Denbury (DEN) Risk Analysis

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Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Denbury disclosed 31 risk factors in its most recent earnings report. Denbury reported the most risks in the “Finance & Corporate” category.

Risk Overview Q2, 2023

Risk Distribution

32% Finance & Corporate

23% Legal & Regulatory

19% Production

13% Macro & Political

6% Tech & Innovation

6% Ability to Sell

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Denbury Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q2, 2023

Main Risk Category

Finance & Corporate

With 10 Risks

Finance & Corporate

With 10 Risks

Number of Disclosed Risks

From last report

S&P 500 Average: 31

From last report

S&P 500 Average: 31

Recent Changes

9Risks added

0Risks removed

0Risks changed

Since Jun 2023

9Risks added

0Risks removed

0Risks changed

Since Jun 2023

Number of Risk Changed

No changes from last report

S&P 500 Average: 4

No changes from last report

S&P 500 Average: 4

See the risk highlights of Denbury in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 31

Finance & Corporate

Total Risks: 10/31 (32%)Above Sector Average

Share Price & Shareholder Rights2 | 6.5%

Share Price & Shareholder Rights - Risk 1

Added

Because the Exchange Ratio is fixed and the market price of ExxonMobil common stock has fluctuated and will continue to fluctuate, Denbury stockholders cannot be sure of the value of the consideration they will receive in the Merger, if completed.

If the Merger is completed, each share of Denbury common stock outstanding immediately prior to the Merger (except for the excluded shares) will automatically be converted into the right to receive 0.840 shares of ExxonMobil common stock, with cash to be paid in lieu of fractional shares. Because the Exchange Ratio is fixed, the value of the Merger consideration will depend on the market price of ExxonMobil common stock at the time the Merger is completed. Prior to completion of the Merger, the market price of ExxonMobil common stock is also expected to impact the market price of Denbury common stock. The value of ExxonMobil common stock has fluctuated since the date of the announcement of the Merger Agreement and will continue to fluctuate. Accordingly, Denbury stockholders will not know or be able to determine the market value of the Merger consideration they would receive upon completion of the Merger. Stock price changes may result from a variety of factors, including, among others, general market and economic conditions, changes in ExxonMobil's and Denbury's respective businesses, operations and prospects, market assessments of the likelihood that the Merger will be completed, the timing of the Merger, regulatory considerations and COVID-19. Many of these factors are beyond ExxonMobil's and Denbury's control.

Share Price & Shareholder Rights - Risk 2

Open-market sales of a substantial number of shares of our common stock acquired upon exercise by holders of our outstanding warrants, could cause the market price of our common stock to drop significantly, even if our business is doing well.

In connection with our plan of reorganization, we issued series A and series B warrants to holders of our pre-emergence debt and equity, entitling the warrant holders to exercise the warrants at prices of either $32.59 or $35.41 per share, respectively, of which outstanding warrants may convert into approximately 3.2 million shares (approximately 7%) of our common stock outstanding as of December 31, 2022. The A warrants are exercisable until September 18, 2025, and the series B warrants are exercisable until September 18, 2023, at which respective dates the warrants expire. The future exercise of a large number of warrants, followed by the subsequent sale of the acquired stock into the market, could negatively affect our common stock price. We cannot predict the likelihood of exercise of the warrants or sales of shares of our common stock acquired upon exercise, or the effect of any such sales on the prevailing market price of our common stock. Further, the future exercise of a large number of warrants will dilute our basic earnings per share.

Accounting & Financial Operations1 | 3.2%

Accounting & Financial Operations - Risk 1

Estimating our reserves, production and future net cash flows is difficult to do with any certainty.

Estimating quantities of proved oil and natural gas reserves requires interpretations of available technical data and various assumptions, including future production rates, production costs, severance and excise taxes, capital expenditures and workover and remedial costs, and the assumed effect of governmental rules and regulations. There are numerous uncertainties about when a property may have proved reserves as compared to potential or probable reserves, particularly relating to our tertiary recovery operations. Forecasting the amount of oil reserves recoverable from tertiary operations, and the production rates anticipated therefrom, requires estimates, one of the most significant being the oil recovery factor. Actual results most likely will vary from our estimates. Also, the use of a 10% discount factor for reporting purposes, as prescribed by the SEC, may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which our business, and the oil and natural gas industry in general, are subject. Any significant inaccuracies in these interpretations or assumptions, or changes of conditions, could result in a revision of the quantities and net present value of our reserves. The reserves data included in documents incorporated by reference represents estimates only. Quantities of proved reserves are estimated based on economic conditions, including first-day-of-the-month average oil and natural gas prices for the 12-month period preceding the date of the assessment. The representative oil and natural gas prices used in estimating our December 31, 2022 reserves, after adjustments for market differentials and transportation expenses by field, were $93.02 per Bbl for crude oil and $5.14 per Mcf for natural gas. Our reserves and future cash flows may be subject to revisions based upon changes in economic conditions, including oil and natural gas prices, as well as due to production results, results of future development, operating and development costs, and other factors. Downward revisions of our reserves could have an adverse effect on our financial condition and operating results. Actual future prices and costs may be materially higher or lower than the prices and costs used in our estimates.

