Exxon to buy Denbury for $4.9 billion in carbon storage gamble

HOUSTON, July 13 (Reuters) – Exxon Mobil Corp (XOM.N) on Thursday agreed to buy Denbury Inc. (DEN.N) for $4.9 billion to accelerate its energy transition business with an established carbon dioxide (CO2) sequestration operation.

The acquisition, which sent shares of both companies lower, gives Exxon off-the-shelf CO2 transportation and highlights its bets on make carbon capture a profitable business. US Tax Credits for reduce the gases that warm the planet they have started a race to build carbon capture sites.

But large-scale adoption of carbon sequestration remains uncertain due to costs and technical challenges, which were reflected in the deal’s price. The offering of all Exxon shares valued Denbury at a 1.9% premium to Wednesday’s closing share price.

Denbury CEO Chris Kendall said in a statement that it takes “significant capital and years of work” to fully develop its CO2 business, making deep-pocketed Exxon “the ideal partner with extensive resources and capabilities.

Denbury, headquartered in Plano, Texas, is an oil and gas producer that owns and operates a 1,300-mile network of CO2 pipelines in the US, including pipelines that stretch through the heart of the US petrochemical industry. Gulf Coast, where Exxon has sought to build a carbon hub.

Jefferies analyst Sam Burwell estimated that Exxon was paying $1.9 billion for Denbury’s carbon capture infrastructure and $3 billion for its oil production.

“The modest 2% extraction premium suggests to us that Denbury realized the difficulty of competing with Exxon to win CO2 extraction,” he wrote in a note.

SHARES FALL

Exxon shares fell 1.9% to $104.46 in afternoon trading. Denbury shares fell to $86.62. Its shareholders will receive 0.84 Exxon shares for every Denbury share.

Denbury, which makes most of its income from enhanced oil recovery, or pumping CO2 into wells to expel more oil, emerged from bankruptcy in September 2020 and its shares have risen nearly fivefold since the American companies adopted carbon sequestration to reduce greenhouse gas emissions. .

Its network of pipelines and sequestration sites will give Exxon a way to rapidly provide carbon removal services to carbon reduction clients like Linde AG and CF Industries. Exxon’s own offshore storage sites are years away.

“It’s a very logical and simple way for Exxon to leverage its existing business strength in carbon management technology,” said Pavel Molchanov, an analyst at Raymond James, but added that the deal is “very small for Exxon relative to its size.” “.

LOW CARBON BUSINESS

Carbon sequestration has been embraced by oil companies, including Chevron. (CLC.N)Western Oil (OXY.N) and Talos Energy (HOUSE.N)whose objective is to capture and store CO2 underground.

Exxon established its Low Carbon Solutions business two years ago with the goal of generating hundreds of billions of dollars in revenue from reducing emissions for itself and its customers. He has said the business, which includes carbon, hydrogen and biofuel storage, could overcome their traditional oil and gas operations as soon as a decade from now.

Last year, exxon hit its first commercial carbon storage deal with leading ammonia manufacturer CF Industries. In January, Exxon said it plans to start operations at its large-scale hydrogen plant in Texas in 2027 or 2028. Hydrogen is a potential clean fuel for utilities.

The Denbury deal “reflects our determination to profitably grow our low-carbon solutions business,” Exxon Chief Executive Darren Woods said.

Reporting by Sabrina Valle and Arathy Somasekhar in Houston, Arunima Kumar in Bengaluru; Edited by Savio D’Souza, Shilpi Majumdar and Conor Humphries

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