Exxon’s $4.9 billion Denbury deal boosts energy transition plans

  • Denbury owns major CO2 sequestration operations
  • Has the largest CO2 pipeline network in the US
  • All-stock transaction, 1.9% premium to Tuesday’s close

HOUSTON, July 13 (Reuters) – Exxon Mobil Corp ( XOM.N ) agreed on Thursday to buy Denbury Inc ( DEN.N ) for $4.9 billion, buying a company with a significant carbon dioxide (CO2)- sequestration operation that can accelerate its beginning energy transition business.

The agreement builds on Exxon’s plan to develop an emerging market that makes money by reducing its own and others’ greenhouse gases.

Carbon sequestration is the preferred strategy for US oil and gas companies to reduce emissions while continuing to expand oil and gas production. US tax credits and incentives for burying CO2 underground have unleashed a flurry of new businesses to help finance the effort.

Denbury’s existing CO2 pipeline network and sequestration sites will give Exxon a way to quickly provide carbon removal services to carbon reduction customers Linde AG and CF Industries. Its own offshore storage sites are years away.

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

Plano, Texas-based Denbury has the largest CO2 pipeline network in the United States, including nearly 925 miles of pipelines spanning from Texas to Alabama, along the Gulf Coast’s petrochemical industry.

Exxon started its Low Carbon Solutions business two years ago with the goal of generating hundreds of billions of dollars in revenue from cutting its own and others’ emissions. It has said the business, which includes carbon storage, hydrogen and biofuels, could outperform its traditional oil and gas business as soon as a decade from now.

Last year, Exxon entered into its first commercial carbon storage agreement with leading ammonia producer CF Industries. In January, Exxon said it plans to begin operations at its large hydrogen plant in Texas in 2027 or 2028. Hydrogen is a potentially clean fuel for utilities.

The Denbury deal “reflects our determination to profitably grow our low-carbon solutions business,” Exxon CEO Darren Woods said in a statement.

The all-stock transaction represents a 1.9% premium to Denbury’s Tuesday close of 0.84 Exxon shares for each Denbury share. The agreement is expected to close in the fourth quarter.

Denbury emerged from bankruptcy in September 2020 and its stock has jumped nearly fivefold since then. Shares rose five cents to $87.71 in early trading on Thursday.

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

Our standards: Thomson Reuters Trust Principles.

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