Analysts: Exxon-Denbury Deal Adds Meaningful CCS Scale for the Future

Exxon Mobil Corp.’s $4.9 billion bid to acquire Denbury Inc. delivers immediate cash flow in the near term. Analysts say the deal will better position the U.S. supermajor in carbon capture, utilization and storage (CCUS)—a maturing space where Exxon is planning to pour billions of dollars in the coming years.

“We think the deal makes a ton of sense for [Exxon] as [Denbury’s] 1,300 miles of CO₂ pipeline would have been difficult, costly and, most importantly, time consuming for [Exxon] to replicate across the high emitters along the Gulf Coast,” analysts at Capital One Securities wrote in a July 13 market note.

CCUS is one of the major pillars in Exxon’s Low Carbon Solutions strategy. Exxon, which relocated its corporate headquarters to the Houston region this summer, plans to invest around $17 billion in low-carbon initiatives through 2027.

Around 60% of that spend will contribute to reducing emissions from Exxon’s own operations. In an exclusive interview with Hart Energy earlier this year, Exxon Chairman and CEO Darren Woods said the company aims to build out a value chain for it to develop more products with no carbon footprint.

The remaining 40% of Exxon’s planned low-carbon spend—about $7 billion—will go toward its Low Carbon Solutions business to aid other customers in reducing emissions.

Exxon has already secured several CO₂ offtake agreements with third-party customers, including steelmaker Nucor Corp., fertilizer maker CF Industries and industrial gas company Linde.

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While Exxon has won high-quality offtake agreements, the company did not have any existing CO₂ pipeline infrastructure of its own, analysts at Jeffries wrote.

And, the clock is ticking on obligations for some of its CO₂ offtake deals: Exxon’s agreement to transport and permanently store up to 2.2 million metric tons annually (mtpa) of CO₂ from Linde’s hydrogen production facility in Beaumont, Texas, is expected to begin in 2025.

“Enter [Denbury], which possesses the only CO₂ pipelines on the U.S. Gulf Coast, headlined by the 16-mtpa Green Pipeline, which runs from Houston to central Louisiana,” Jeffries analysts wrote.

Denbury also brings its own sizable pipeline of agreements in hand, including future storage of more than 22 mtpa of CO₂ emissions from existing and proposed industrial plants, the company said in Securities and Exchange Commission filings.

“[Denbury] is still in the early stages with CCUS, and we think it makes industrial sense to be part of a larger organization that can execute and accelerate the timeline,” said Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co.

The transaction marks one of the first significant public M&A deals where CCS assets make up the bulk of the value, said Andrew Dittmar, director at Enverus Intelligence Research.

Denbury’s CCUS business is valued at about $2.8 billion, according to Enverus’ analysis.

“Holistically, we believe that placing this business into the hands of a mega cap, [investment grade]-rated balance sheet lowers the cost of capital for agreements already signed and is a net positive for carbon sequestration on the Gulf Coast,” analysts at KeyBanc wrote.

Exxon is acquiring Denbury in an all-stock deal valued at $89.45 per share based on Exxon’s closing price as of July 12, the companies announced July 13. Under the terms of the agreement, Denbury shareholders will receive 0.84 shares of Exxon Mobil for each Denbury share.

However, for a CCUS and an EOR player like Denbury—which has seen its stock trade above $90 per share often in the past year—the pricing of the deal seems soft, KeyBanc said. The firm’s extensive conversations with Denbury investors last year suggested they were seeking an acquisition price well above $100 per share.

KeyBanc said it is “surprised and somewhat underwhelmed by the terms and believe[s] [Denbury] shareholders may have the same view.”

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Upstream considerations

The real driver of the deal for Exxon is access to Denbury’s extensive network of CCUS infrastructure, particularly in the Gulf Coast region, Dittmar said.

But acquiring Denbury and the company’s EOR operations does deliver a bit more upstream production to Exxon.

Denbury makes the majority of its money selling crude oil and natural gas. The company generated about $341 million in first-quarter revenue and around 92%, or $314.5 million, came from sales of oil, gas and other products, according to Denbury’s latest earnings report.

The company saw average daily sales of around 47,000 boe/d during the first quarter; oil production came in at around 46,000 bbl/d.

Denbury’s upstream assets carried a value of around $1.7 billion, according to Enverus analysis.

“These are low-decline assets that complement [Exxon’s] current focus on short-cycle, high-decline shale wells in the Permian, if a very small incremental add for a company with nearly 4 million boe/d of global production,” Dittmar said.

Acquiring Denbury’s network of EOR assets is expected to provide Exxon immediate cash flow of around $600 million per year. The EOR assets also give Exxon near-term optionality for its CO₂ offtake agreements and the execution of its carbon storage business, the company said in an investor presentation.

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