Corporate Activity and Growth7 | 22.6%

Corporate Activity and Growth - Risk 1

Added

Denbury will incur significant transaction and Merger-related costs in connection with the Merger.

Denbury expects to incur a number of non-recurring costs associated with the Merger and combining the operations of the two companies. The significant, non-recurring costs associated with the Merger include, among others, fees and expenses of financial advisors and other advisors and representatives, certain employment-related costs relating to employees of Denbury, filing fees due in connection with filings required under the HSR Act and filing fees and printing and mailing costs for a proxy statement/prospectus. Some of these costs have already been incurred or may be incurred regardless of whether the Merger is completed, including a portion of the fees and expenses of financial advisors and other advisors and representatives and filing fees for a proxy statement/prospectus.

Corporate Activity and Growth - Risk 2

Added

Completion of the Merger is subject to certain conditions and if these conditions are not satisfied or waived, the Merger will not be completed.

The obligation of each of ExxonMobil, Denbury and EMPF Corporation, ExxonMobil's wholly owned merger subsidiary ("Merger Sub") to complete the Merger is subject to the satisfaction (or, to the extent permitted by applicable law, waiver) of a number of conditions, including, among others: (i) the affirmative vote of the holders of a majority of the shares of Denbury common stock outstanding and entitled to vote at the date of the special meeting of Denbury stockholders approving and adopting the Merger Agreement (which condition described in this clause (i) may not be waived), (ii) the expiration or termination of any applicable waiting period, or any extension thereof, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") (in the case of ExxonMobil and Merger Sub's obligation to complete the Merger, without the imposition of a Burdensome Condition, as defined in the Merger Agreement), (iii) absence of any injunction or other order or applicable law preventing or making illegal the consummation of the Merger (in the case of ExxonMobil and Merger Sub's obligation to complete the Merger, without the imposition of a Burdensome Condition to the extent such law or prohibition relates to the matters in clause (i) above), (iv) the future registration statement being declared effective and no stop order suspending the effectiveness of the registration statement being in effect and no proceedings for such purpose pending or threatened by the SEC, (v) approval for the listing on the New York Stock Exchange of the shares of ExxonMobil common stock to be issued in the Merger, subject to official notice of issuance, (vi) accuracy of the representations and warranties made in the Merger Agreement by, in the case of ExxonMobil and Merger Sub's obligations to complete the Merger, Denbury and, in the case of Denbury's obligation to complete the Merger, ExxonMobil and Merger Sub, in each case, as of the date of the Merger Agreement and as of the date of completion of the Merger, subject to certain materiality thresholds, (vi) performance in all material respects by, in the case of ExxonMobil and Merger Sub's obligations to complete the Merger, Denbury and, in the case of Denbury's obligation to complete the Merger, ExxonMobil and Merger Sub, of the obligations required to be performed by it at or prior to the effective time of the Merger, (vii) the absence since the date of the Merger Agreement of a material adverse effect on, in the case of ExxonMobil and Merger Sub's obligations to complete the Merger, Denbury and (viii) the absence since the date of the Merger Agreement of a material adverse effect on, in the case of Denbury's obligations to complete the Merger, ExxonMobil and Merger Sub. There can be no assurance that the conditions to the closing of the Merger will be satisfied or waived or that the Merger will be completed.

Corporate Activity and Growth - Risk 3

Added

Denbury's business relationships may be subject to disruption due to uncertainty associated with the Merger.

Parties with which Denbury does business may experience uncertainty associated with the Merger, including with respect to current or future business relationships with ExxonMobil, Denbury or the combined business. Denbury's business relationships may be subject to disruption as parties with which ExxonMobil or Denbury does business may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than ExxonMobil, Denbury or the combined business. These disruptions could have an adverse effect on the businesses, financial condition, results of operations or prospects of the combined business, including an adverse effect on ExxonMobil's ability to realize the anticipated benefits of the Merger. The risk, and adverse effect, of such disruptions could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.

