites and EOR sites interchangeably as long as the overall system balances appropriately in line with the 45Q regulations.

So all of that combined lets you expand the system far, far beyond what you'd think just by looking at the capacity of 1 pipeline.

That's extremely helpful and exactly what I was trying to make sure that I understood is that nameplate capacity of this pipe has really nothing to do with the number of agreements or the size of agreements that you're aiming to sign up, and the 50 that you're already in negotiation on, I think, as of last quarter. So those 2 numbers are pretty independent. I wanted to be certain about that, but I appreciate the explanation. I like the subway analogy. That's all I got.

Our next question comes from Sam Burwell from Jefferies.

First off, congrats on winning the offtake from the ACE project, obviously, a very large number that doubles your target. But with a large project like that, seems like a large amount of CapEx is required to build it. So I'm just curious, what specific advantages of that project? And what characteristics give you the most confidence that, that capital can be funded? I mean, presumably, projects, debt financing will be available and even subsidized to a degree, but there's probably going to be some good amount of equity required on that. So just curious as to your take on how the project gets funded so that FID can be taken in 2024?

Sure. And I guess, Sam, what I'd start with is just by looking at the market potential for this clean ammonia or blue ammonia where the produced CO2 is captured and injected. When we look at the future utilization of that blue ammonia, this is not just for agricultural purposes. In fact, most of the growth that we see over the coming 30 years would actually be as a fuel or as a hydrogen carrier. And that fuel would be used in marine transportation, it would be co-fired with coal and power plants worldwide and it can be used as a hydrogen carrier where it can be moved more easily than hydrogen and then dissociated on the other end into its components providing hydrogen gas for some of these hydrogen hubs that we'd expect to see around the world.

Put it in perspective, about shy of 200 million tons a year today of ammonia demand could triple by mid-century. So that's huge numbers. So number one, we think there's a lot of demand for blue ammonia and the agreements that you've seen from us already in the last 2 years, whether it was with Mitsubishi, Nutrien or now Clean Hydrogen Works, are just a small fraction of what we think will be needed in the future. Now when we think about -- and so that gives the project itself a strong tailwind.

And when I think about your question of how do you -- how does the financing come together for this? To me, like any project, you're putting together the building blocks of a full project, you want to have the demand, you -- in this type of project, you want to have security on the CO2 offtake. And fortunately, we're able to provide that with a super close proximity to our pipeline system from where the project will be cited.

And then a key point on the tail end is offtake. And I think once you tick all those boxes and when you have offtake committed, then the financing is much easier to pull together, whether it's on the debt side or the equity side. And so what I'd expect that we'd see in the coming months here, Sam, is that, that will continue to progress. And just like so many of these clean energy investments, I think that there is an awful lot of capital chasing, good investments in clean energy. And we've been looking at this project now for upwards of a couple of years, and we're convinced it's a good project.

Got it. All certainly makes sense. And a good point on the uses of ammonia going forward, too. Sort of hit this in a way, I'm curious if you've had any discussions with industrial emitters who are thinking about retrofitting existing facilities and outfitting them with carbon capture? Because it seems like most of the announcements in terms of like blue ammonia, for instance, are new builds that like haven't been (inaudible) yet. So is there a demand that you've sensed from industrial emitters, who are looking to retrofit an existing facility and market are offtake to you guys?

This is Nik. I'll be answering this question. So yes, yes, we have. And we've actually already signed 1 agreement with a brownfield project is what we call them. It's a chemical plant in Louisiana. So our pipeline of projects includes a whole host of those brownfield projects coming up. It's a pretty fair split between brownfield development and greenfield development in terms of our portfolio of future projects that we're working on. They take a little longer to get to kind of the completion where they want to sign the agreement.

The reason is, is if you can kind of think of a brownfield development, it's kind of like remodeling your house versus building a new house. There's a few steps on the front end that have to take place on getting prepared to rearrange all the processes that are in place that are currently producing the products that are generating now to accommodate the capture process. So we remain highly engaged with our brownfield projects, great partners. We look forward to getting them to the finish line.

