Exxon Mobil (XOM) announced on Wednesday it is buying Dallas based pipeline operator Denbury (DEN) for $4.9 billion, representing $89.45 per share as of its closing price on July 12, 2023. In an all-stock deal Denbury shareholders will receive 0.84 shares of XOM for each of its shares. There have been rumors of how Exxon was going to spend it’s $32 billion in cash, with rumors of Pioneer Natural Resources earlier in the year. The deal is a move by Exxon to solidify its asset base for transporting and storing carbon as part of its energy transition strategy.
The purchase enables the oil and gas giant to offer potential customers in the hard-to-decarbonize industries such as cement and stee a mode to capture carbon. Exxon Mobil Corp expressed preliminary interest in Denbury Inc back in October last year so the deal was not a total surprise. Exxon created its low-carbon business back in 2021 and has budgeted to spend $7 billion through 2027. They have also earmarked another $10 billion for curbing its own emissions.
Exxon Mobil CEO Darren Woods said the acquisition “gives us the opportunity to play an even greater role in a thoughtful energy transition, as we continue to deliver on our commitment to provide the world with the vital energy and products it needs.”
Stock Market Reaction
- Denbury NYSE (DEN) 85.88 -1.87 (- 2.13%)
- Exxon Mobil Corporation NYSE (XOM) 103.73 -2.76 (-2.59%)
- Lunchtime 7/13/23
Exxon has been aggressively shoring up this segment. Exxon has signed three agreements with large companies since October to capture, move and store carbon emitted from manufacturing plants.
- Fertilizer maker CF Industries scheduled to come online in 2025
- Industrial gas giant Linde scheduled to come online in 2025
- Steel producer Nucor scheduled to come online in 2026
“Bringing together the capabilities of what we’ve been building is going to create a more compelling value proposition,” said Dan Ammann, president of Exxon’s low-carbon solutions business. “It’s going to accelerate the profitable growth of the business and accelerate decarbonization, and that will help the U.S. overall and accelerate the world’s path to net zero.”
Denbury has 1,300 miles of pipelines used to move carbon dioxide from smokestacks to underground reservoirs, 900 miles of those pipelines are on the Gulf Coast near one of the country’s largest manufacturing hubs. By acquiring Denbury it also avoids new political oppositions from new infrastructure to transport CO2 which can be very costly in both time and money. DEN has the largest CO2 pipeline network in the U.S. (20% of U.S. CO2 pipeline infrastructure).
Exxon will also attain DEN’s Gulf Coast and Rocky Mountain oil and natural gas operations, which comprise proved reserves of over 200 million barrels of oil equivalent (with current production of 47,000 oil-equivalent barrels per day).
Denbury is a remarkable recovery story about taking advantage of changing times. DEN declared bankruptcy in 2019. It has been caught as did many in the space by plummeting energy prices and the COVID lockdown. It had acquired a lot of debt in expansion into pipelines and oil fields. The companies’ pipelines carry CO2 to depleted oil fields and retrieve more crude oil. DEN also later expanded into waste management.
“With the new tax credits put in place to support [carbon capture and storage], we pivoted our strategy hard to focus on CCUS [carbon capture, utilization and storage],” said
Chris Kendall, Denbury’s CEO, in an interview.
Since then, it has benefited from the Biden administration’s climate bill which rewards companies that store CO2 underground. DEN expanded its foothold in carbon capture and as such the flow on from billions in government tax credits has seen it achieve a massive recovery. Denbury doesn’t receive public funding directly in most cases, however its customers who capture the carbon the company will charge customers for handling their emissions.
Exxon has said it is on the lookout for more acquisitions that fit it’s strategy.
“When it’s an exceptional opportunity, we will look at that,” he said. “We’re focused on building this business.” Exxon’s Ammann added as it looks to accelerate its low-carbon business strategy.
From the TradersCommunity Energy Desk