Corporate Activity and Growth - Risk 4

Added

Completion of the Merger may trigger change in control or other provisions in certain agreements to which Denbury is a party.

Denbury is a party to certain agreements that give the counterparty certain rights following a "change in control," including in some cases the right to terminate such agreements. Under some such agreements, the Merger may constitute a change in control and therefore the counterparty may exercise certain rights under the agreement upon the closing of the Merger. Any such counterparty may request modifications of its respective agreements as a condition to granting a waiver or consent under its agreement. There is no assurance that such counterparties will not exercise their rights under the agreements, including termination rights where available and/or requiring payment of substantial financial penalties.

Corporate Activity and Growth - Risk 5

Added

The Merger Agreement limits Denbury's ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire Denbury for greater consideration than what ExxonMobil has agreed to pay pursuant to the Merger Agreement.

The Merger Agreement contains provisions that make it more difficult for Denbury to sell its business to a party other than ExxonMobil. These provisions include a general prohibition on Denbury soliciting any acquisition proposal or offer for a competing transaction. Further, subject to certain exceptions, the Denbury board of directors will not withdraw or modify in a manner adverse to ExxonMobil the recommendation of the Denbury board of directors in favor of the approval and adoption of the Merger Agreement, and ExxonMobil generally has a right to match any competing acquisition proposals that may be made. Notwithstanding the foregoing, at any time prior to the approval and adoption of the Merger Agreement by Denbury stockholders, the Denbury board of directors is permitted to withdraw or modify in a manner adverse to ExxonMobil the recommendation of the Denbury board of directors in favor of the approval and adoption of the Merger Agreement in certain circumstances if it determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties to Denbury stockholders under applicable law. The Merger Agreement does not require that Denbury submit the approval and adoption of the Merger Agreement to a vote of Denbury stockholders if the Denbury board of directors changes its recommendation in favor of the approval and adoption of the Merger Agreement in a manner adverse to ExxonMobil and terminates the Merger Agreement in order to enter into an alternative acquisition agreement with respect to a competing transaction in accordance with the terms of the Merger Agreement. In certain circumstances, upon termination of the Merger Agreement, Denbury will be required to pay a termination fee of $144 million to ExxonMobil, including if Denbury terminates the Merger Agreement prior to obtaining Denbury stockholder approval in order to enter into an alternative acquisition agreement with respect to a competing transaction in accordance with the terms of the Merger Agreement. While both Denbury and ExxonMobil believe these provisions and agreements are reasonable and customary and are not preclusive of other offers, the restrictions, including the added expense of the $144 million termination fee that may become payable by Denbury to ExxonMobil in certain circumstances, might discourage a third party that has an interest in acquiring all or a significant part of Denbury from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per-share value than the consideration payable in the Merger pursuant to the Merger Agreement.

Corporate Activity and Growth - Risk 6

Added

Failure to complete the Merger could negatively impact the stock price and the future business and financial results of Denbury.

If the Merger is not completed for any reason, including as a result of Denbury stockholders failing to approve the Merger or any other condition not being satisfied or waived, the ongoing businesses of Denbury may be adversely affected, and without realizing any of the benefits of having completed the Merger, Denbury would be subject to a number of risks, including the following: - Denbury may experience negative reactions from the financial markets, including negative impacts on its stock price;- Denbury may experience negative reactions from its clients, regulators and employees;- Denbury will be required to pay certain costs relating to the Merger, whether or not the Merger is completed;- the Merger Agreement places certain restrictions on the conduct of Denbury's businesses prior to completion of the Merger, and such restrictions, the waiver of which are subject to the written consent of ExxonMobil (in certain cases, not to be unreasonably withheld, conditioned or delayed), and subject to certain exceptions and qualifications, may prevent Denbury from taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the Merger that Denbury would have made, taken or pursued if these restrictions were not in place; and - matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by Denbury management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to Denbury as an independent company. In the event of a termination of the Merger Agreement under certain circumstances specified in the Merger Agreement, Denbury may be required to pay a termination fee of $144 million to ExxonMobil. To the extent that a termination fee is not promptly paid by Denbury when due, Denbury will be required to pay ExxonMobil interest on such fee at the annual rate equal to the prime rate, as published in The Wall Street Journal in effect on the date such payment was required to be made, through the date such payment was actually received, or such lesser rate as is the maximum permitted by applicable law. There can be no assurance that the risks described above will not materialize. If any of those risks materialize, they may materially and adversely affect Denbury's businesses, financial condition, financial results, ratings and/or stock price. In addition, Denbury could be subject to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against Denbury to perform its obligations under the Merger Agreement. If the Merger is not completed, these risks may materialize and may adversely affect Denbury's businesses, financial condition, financial results, ratings, stock prices and/or bond prices.