Our next question comes from Doug Leggate from BofA.

This is Clay on for Doug. My first question is for Chris, and I'd like to follow up on Tim's question. And now I'm not going to ask you to confirm any of your M&A intentions, but I do want to get your thoughts on something.

Based on your conversations, do you think that there is a meaningful gap between the understanding that strategic CCUS players have versus what the public investors have? And would that difference allows you to consider M&A without having a proper bogey out there on valuation?

Okay. Well, that's an interesting question. I guess what I'd say, first of all, we won't comment on these rumors and speculation. That's a starting point. When I think about just where this company is going, we are squarely focused on building massive value. We just think that what we are doing is unique, we think what we have is unique and our ability to put together projects like you've seen so far is something that Denbury can uniquely do in the scale that we think is needed in this business. So we're very excited about what we're doing with the business, and we're going to keep completely focused on driving ahead and building it as rapidly and as fully as we can.

I'm not quite sure I picked up the question on the bogey on the valuation there. It is something that I'd say, again, going off of Tim's earlier question, it's harder for the market to understand primarily just because it's so new. We're in a world that's very little sequestration, very little carbon capture is actually taking place in the world. Just putting it in perspective, the 20 million tons we have announced is equivalent to half of what's being done in the whole world today. So we have a long way to go, and we think that as we build it, it's important for us to educate the investors and the market and what this looks like, and it's dynamic for everybody and it's dynamic for the emitters, it's dynamic for all participants. And I think that it's something that we just have to work that as we go forward.

And certainly, though, what I'd say, Clay, is when we look at what we have in this business and what the potential is, we're extremely excited about it.

I appreciate that, Chris. Your passion for this business really comes across in that answer. My second question is, so -- and like in Exxon are also targeting projects in Louisiana, can you talk about maybe any partnership opportunities that you see between your systems given the scale of the CCUS opportunity? It's just hard to imagine that there would just be 1 player in that region.

It is hard to imagine that there would be just 1 player. And if you step back a bit and just think about what is the potential for CCUS, I talked quite a bit about ammonia, but I think CCUS, in general, can just be enormous. And at least what we see, I think in the United States that the volume of CO2 that will ultimately be moved will be larger than the 12 million barrels of oil that are being produced in the United States today. So it's a huge opportunity, and that 12 million barrels of oil being produced today is being produced by a lot of different companies. And I think there will be space for many others in this, and certainly the ones that you mentioned.

I do think there are points for partnerships. We want to be pretty thoughtful about those partnerships. So we think that the system that we operate, talked a bit about the expansiveness of the system and just where we can go with that, we'll always look at partnerships and where 1 plus 1 can equal more than 2. We've been doing -- been working on those conversations really for the last couple of years, and I'd expect to see that continue. And where it makes sense, there will be partnerships.

We have our next question comes from Jacob Roberts from TPH.

Chris, just at the opening of the call, I'm just curious about how negotiations and discussions have evolved post the passage of the IRA? And really kind of what we're thinking about is, are these new conversations are you revisiting conversations? And subsequent to that, has this changed maybe the high-priority targets over the next 12 to 18 months?

Jacob, this is Nik again. Yes. So in terms of how the negotiations have changed with the new pricing, I would say that there's a bit of pricing difference that's necessary on the offtake side as well. So we obviously have some different costs that come into our bucket that change as pricing goes up. For example, floor based payments sometimes increase. There's actually more liability as the IRA increases. So some of those costs go up, and so our pricing goes up as well.

In terms of the market, we continue to see additional emitters come into our portfolio every week. I think it's sped up since the IRA came out. I think it will continue to grow for a longer period of time. I think there will be new greenfield projects that weren't previously economic that will come into framework. But in terms of prioritization, we were working with a lot of great partners for -- and we've been working with a lot of great partners for a long time now. We mentioned earlier we've been working with Clean Hydrogen Works for nearly 2 years.

