In order to speed up its energy transformation business with a recognized carbon dioxide sequestration operation, Exxon Mobil Corp on Thursday accepted to pay $4.9 billion to acquire Denbury Inc.
Exxon now has ready-made carbon dioxide transportation, highlighting its ambitions on turning carbon capture into a lucrative business. The acquisition, however, pushed shares of both firms lower. Building carbon capture plants has become more competitive as a result of US tax subsidies for decreasing global warming gases.
However, due to high expenses and technical difficulties, which have been reflected in the transaction price, the widespread use of carbon sequestration is still doubtful. Denbury was valued by Exxon's all-stock offer at a 1.9% excess to its stock price as of Wednesday's close.
According to Chris Kendall, Denbury CEO, building up its carbon dioxide business will take major investment and years of labor, making Exxon, a company with huge pockets and a wealth of resources, the right partner.
Denbury, a gas and oil business based in Plano, Texas, is the owner and operator of a 1,300-mile carbon dioxide pipeline system in the United States. This system includes pipelines that cross the region of the Gulf Coast which is home to the petrochemical industry, where Exxon has aimed to establish a carbon center.
According to Sam Burwell, an analyst at Jefferies, Exxon spent $3 billion on oil production and $1.9 billion on Denbury's carbon dioxide capture equipment. He mentioned in a note that it was challenging to compete with Exxon for carbon dioxide offtake, and this is shown by the tiny 2% takeout premium.
Shares decline
In afternoon trade, shares of Exxon fell 1.9% to $104.46. Shares of Denbury dropped to $86.62. In exchange for a Denbury share, its stockholders will get 0.84 of an Exxon share.
Since coming out of bankruptcy in September of 2020, Denbury, whose primary source of income is enhanced oil recovery — the practice of injecting carbon dioxide into wells to squeeze out more oil — has seen a roughly fivefold increase in stock value as American businesses have adopted carbon sequestration as a means of reducing greenhouse gas emissions.
With the use of its pipeline system and carbon sequestration facilities, Exxon will be able to immediately offer carbon removal solutions to clients who are engaged in carbon reduction, such as Linde AG and CF Industries. Offshore storage facilities by Exxon won't be ready for years.
According to Pavel Molchanov, a Raymond James analyst , it is a very natural and simple approach for the company to expand on its current commercial expertise in carbon control technology, yet the acquisition is fairly minor for Exxon in comparison to its size.
Low-carbon business
Oil corporations like Chevron, Occidental Petroleum, and Talos Energy have adopted carbon sequestration as a way to absorb and store carbon dioxide underground.
Exxon established its Low Carbon Solutions division two years before with the goal of producing hundreds of billions of dollars in income by reducing emissions from both itself and its clients. It has claimed that the company's business, which entails carbon storage, biofuels, and hydrogen, may surpass its conventional oil and gas activities in as soon as ten years.
With the leading ammonia manufacturer CF Industries, Exxon last year signed its initial commercial carbon storage agreement. Exxon stated in January that it intended to start operating at its massive hydrogen project in Texas around 2027 or 2028. Potentially, utilities might run on hydrogen as a green fuel.
According to Darren Woods, Exxon CEO, the Denbury transaction demonstrates the company's commitment to expanding its low-carbon solutions business profitably.