Corporate Activity and Growth - Risk 7

Our contemplated CCUS operations are anticipated to be cash flow negative for the next several years as we build out CCUS infrastructure, consuming a major share of the excess cash flow from our other operations.

We are not expecting to generate revenues from our CCUS activities until 2025. In the interim, we will be incurring costs for the development of dedicated CO2 storage sites which could include front-end engineering design work, feasibility studies and payments to pore space owners, as well as negotiating contracts with present or anticipated emitters of CO2, and others. Based upon current oil futures prices, we currently expect that our cashflow from operations will fund most of the Company's capital needs, however we may consider alternative financing options as a supplemental source of capital. Although we believe that CCUS activities should be profitable for the Company over time, there are numerous risks and uncertainties that make its timing and quantification difficult to accurately predict. The financial impact of our expending capital on these activities before realizing CCUS cash flows could negatively impact our financial condition and operational results in future periods.

Legal & Regulatory

Total Risks: 7/31 (23%)Above Sector Average

Regulation2 | 6.5%

Regulation - Risk 1

The CCUS industry is likely to be subject to rigorous regulatory oversight, as exemplified by PHMSA's 2022 announcement of its intention to initiate new CO2 pipeline standards and emergency preparedness and response rules.

Federal, state, and local authorities are likely to mandate rules regarding every aspect of the CCUS industry value chain. The storage of CO2 is expected to be regulated in a manner similar to the oil and gas industry, with permitting, bonding, reporting, and other requirements, such as the current permitting requirements by the EPA of Class VI wells to inject CO2 for permanent storage. There is no assurance that we will be successful in obtaining permits, whether or not in a timely manner, nor have rules regarding bonding requirements been fully developed.

Regulation - Risk 2

The CCUS industry, in its infancy, is subject to multiple risks which vary from the risks we face as a mature oil and gas producer.

The CCUS industry is a relatively new and emerging one. Our ability to successfully be a leader in this industry, especially in the Gulf Coast, is subject to a multitude of risks, many of which are not in our control. Such risks include the uncertainty of evolving regulations of governmental authorities, the availability of necessary equipment for facility construction by our current and future third-party emitters and their related costs, and the attainability of requisite financing and federal and state incentive programs, all of which are required to build and bring industrial facilities to an operational status. Additionally, CCUS requires (1) captured CO2 emissions, (2) available CO2 pipelines, and (3) appropriately tested and prepared storage sites, which may be subject to misaligned timing. As numerous global companies have entered into, or announced plans to enter into the Gulf Coast CCUS market, we expect rigorous competition in building our CCUS operations.

Litigation & Legal Liabilities1 | 3.2%

Litigation & Legal Liabilities - Risk 1

Added

Potential litigation against Denbury could result in substantial costs, an injunction preventing the completion of the Merger and/or a judgment resulting in the payment of damages.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if such a lawsuit is unsuccessful, defending against these claims can result in substantial costs. Stockholders of Denbury may file lawsuits against ExxonMobil, Denbury and/or the directors and officers of either company in connection with the Merger. These lawsuits could prevent or delay the completion of the Merger and result in significant costs to Denbury, including any costs associated with the indemnification of directors and officers. There can be no assurance that any of the defendants will be successful in the outcome of any potential lawsuits.

Taxation & Government Incentives1 | 3.2%

Taxation & Government Incentives - Risk 1

Tax proposals under discussion within the Biden Administration, if enacted, could change or remove long-time tax benefits available to the oil and gas industry for drilling and production activities.

As part of its fiscal year 2023 budgetary planning, the Biden Administration discussed a number of changes to certain provisions of federal tax law applicable to the exploration and production industry, including imposing a tax on carbon emissions, as well as eliminating long-standing deductions that benefit the fossil fuel industry. Among the specific provisions focused upon were Internal Revenue Code ("IRC") Section 263, which allows expensing of exploration, development and intangible drilling costs, and IRC Section 613, which allows use of percentage depletion instead of cost depletion to recover drilling and development costs of oil and gas wells. Any such changes would require the U.S. Congress to pass new legislation and are likely to be part of a broader set of tax revisions.

Environmental / Social3 | 9.7%

Environmental / Social - Risk 1

Government and societal reaction to climate change could impact our stock price and increase our costs, while pressure to meet ESG standards may impact our business.

