In a push to expand its low carbon opportunities on the Gulf Coast, ExxonMobil agreed Thursday to pay $4.9 billion to acquire Denbury Inc., a leading carbon capture developer.
Denbury, an enhanced oil recovery (EOR) specialist, is working on several carbon capture and storage (CCS) projects on the Gulf Coast, with extensive carbon dioxide (CO2) infrastructure. ExxonMobil also has CCS projects in the works on the Gulf Coast. In addition, the company has pushed for an estimated $10 billion carbon capture venture to store Houston Ship Channel petrochemical emissions.
In addition to Denbury’s CCS assets, the acquisition includes Gulf Coast and Rocky Mountain oil and natural gas operations. These operations include proved reserves totaling more than 200 million boe, with 47,000 boe/d of current production.
“Acquiring Denbury reflects our determination to profitably grow our Low Carbon Solutions business by serving a range of hard-to-decarbonize industries with a comprehensive carbon capture and sequestration offering,” said CEO Darren Woods.
“The breadth of Denbury’s network, when added to ExxonMobil’s decades of experience and capabilities in CCS, 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.”
The acquisition, estimated at around $89.45/share, is based on ExxonMobil’s closing price on Wednesday (July 12). Under the agreement, each Denbury share would be traded for a 0.84 share of ExxonMobil.
CO2 Pipeline Leader
The transaction synergies are expected to drive growth for the supermajor, which recently completed its corporate move to Houston from Irving, TX.
“The acquisition of Denbury provides ExxonMobil with the largest owned and operated CO2 pipeline network in the U.S. at 1,300 miles, including nearly 925 miles of CO2 pipelines in Louisiana, Texas and Mississippi – located within one of the largest U.S. markets for CO2 emissions, as well as 10 strategically located onshore sequestration sites.”
“A cost-efficient transportation and storage system accelerates CCS deployment for ExxonMobil and third-party customers over the next decade and underpins multiple low carbon value chains including CCS, hydrogen, ammonia, biofuels and direct air capture.
Denbury CEO Chris Kendall called the transaction “a compelling opportunity” for the company “to join an admired global energy leader with a low-carbon focus, a robust balance sheet and a leading shareholder return program.
“Over the last few years, Denbury has made significant progress executing our strategic plan, strengthening our enhanced oil recovery operations and capitalizing on our unrivaled infrastructure to accelerate the growth of our CO2 transportation and storage business.”
To build on its momentum, Kendall said the board and management team “undertook a thorough review process and considered a number of alternatives to maximize long-term value. Through this process, it became clear that the transaction with ExxonMobil is in the best interests of our company, our shareholders and all Denbury stakeholders.
“Importantly, given the significant capital and years of work required to fully develop our CO2 business, ExxonMobil is the ideal partner with extensive resources and capabilities.”
ExxonMobil’s Dan Ammann, president of Low Carbon Solutions, pointed to Denbury’s “advantaged CO2 infrastructure,” which could “expand and accelerate ExxonMobil’s low-carbon leadership across our Gulf Coast value chains. “Once fully developed and optimized, this combination of assets and capabilities has the potential to profitably reduce emissions by more than 100 million metric tons/year (mmty) in one of the highest-emitting regions of the U.S.”
Each board has unanimously approved the merger, which is set to be completed by year’s end.
‘Makes Industrial Sense’
BMO Equity Research analysts said the acquisition accelerates ExxonMobil’s carbon capture, utilization and storage (CCUS) ambitions, “given Denbury's CO2 pipeline infrastructure across the Gulf Coast and Rockies.
“The transaction makes clear strategic sense and Exxon brings synergies to Denbury's existing CCUS platform,” said BMO analyst Phillip Jungwirth. “Denbury has done an impressive job building CCUS business via storage sites and emissions agreements, in addition to the legacy pipeline system.”
BMO estimated that ExxonMobil is paying $2.5 billion for Denbury’s CCUS projects and around $2.4 billion for the EOR business, which stretches across the United States.
In addition, the Plano, TX-based independent has CO2 emissions agreements estimated at 22 mmty, according to BMO. The agreements span “blue ammonia, blue methanol, electric fuels, biofuels and hydrogen facilities.”
The Biden administration’s Inflation Reduction Act significantly enhanced CCUS incentives and project economics, Jungwirth noted.
Denbury’s CCUS forecasts, published in late 2022, indicated that CO2 captured volumes could be 17-22 mmty by 2026, 30-50 mmty by 2028, and 50-70 mmty by 2030, according to BMO.
Meanwhile, Siebert Williams Shank & Co. LLC analysts led by Gabriele Sorbara said from a valuation perspective, the deal “should not come as a surprise following speculation over the past year; however, we believed Denbury would garner a higher valuation…although we recognize emitter deal flow had recently languished with no new announcements since February 2023.”
Denbury, said Sorbara, “is still in the early stages with CCUS, and we think it makes industrial sense to be part of a larger organization that can execute and accelerate the timeline. We always found Denbury to be underappreciated by the market with an attractive sum-of-the-parts valuation.” The deal, said Sorbara, "should be favorable for the Denbury shareholders, given ExxonMobil’s size.”
The Jefferies Equity Research team led by Sam Burwell and Lloyd Byrne said the “modest” premium paid by ExxonMobil of around 2%, “suggests to us that Denbury realized the difficulty in competing” to win CO2 offtake on the Gulf Coast.
The combination “addresses key issues for ExxonMobil and makes the company even better positioned to scale up its CCUS business…”
Enverus Intelligence Research (EIR) director Andrew Dittmar said the deal “looks to be the first significant” public acquisition “where CCS assets make up the bulk of value.”
ExxonMobil, said Dittmar, is getting access to Denbury infrastructure “for less than the cost of acquiring the sites and building the pipeline separately. It also helps accelerate the timeline for ExxonMobil to achieve its CCS goals as building the pipeline would be a multi-year project.”
The EIR team in a recent note said CCUS “has gathered impressive momentum over the past two years as companies seek to exploit the technology’s economic and environmental benefits.”
In the United States, the number of Class VI well permit applications to the Environmental Protection Agency to permanently store CO2 underground “surged by 40, or 800%, between May 2021 and May 2023, owing largely to enhancements” to the Internal Revenue Service 45Q tax credit,” Enverus noted.
Each board has unanimously approved the merger, which is set to be completed by year’s end.
