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Oct 10, 2022

Exxon Mobil weighs takeover of oil recovery specialist Denbury

Paul Harris discusses Exxon

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Exxon Mobil Corp. is considering a takeover of Denbury Inc., an oil and gas producer with the largest carbon dioxide pipeline network in the U.S., according to people familiar with the matter.

Exxon has expressed preliminary interest in the Plano, Texas-based company, said the people, who asked to not be identified because the matter isn’t public. No final decision has been made and Exxon could opt against proceeding with a potential deal, they added. 

Shares of Denbury jumped as much as 12 per cent and traded at US$98.83 at 3:49 p.m. in New York Monday, giving the company a market value of about US$4.9 billion. A Denbury representative declined to comment, while an Exxon representative didn’t immediately respond to a request for comment. 

Denbury has more than than 1,300 miles (2,092 kilometers) of pipelines in the Gulf Coast and Rocky Mountains dedicated to transporting carbon dioxide. Carbon capture is the bedrock of Exxon’s climate strategy, which aims to eliminate operational emissions by 2050, and buying Denbury would give the oil giant critical and hard-to-replicate infrastructure as it pursues that goal.

If the takeover happens, it would also be the biggest carbon-management investment since the Inflation Reduction Act passed in August, providing large tax incentives for burying carbon dioxide. The legislation increased tax credits for carbon capture 70 per cent to US$85 a ton. Executives including Exxon CEO Darren Woods have praised the act for its financial support for carbon capture, which Morgan Stanley says could be highly profitable in the future.

Denbury has the most aggressive net zero target of any large U.S. oil company, aiming to be “carbon negative” on a Scope three basis, which includes customers’ emissions, by 2030. 

The company is working with an adviser exploring a sale, Bloomberg News reported in August. Denbury, which exited bankruptcy in 2020, has used carbon dioxide to squeeze out more crude from old oil fields for more than two decades, a process called enhanced oil recovery. EOR became unfashionable during the shale revolution for its high cost and low volumes, but recently came back into vogue for its green potential, specifically the ability to store more carbon in the ground than is emitted from the resulting oil.

Earlier this year, Exxon pledged to spend US$15 billion on lower-carbon investments through 2027, with carbon capture as a priority. Denbury’s Rocky Mountain assets are connected to Exxon’s Shute Creek gas facility near LaBarge, Wyoming, which has captured more carbon than any other asset in the U.S.

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