Exxon Mobil Corp’s recent $4.9 billion acquisition of Denbury Inc is a significant boost to the energy giant’s plans for transitioning to a low-carbon economy. The deal aligns with Exxon’s strategy to develop an emerging market that focuses on profitably reducing greenhouse gas emissions.
One of the most popular strategies among U.S. oil and gas companies for emissions reduction is carbon sequestration. The availability of tax credits and incentives to bury carbon dioxide underground has led to a surge in the establishment of companies that provide financing for such efforts.
Denbury, based in Plano, Texas, has the largest carbon dioxide pipeline network in the United States, spanning nearly 925 miles from Texas to Alabama. With this acquisition, Exxon gains access to Denbury’s existing pipeline network and sequestration sites, which will allow the company to quickly offer carbon removal services to its customers Linde AG and CF Industries, which are engaged in carbon reduction initiatives. Exxon’s own offshore storage sites, on the other hand, are still several years away from being operational.
Raymond James analyst Pavel Molchanov describes the deal as a very logical, very straightforward way for Exxon to build on its existing business strength in carbon management technology. However, he also adds that the deal is relatively small for Exxon when considering the company’s overall size.
Exxon had launched its Low Carbon Solutions business two years ago with the aim of generating billions of dollars in revenue from emissions reduction activities. The business includes carbon storage, hydrogen, and biofuels, and Exxon believes it could outperform the company’s traditional oil and gas operations within the next decade.
Last year, Exxon entered into its first commercial carbon storage agreement with CF Industries, a leading ammonia producer. In addition, the company plans to commence operations at a large-scale hydrogen plant in Texas between 2027 and 2028. Hydrogen is viewed as a potential clean fuel source for utilities.
According to Exxon CEO Darren Woods, the Denbury acquisition reflects the company’s commitment to profitably expanding its low carbon solutions business.
The transaction is an all-stock deal and represents a 1.9% premium to Denbury’s closing price on Tuesday. The acquisition is expected to be completed in the fourth quarter of this year.
Denbury emerged from bankruptcy in September 2020, and its stock has since surged, increasing nearly fivefold. At the time of writing, Denbury shares were trading at $87.71, up five cents.
In conclusion, Exxon’s acquisition of Denbury is a strategic move to strengthen its position in the emerging market of carbon reduction and management. With access to Denbury’s extensive CO2 pipeline network and sequestration sites, Exxon can provide carbon removal services to its customers more quickly. This deal aligns with Exxon’s focus on transitioning to a low-carbon future and further establishes its Low Carbon Solutions business as a significant source of revenue.