Increasing attention to climate change and public and investor demands that companies address climate change and ESG standards may increase our costs, reduce demand for oil or negatively impact our stock price and access to capital markets. Furthermore, organizations that advise many institutional investors on corporate governance and investment and voting decisions have developed ratings processes for evaluating companies related to ESG matters. Negative ratings by these organizations, together with ESG advocates' pressure for investors to divest fossil fuel equities and for lenders to limit funding to oil and gas producers, may lead to negative investor sentiment toward the oil and gas industry, including the Company, which could have a negative impact on our stock price. Denbury's movement into CCUS along with a focus upon climate change risk management and strategy, sustainability targets, and operating efficiencies, may mitigate some of these risks.

Environmental / Social - Risk 2

Environmental laws and regulations applicable to our industry are costly and stringent.

Our exploration, production, and marketing operations are subject to complex and stringent federal, state, and local laws and regulations governing, among other things, the discharge of substances into the environment or otherwise relating to the protection of human health and the protection of endangered species. These laws and regulations and related public policy considerations affect the costs, manner, and feasibility of our operations and require us to make significant expenditures in order to comply. Failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, the imposition of investigatory and remedial obligations, and the issuance of injunctions that could limit or prohibit our operations. Some of these laws and regulations may impose joint and several, strict liability for contamination resulting from spills, discharges, and releases of substances, including petroleum hydrocarbons and other wastes, without regard to fault or the legality of the original conduct. Under such laws and regulations, we could be required to remove or remediate previously disposed substances and property contamination, including wastes disposed or released by prior owners or operators.

Environmental / Social - Risk 3

Any future climate change initiatives by the Biden Administration, by Congress or by state regulatory or legislative bodies could negatively affect our business and operations.

In early 2021, the Biden Administration recommitted the United States to the Paris Climate Agreement and targeted a reduction of 50-52% GHG emissions by the year 2030. In order to achieve such goal, in 2021, the Biden Administration introduced initiatives, which include policies to address climate change, energy efficiency, and clean energy. If the Biden Administration and Congress adopt stricter standards for, and increase oversight and regulation over, the exploration and production industry at the federal level, these measures could lead to increased costs or additional operating restrictions. Also, there is the potential for climate change legislation which could affect demand for oil on a long-term basis. Our operations on federal, state or Indian oil and natural gas leases in the Rocky Mountain region, conducted pursuant to permits and authorizations issued by the Bureau of Land Management, the Bureau of Indian Affairs, and other federal and state stakeholder agencies, may be impacted by the risks outlined above (See Federal and State Regulations – Federal, State or Indian Leases). A number of governmental bodies have introduced or are contemplating regulatory changes in response to various proposals to combat climate change and how it should be dealt with, including heightened CO2 pipeline regulation. Legislation and increased regulation regarding climate change or CO2 pipeline standards or procedures could impose significant costs on us and possibly affect our financial condition and operating performance.

Production

Total Risks: 6/31 (19%)Above Sector Average

Manufacturing3 | 9.7%

Manufacturing - Risk 1

The marketability of our production is dependent upon transportation lines and other facilities, most of which we do not control. When these facilities are unavailable, our operations can be interrupted and our revenues reduced.

The marketability of our oil and natural gas production depends, in part, upon the availability, proximity and capacity of transportation lines owned by third parties. In general, we do not control these transportation facilities, and our access to them may be limited or denied. A significant disruption in the availability of, and access to, these transportation lines or other production facilities could adversely impact our ability to deliver to market or produce our oil and thereby cause a significant interruption in our operations.

Manufacturing - Risk 2

Our planned tertiary and CCUS operations and the related construction of necessary CO2 pipelines could be delayed by difficulties in obtaining pipeline rights-of-way and/or permits and/or by the listing of certain species as threatened or endangered.

The production of crude oil from our planned tertiary operations is dependent upon having access to pipelines to transport available CO2 to our oil fields at a cost that is economically viable. Future extensions of our Green Pipeline, construction to connect third-party CO2 emitters to storage sites, and preparation for CCUS activities require us to obtain rights-of-way from private landowners, state and local governments and the federal government in certain areas. Certain states where we operate have considered or may again consider the adoption of laws or regulations that could limit or eliminate the ability of a pipeline owner or of a state, state's legislature or its administrative agencies to exercise eminent domain over private property, in addition to possible judicially imposed constraints on, and additional requirements for, the exercise of eminent domain. We also often conduct Rocky Mountain operations on federal and other oil and natural gas leases inhabited by species that may be listed as threatened or endangered under the Endangered Species Act, which listing may lead to tighter restrictions as to federal land use and other land use where federal approvals are required. These laws and regulations, together with any other changes in law related to the use of eminent domain or the listing of certain species as threatened or endangered, could inhibit or eliminate our ability to secure rights-of-way or otherwise access land for future pipeline construction projects and may require additional regulatory and environmental compliance, and increased costs in connection therewith, which could delay our CO2 pipeline construction schedule and initiation of our EOR or CCUS operations.

