ExxonMobil Buyout Of Denbury Cements Its Status Atop The CCS World

As part of its $4.9 billion deal to acquire Denbury Inc. announced Thursday, ExxonMobil
XOM
, by far the largest carbon capture and storage (CCS) company in the U.S., will own and operate the nation’s largest CO2 pipeline network. That network encompasses 1,300 miles of pipe, 925 of which are sited across Texas, Mississippi and Louisiana, the Gulf Coast region that forms the major focus area for the Exxon’s plans for CCS growth.

In the company’s release, CEO Darren Woods makes clear these obvious synergies were a major factor in Exxon’s pursuit of the deal. “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,” Woods says. “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.”

Andrew Dittmar, Director at Enverus Intelligence Research, notes in an email that ExxonMobil’s willingness to direct this level of investment to an acquisition almost purely designed to beef up its CCS endeavors marks “another milestone in the maturing carbon capture and storage business.”

In addition to the pipeline assets, Dittmar points out that “buying DEN also adds 10 onshore sequestration sites. XOM is getting access to the sites and the pipeline via this deal likely for less than the cost of acquiring the sites and building the pipeline separately. It also helps accelerates the timeline for XOM to achieve its CCS goals as building the pipeline would be a multi-year project.”

Jeremy Klingel, Senior Partner at West Monroe, adds that acquiring Denbury helps ExxonMobil meet other key goals while also adding to its traditional oil and gas assets. “XOM remains true to their core business while making strides toward scaling lower carbon solutions,” Klingel told me in an email. “They not only gain access to the largest CO2 network in the US, but additional oil and natural gas assets in the Gulf and Rocky Mountains. Denbury’s technology not only assists in achieving XOM’s own carbon reductions goals but offers a practical and cost-effective solution to other carbon intensive industries seeking to make incremental improvements to operationally achieving ESG aspirations.”

In all, Denbury’s oil and gas reserves add over 200 million barrels of oil equivalent to ExxonMobil’s asset base. Denbury’s facilities are currently producing about 47,000 barrels per day, and will provide significant immediate cash flow.

Another advantage in the structuring of the agreement, Dittmar says, is ExxonMobil’s ability to execute an all-stock buyout. “While XOM adding CCS assets to its growing portfolio is not surprising, consideration in the deal slightly is with XOM using all stock as opposed to dipping into its vast cash hoard, which stood at more than $30 billion at the end of 1Q23,” Dittmar points out, adding, “That mirrors rival Chevron
CVX
using all equity in its $7.6 billion purchase of PDCE Energy in May of this year. In both cases, the use of stock may have been a preference of the seller as it allows some retention of upside and avoids a forced tax bill from shares being cashed out. Premiums in both deals were very modest, particularly for DEN with just a 2% premium on the prior-day stock price.”

The Bottom Line

This acquisition by ExxonMobil comes as no big surprise, especially given that rumors about a potential deal in the making between the two companies circulated last October. The numerous synergies between Exxon’s CCS plans and Denbury’s hard assets have long been obvious to schooled observers, making some sort of M&A or contractual arrangement between the two companies seemingly inevitable.

Now that this transaction is agreed, the pending outcome serves to enhance ExxonMobil’s status as the biggest player in a Gulf Coast-centric CCS sector that appears destined to become a boom industry across the next decade and more.