Exxon Mobil Corp. agreed to buy Denbury Inc. for $4.9 billion, its biggest acquisition in six years, in a deal that will provide the oil giant with the largest network of carbon dioxide pipelines in the US. Denbury, based in Plano, Texas, is valued at $89.45 per share as a result of the all-stock transaction, the businesses said in a statement on Thursday.
Denbury’s main resource is its 1,300 miles (2,092 km) of CO2 pipelines, which are essential if the US is to be successful in absorbing carbon emissions from extremely polluting enterprises like chemicals and refineries. Since the Inflation Reduction Act was implemented in August, the acquisition represents the single largest investment in carbon management. The law included ground-breaking climate provisions that offered businesses significant tax incentives to absorb CO2 emissions and deposit them underground instead of contaminating the atmosphere.
Accelerate business’ growth
The acquisition of Denbury will “allow us to move much more quickly than if we were to go out and try to build and replicate that infrastructure ourselves,” said Dan Ammann, president of Exxon’s Low Carbon Solutions business in a Bloomberg Television interview. It will “accelerate this business’ growth and do so in a very profitable manner.”
Exxon shares were down 2% in New York as of 11:27 a.m. Denbury saw a 1.6% drop.
Exxon’s climate strategy, which aims for net-zero emissions from its operations by 2050, is built on carbon capture, and purchasing Denbury would provide the oil giant with crucial and difficult-to-replicate infrastructure as it works towards that objective. Through 2027, Exxon has promised to invest $17 billion in projects that reduce carbon emissions. using its own processes to capture carbon and third parties in hard-to-decarbonize sectors is a priority.
The Exxon Shute Creek gas facility near LaBarge, Wyoming, which has collected more carbon than any other asset in the US, is connected to Denbury’s Rocky Mountain assets.
The Inflation Reduction Act, which increased tax credits by 70% to $85 per tonne of CO2, is a significant driver for carbon capture. Executives have praised the Act for providing financial assistance for carbon capture, which Morgan Stanley claims may be extremely profitable thanks to the tax incentives. Exxon CEO Darren Woods is one of these executives.
Access to 47,000 barrels of oil per day
Additionally, the agreement will provide Exxon access to 47,000 barrels of oil per day, or around 1% of its total production. Since purchasing its primary Permian Basin acreage position from the Bass family for around $6.6 billion in 2017, it is Exxon’s largest acquisition.
Bloomberg Intelligence’s Opinion: Another indication that the oil giant may favor carbon capture and sequestration over other types of low-carbon solutions is the proposed $4.9 billion all-stock transaction for Denbury. With a dedicated pipeline network and existing oil fields that use C02 for increased oil recovery, Denbury substantially fills gaps in Exxon’s portfolio of CO2 assets. – Senior industry analysts Brett Gibbs and Fernando Valle
Read the complete report here: The agreement solidifies Denbury’s amazing return after it declared bankruptcy in 2020 as a result of the sharp decline in oil prices caused by Covid-19’s crushing impact on global crude consumption. At the time, Denbury was an expert in enhanced oil recovery, a successful but expensive technique for removing oil from depleted fields using CO2. The Gulf Coast is where the majority of the US’s industrial emissions are concentrated, and more than 70% of Denbury’s pipeline network is located there.
Denbury Chief Executive Officer Chris Kendall remarked in an interview that “our advisors really worked to find the best way to maximize value for this company.” “Exxon clearly became the best option to see a partner with us, to bring the same focus, to share the same belief in CCS as a great tool for decarbonization and decarbonize that together.”
Since emerging from bankruptcy, Denbury stock has increased fourfold as enhanced oil recovery techniques have become more valuable as a way to pump carbon dioxide into the ground and stop it from leaking into the atmosphere, a tactic that many believe is necessary for combating climate change.