Manufacturing - Risk 3

Oil and natural gas development and producing operations involve various risks.

Our operations are subject to all of the risks normally incident and inherent to the operation and development of oil and natural gas properties and the drilling of oil and natural gas wells, including, without limitation, equipment failures; fires; formations with abnormal pressures; uncontrollable flows of oil, natural gas, brine or well fluids; release of contaminants into the environment and other environmental hazards and risks; and well control events. In addition, our operations are sometimes near populated commercial or residential areas, which adds additional risks. The nature of these risks is such that some liabilities could exceed our insurance policy limits or otherwise be excluded from, or limited by, our insurance coverage, as in the case of environmental fines and penalties, for example, which are excluded from coverage as they cannot be insured. We could incur significant costs related to these risks that could have a material adverse effect on our results of operations, financial condition and cash flows or could have an adverse effect upon the profitability of our operations. Additionally, a portion of our production activities involves CO2 injections into fields with wells plugged and abandoned by prior operators. It is often difficult (or impracticable) to determine whether a well has been properly plugged prior to commencing injections and pressuring the oil reservoirs. We may incur significant costs in connection with remedial plugging operations to prevent environmental contamination and to otherwise comply with federal, state and local regulations relative to the plugging and abandoning of our oil, natural gas and CO2 wells. In addition to the increased costs, if wells have not been properly plugged, modification to those wells may delay our operations and reduce our production. Development activities are subject to many risks, including the risk that we will not recover all or any portion of our investment in such wells. The cost of drilling, completing and operating a well is often uncertain, and cost factors can adversely affect the economics of a project. Further, our drilling operations may be curtailed, delayed or canceled as a result of numerous factors, including: - unexpected drilling conditions;- pressure or irregularities in formations;- equipment failures or accidents;- adverse weather conditions, including hurricanes and tropical storms in and around the Gulf of Mexico, as well as freezing temperatures, ice and snow, that can damage oil and natural gas facilities and delivery systems and disrupt operations, and winter conditions and forest fires in the Rocky Mountain region that can delay or impede operations;- compliance with environmental and other governmental requirements;- the cost of, or shortages or delays in the availability of, drilling rigs, equipment, pipelines and services; and - title problems.

Employment / Personnel2 | 6.5%

Employment / Personnel - Risk 1

We may lose key executive officers or specialized technical employees, which could endanger the future success of our operations.

Our success depends to a significant degree upon the continued contributions of our executive officers, other key management and specialized technical personnel. Our employees, including our executive officers, are employed at will and do not have employment agreements. We believe that our future success depends, in large part, upon our ability to hire and retain highly skilled personnel. Further, with the expansion of the emerging CCUS industry, we have specialized technical employees in high demand for their unique operational experience in EOR activities that would be valuable to our CCUS competitors.

Employment / Personnel - Risk 2

Added

Denbury may have difficulty attracting, motivating and retaining employees in light of the Merger.

Uncertainty about the effect of the Merger on Denbury employees may impair Denbury's ability to attract, retain and motivate personnel prior to and following the Merger. Employee retention may be particularly challenging during the pendency of the Merger, as employees of Denbury may experience uncertainty about their future roles with the combined business.

Costs1 | 3.2%

Costs - Risk 1

Oil prices have been very volatile in recent years, which is expected to continue or increase, which may lead to significant periods of reduced cash flows and negatively affect our financial condition and results of operations.

