Exxon buys Denbury for $4.9 billion in CO2 gas pipeline

(Bloomberg) – 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 United States .

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The all-stock transaction values ​​Plano, Texas-based Denbury at $89.45 per share, the companies said in a statement Thursday.

Denbury’s main asset is 1,300 miles (2,092 kilometers) of dedicated CO2 pipelines, critical infrastructure if the United States is to succeed in capturing carbon emissions from heavily polluting facilities such as refineries and chemical plants.

The acquisition is the biggest investment in carbon management since the Cut Inflation Act was passed in August. The law included landmark climate provisions, offering substantial tax incentives for companies to capture CO2 emissions and store them underground rather than polluting the atmosphere.

Buying Denbury “will allow us to move much faster than if we were trying to build and replicate this infrastructure ourselves,” Dan Ammann, president of Exxon’s Low Carbon Solutions business, said in an interview with Bloomberg Television. This will “accelerate the growth of this business and do so in a very profitable way.”

Exxon shares fell 2% at 11:27 a.m. in New York. Denbury fell 1.6%.

Carbon capture is the foundation of Exxon’s climate strategy, which aims for net-zero emissions by 2050 from its operations, and buying Denbury would give the oil giant critical and hard-to-replicate infrastructure in pursuit of this goal. Exxon has committed to spending $17 billion on low-carbon investments through 2027. Capturing carbon from its own operations and from third parties in hard-to-decarbonize sectors is a priority.

Denbury’s Rocky Mountain assets are connected to Exxon’s Shute Creek gas facility near LaBarge, Wyoming, which has captured more carbon than any other asset in the United States.

The Cut Inflation Act is a key catalyst for carbon capture, increasing tax credits by 70% to $85 for every ton of CO2. Leaders, including Exxon CEO Darren Woods, hailed the legislation for its financial support for carbon capture, which Morgan Stanley said could be highly profitable through tax incentives.

The deal will also supply Exxon with about 47,000 barrels of oil per day, or about 1% of its overall production. It is Exxon’s biggest transaction since buying its core position in the Permian Basin from the Bass family for about $6.6 billion in 2017.

What Bloomberg Intelligence says

Exxon Mobil’s proposed $4.9 billion deal for Denbury is another sign the oil major will favor carbon capture and sequestration over other forms of low-carbon solutions. Denbury fills major gaps in Exxon’s portfolio of CO2 assets, including a dedicated pipeline network and existing oilfields that use C02 in enhanced oil recovery. – Fernando Valle and Brett Gibbs, senior industry analysts

– Read the full report here.

The deal cements a remarkable turnaround for Denbury, which went bankrupt in 2020 after oil prices plummeted as Covid-19 crushed demand for crude around the world. At that time, Denbury was a specialist in enhanced oil recovery, a reliable but expensive method of using CO2 to extract oil from old fields. More than 70% of Denbury’s pipeline system is on the Gulf Coast, home to the highest concentration of industrial emissions in the United States.

“Our advisors have really worked to find the best way to maximize the value of this business,” Denbury CEO Chris Kendall said in an interview. “Exxon has clearly become the best option to see a partner with us, to bring the same goal, the same belief in CCS as a great decarbonization tool and decarbonize that together.”

Since emerging from bankruptcy, Denbury’s stock has quadrupled as the techniques used in enhanced oil recovery have gained new value as a means of pumping carbon dioxide into the ground and preventing it from escaping. escape into the atmosphere – a strategy seen by many as essential for the world to meet its climate goals.

(Updates with Ammann’s comments from the Bloomberg Television interview in the fourth paragraph.)

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