Exxon Mobil agreed to buy Denbury Inc for $4.9 billion on July 13, to accelerate its energy transition business with an established carbon dioxide (CO2) storage operation.
The deal gives Exxon ready-made CO2 transportation and highlights its bets on making carbon capture a profitable business. U.S. tax credits fo r lowering global-warming gasses have set off a race to build carbon capture sites.
However, wide-scale adoption of carbon storage remains uncertain because of costs and technical challenges, which were reflected in the deal price. Exxon's all-stock offer valued Denbury at a 1.9% premium to its closing stock price on July 13.
"Significant capital and years of work" are required to fully develop its CO2 business, making deep-pocketed Exxon "the ideal partner with extensive resources and capabilities," said Chris Kendall, CEO of Denbury.
Texas-based Denbury is an oil and gas producer that owns and operates a 1,300 mile CO2 pipeline network in the U.S., including pipelines that across the Gulf Coast's petrochemical industry heartland, where Exxon has sought to build a carbon hub.
Jefferies analyst Sam Burwell estimated Exxon was paying $1.9 billion for Denbury's carbon capture infrastructure and $3 billion for its oil production. "The modest 2% takeout premium suggests to us that Denbury realized the difficulty in competing with Exxon to win CO2 offtake," he noted.
Carbon storage has been embraced by oil companies including Chevron, Occidental Petroleum and Talos Energy which aim to capture and store CO2 underground.
Exxon set up its Low Carbon Solutions business two years ago, with the aim of generating hundreds of billions of dollars from cutting its and customers' emissions. It has said the business, which includes carbon storage, hydrogen and biofuels, could surpass its traditional oil and gas operations as soon as in a decade.
Last year, Exxon made its first commercial carbon storage deal with top ammonia maker CF Industries. In January, Exxon said it plans to start operations at its large-scale hydrogen plant in Texas in 2027 or 2028.