Oil prices are currently the most important determinant of our operational and financial success. Oil prices are highly impacted by worldwide oil supply, demand and prices and have historically been subject to significant price changes over short periods of time. Over the last several years, NYMEX oil prices have been extremely volatile, reaching a three-year peak over $123 per Bbl in March 2022 compared to lows averaging $17 per Bbl in April 2020. The year-to-year volatility has been due to the reduction in worldwide economic activity and oil demand amid the COVID-19 pandemic in 2020 and 2021, and in 2022 energy prices increased due to the Russian attacks on Ukraine, OPEC supply pressures and increasing oil demand. During 2022, prices ranged from a high of $123.70 in March and a low of $71.02 in December. Oil price volatility will remain. Although global petroleum demand is currently rising faster than petroleum supply, driving higher prices during 2022, factors beyond our control could cause prices to move downward on a rapid or repeated basis, making planning and budgeting, acquisition transactions, capital raising, and sustaining business strategies more difficult. Our cash flow from operations is highly dependent on the prices that we receive for oil, as oil comprised approximately 97% of our 2022 average daily sales volumes and approximately 98% of our proved reserves at December 31, 2022. The prices for oil and natural gas are subject to a variety of factors that are beyond our control. These factors include: - the level of worldwide demand for oil and natural gas;- worldwide economic conditions;- the degree to which members of OPEC maintain oil price and production controls;- the degree to which domestic oil and natural gas production affects worldwide supply of crude oil or its price;- worldwide political events, conditions and policies, including actions taken by foreign oil and natural gas producing nations. Negative movements in oil prices could harm us in a number of ways, including: - lower cash flows from operations may require reduced levels of capital expenditures; which in turn could lower our present and future production levels and lower the quantities and value of our oil and gas reserves, which constitute our major asset;- we could be forced to increase our level of indebtedness, issue additional equity, or sell assets; and/or - we could be required to impair various assets, including a write-down of our oil and natural gas assets or the value of other tangible or intangible assets. Furthermore, some or all of our tertiary projects could become or remain uneconomical. We may also decide to suspend future expansion projects, and if prices were to drop below our operating cash break-even points for an extended period of time, we may decide to shut-in existing production, both of which could have a material adverse effect on our operations and financial condition and reduce our production.

Macro & Political

Total Risks: 4/31 (13%)Above Sector Average

Economy & Political Environment2 | 6.5%

Economy & Political Environment - Risk 1

Geopolitical tensions, principally the Russian invasion of Ukraine, have caused and may heighten oil market volatility that could negatively affect our results of operations.

The war in Ukraine, and trade and monetary sanctions in response to the Russian invasion, could continue to significantly affect worldwide oil prices and demand, feed inflation, and cause turmoil in the global financial system and oil markets, which are the primary determinants of our results of operations. This could lead to continuing significant and material disruptions in economic activity, and oil prices, and could have a material adverse effect on our results of operations.

Economy & Political Environment - Risk 2

Continuing or worsening inflationary or supply chain issues could lower our margins and operational efficiency.

We anticipate inflationary pressures to continue into 2023 and have included these adjustments in our 2023 budget. Expectations of lingering or increasing inflationary pressures in our industry are becoming widespread (including anticipated double digit percentage price increases in certain expense categories). In addition to price increases by third-party service companies, it may become more costly for us to recruit and retain key employees, particularly specialized/technical personnel, in the face of increased competition for specialized and experienced oilfield workers.

Natural and Human Disruptions2 | 6.5%

Natural and Human Disruptions - Risk 1

The COVID-19 pandemic has disrupted and will likely continue to affect worldwide economic activity, which could negatively affect demand for oil.

The continuing effect of the COVID-19 virus has resulted in a global slowdown in economic activity, disrupting supply chains, and reducing global workforces, increasing market volatility and directly impacting domestic and global oil demand, and consequently, our operational and financial performance. It is impossible to predict the ultimate degree to which future variants of COVID-19 and their spread could lead to continuing significant and material disruptions in economic activity, and oil prices, and could have a material adverse effect on our results of operations.

Natural and Human Disruptions - Risk 2

Certain of our operations may be limited during certain periods due to severe weather conditions or government regulations.

Our operations in the Gulf Coast region may be subjected to adverse weather conditions such as hurricanes, flooding and tropical storms in and around the Gulf of Mexico, as well as freezing temperatures, ice and snow, that can damage oil and natural gas facilities and delivery systems and disrupt operations, which can also increase costs and have a negative effect on our results of operations. Certain of our operations in Montana, Wyoming and North Dakota, the drilling of new wells and production from existing wells, are conducted in areas subject to extreme weather conditions including severe cold, snow and rain, which conditions may cause such operations to be hindered or delayed or otherwise require that they be conducted only during non-winter months, and depending on the severity of the weather, could have a negative effect on our results of operations in these areas. Further, the potential impacts of climate change on our operations may include extreme weather events and storm patterns, rising sea levels and periods of prolonged high temperatures, the last of which imposes certain physical constraints on our CO2 injections in our operations in the Gulf Coast. Certain of our operations in the Rocky Mountain region subject to seasonal activity, restrictions on when drilling can take place on federal lands, and lease stipulations designed to protect certain wildlife, which regulations, restrictions and limitations could slow down our operations, cause delays, increase costs and have a negative effect on our results of operations.

Tech & Innovation

Total Risks: 2/31 (6%)Above Sector Average

Innovation / R&D1 | 3.2%

Innovation / R&D - Risk 1

Our future performance depends upon our ability to effectively develop our existing oil and natural gas reserves and find or acquire additional oil and natural gas reserves that are economically recoverable.

