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ExxonMobil is doubling down on its carbon management business, announcing an almost $5bn deal for Denbury Resources that would give the oil supermajor access to the biggest pipeline network in the US for transporting and storing the greenhouse gas.
Denbury — which was among the dozens of US oil producers to succumb to bankruptcy during the 2020 price collapse — is a specialist in carbon management, in which emissions are transported and stored or used to pump more oil.
Texas-based Denbury has also emerged as a big beneficiary of the generous carbon capture tax credits on offer in President Joe Biden’s sweeping climate bill.
The all-stock transaction values Denbury at $4.9bn, roughly in line with its Wednesday closing price, and will give Exxon access to America’s biggest owned and operated CO₂ pipeline network, stretching 1,300 miles across the US, including 925 miles in Louisiana, Texas and Mississippi.
“The breadth of Denbury’s network, when added to ExxonMobil’s decades of experience and capabilities in [carbon capture and storage], gives us the opportunity to play an even greater role in a thoughtful energy transition,” said Exxon chief executive Darren Woods.
Exxon’s push into lower-carbon areas has focused on carbon capture and storage, hydrogen and biofuels. Unlike European rivals such as Shell and BP, however, it has avoided any shift into renewable energy.
The supermajor has vowed to spend $7bn on its low-carbon business through to the end of 2027, although critics have pointed out this is only a fraction of its spending on fossil fuels.
Denbury, a relatively small oil producer, has built up significant expertise in the “enhanced oil recovery” method of extraction, in which it uses its CO₂ pipelines to pump the greenhouse gas into ageing oilfields and boost their output.
Since the passage of the Biden’s Inflation Reduction Act, which gives generous tax credits to companies for locking away carbon underground, Denbury has sought to transform itself into a big player in CCS in order to capitalise on the handouts.
Chief executive Chris Kendall recently told the Financial Times that its expertise managing the greenhouse gas suddenly put the company in a “completely unique space” following the passage of the IRA and said it was more than doubling spending on early-stage CCS projects to $150mn.
Jason Gabelman, an analyst at TD Cowen, said the deal would most likely allow Exxon to “sidestep a potentially difficult process of building its own CO₂ pipeline in service of its own CCS ambitions” and “capture additional credit value under the IRA”.