And so a lot of our priorities have stayed safe. We want to get a lot of those agreements that we've been working for a long time to completion. And so we're staying on top of the priorities we have in place and just adding to the list, and we're also adding to our staff to accommodate the additional priorities that are raising up.

And Jacob, I'd just add to what Nik shared, it's something that I think is really interesting and maybe not broadly appreciated, is we think about this $85 tax credit as incentivizing a whole lot of industry. What we see happening alongside that is that Infrastructure Bill that preceded the 45Q changes in the IRA, that actually provides for a lot of DOE funding of some of these projects.

So if you were to look at Nik's team, you would even find capture projects that are not -- what you'd think of as being well within the $85 cost to capture, but they are working to be supplemented by DOE grants or loans that help them get the capital in place to execute those projects. So there's a few different things that work that I think actually, again, makes the pie even bigger than you might expect just from face value.

Great. Appreciate that. And if I could circle back to a previous question, I just want to confirm the brownfield-greenfield mix at current is roughly 50-50, I think I heard. And if I did hear that correctly, can you kind of give me a guidepost on how long that mix stays similar to those levels? Does that make sense?

Yes, it does. And this is Nik again. And so yes, you heard the question correctly. It's still about half and half. And the best way for me to address how long that will stay half and half is to kind of give you our data on the incoming industrial partners that we're picking up on almost a weekly basis.

So just in general, we continue to see additional brownfield development coming to the portfolio at about the same rate as we see greenfield development. And at some point, of course, there will be -- we'll run out of brownfield development because there's just not that many plants or emissions in place right now to go on forever. But right now, we don't see it slowing down.

Yes. And again, I'll just add to what Nik said, he's right on point there. But when I go back to that network effect that I talked about, Jacob, another aspect of that is that when Nik's team build a pipe in Alabama, for example, well that pipe, that was not there before, gets close to new emissions sources that maybe on their own could not have economically capture their CO2. But now that there's a pipeline in the neighborhood, they can.

Similar to what we talked about with what we're doing in Lake Charles as well. So that network effect creates a cycle that builds the capacity and the opportunity of the system for more emitters to come into it. We just want to add that on top of what Nik shared.

We have a follow-up question from Tim Rezvan from KeyBanc Capital Markets.

Just had a couple of quickies here. You all were aggressive on the repurchase front on weakness in the third quarter. With shares where they are now and what looks like a much bigger backlog of projects over the next couple of years, how much repurchases make sense? And how are you thinking about them over the medium term?

Tim, this is Mark. Good question. We're going to continue to look at it. I mean, obviously, our share price has moved up and we generated a lot of our free cash in the first half of the year and executed the buyback at that time. As we look forward here, especially as you saw this quarter and next quarter, probably more balanced. And so we're going to be discipline and remain opportunistic about how we think about future repurchases.

Okay. Okay. That makes sense. And then I know people have mentioned, I think EnLink earlier. EnLink has talked a lot about retrofitting natural gas pipes to make them accommodate CO2. You all also have quite a bit of natural gas pipelines in the area. I'm not a metallurgy expert, so I'll defer to you all. But is that something that you can look at as a possible bolt-on? And in general, like your thoughts on the feasibility of that work?

Sure. Tim, it's something that we've looked at and thought about. And even in our history, in some smaller cases, we've done it ourselves. When I think about the network and what we want to do with that, certainly, the most efficient way that we see of operating the network is to run the CO2 in a super critical phase, which requires a certain pressure that's typically beyond the natural gas pipeline rated pressure.

So for us to have this flexibility and optionality and just the ability to do a lot of things with the system, we like the higher rated pipelines that we have. Having said that, there's always an opportunity, I think, in specific cases to do what you described, but it's not something that I think we'd look to do broadly on the system just because of the different pressure regimes that the CO2 would be in.

We have no more further questions from the line. I will now hand back to Brad Whitmarsh for closing remarks.

Sure. Thanks, and thanks to everybody for joining us today and for your interest in Denbury. If you have any other follow-up over the coming days, please don't hesitate to reach out to [Beth] or myself. And this concludes our call for this morning.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.