Unless we can successfully develop our existing reserves and/or replace the reserves that we produce, our reserves will decline, resulting eventually in a decrease in oil and natural gas production and lower revenues and cash flows from operations. We have historically replaced reserves through both acquisitions and internal organic growth activities. For internal organic growth activities, the magnitude of proved reserves that we can book in any given year depends on our progress with new floods and the timing of the production response, especially our development of fields in the CCA area in the Rocky Mountains. In the future, we may not be able to continue to replace reserves at acceptable costs. The business of exploring for, developing or acquiring reserves is capital intensive. We may not be able to make the necessary capital investment to maintain or expand our oil and natural gas reserves if our cash flows from operations are reduced, whether due to current oil or natural gas prices or otherwise, or if external sources of capital become limited or unavailable. Further, the process of using CO2 for tertiary recovery, and the related infrastructure, requires significant capital investment prior to any resulting and associated production and cash flows from these projects, heightening potential capital constraints. If our capital expenditures are restricted, or if outside capital resources become limited, we will not be able to maintain our current production levels.

Cyber Security1 | 3.2%

Cyber Security - Risk 1

A cyber breach could occur and result in information theft, data corruption, operational disruption, and/or financial loss.

Our business has become increasingly dependent on digital technologies to conduct day-to-day operations, including certain of our exploration, development and production activities. We depend on digital technology, among other things, to process and record financial and operating data; analyze seismic and drilling information; monitor and control pipeline and plant equipment; and process and store personally identifiable information of our employees, industry partners and royalty owners. Cyberattacks on businesses have escalated in recent years. Our technologies, systems and networks, or those of software providers that we use, may become the target of cyberattacks or information security breaches that could compromise our process control networks or other critical systems and infrastructure, resulting in disruptions to our business operations, harm to the environment or our assets, disruptions in access to our financial reporting systems, or loss, misuse or corruption of our critical data and proprietary information, including our business information and that of our employees, partners and other third parties. Successful attacks which disable third-party pipelines or processing facilities upon which we depend could materially adversely affect our operations. Any of the foregoing may be exacerbated by a delay or failure to detect a cyber incident. Although we have not incurred any material losses from cyberattacks, future cyberattacks could result in significant financial losses, legal or regulatory violations, reputational harm, and legal liability. Although we utilize various procedures and controls to monitor and protect against these threats and to mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient in preventing successful attacks from the increasing number of sophisticated intrusions based on technological advances. In addition, in connection with COVID-19 precautions, many of our employees and those of our service providers, vendors and industry partners continue to work remotely from home or other remote-work locations, where cybersecurity protections may be less robust and cybersecurity procedures and safeguards may be less effective. We may be required to expend significant additional resources to continue to modify or enhance our procedures and controls or to upgrade our digital and operational systems, related infrastructure, technologies and network security, which could increase our costs. The Audit Committee's duties and responsibilities include reviewing and discussing the Company's guidelines and policies with respect to risk assessment and risk management, as well as the Company's major financial and cybersecurity risk exposures and the steps that management has taken to monitor and control such exposures.

Ability to Sell

Total Risks: 2/31 (6%)Above Sector Average

Demand1 | 3.2%

Demand - Risk 1

The loss of one or more of our large oil and natural gas purchasers could have an adverse effect on our operations.

For the year ended December 31, 2022, two purchasers individually accounted for 10% or more of our oil and natural gas revenues and, in the aggregate, for 38% of such revenues. The loss of a large single purchaser could adversely impact the prices we receive or the transportation costs we incur.

Sales & Marketing1 | 3.2%

Sales & Marketing - Risk 1

Commodity derivative contracts may expose us to potential financial loss.

To reduce our exposure to fluctuations in the prices of oil and natural gas, we enter into commodity derivative contracts in order to economically hedge a portion of our forecasted oil and natural gas production. As of February 22, 2023, we have oil derivative contracts in place covering approximately 27,000 Bbls/d for the first half of 2023, 23,000 Bbls/d for the second half of 2023, 2,000 Bbls/d for the first half of 2024, and 1,000 Bbls/d for the second half of 2024. Such derivative contracts expose us to risk of financial loss, including when there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received, when the cash benefit from hedges including a sold put is limited to the extent oil prices fall below the price of any sold puts in our derivative portfolio, or when the counterparty to the derivative contract is financially constrained and defaults on its contractual obligations. In addition, these derivative contracts may limit the benefit we would otherwise receive from increases in the prices for oil and natural gas.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

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