ExxonMobil looking to grow low-carbon solutions business through targeted M&A

Exxon Mobil Corporation is looking for M&A opportunities that leverage or extend its own technologies or skillsets to build out its Low Carbon Solutions business, chief executive officer Darren Woods said during a brief update on M&A during the company’s second quarter conference call.

In the upstream oil and gas business, the company is focused on M&A opportunities that help drive down costs or add significant value, Woods added. ExxonMobil has cut costs by $8.3 billion since 2019.

“We’re pretty picky acquirers. I don’t see us changing that position,” Woods said, adding that any prospective deals need to create unique value and, “the opportunities have to be bigger than what ExxonMobil or any potential acquisition could do independent of one another.”

While no details were released on a move for Pioneer Natural Resources Company — the two sides are reported to have held preliminary talks about a potential deal earlier this year — Woods alluded to some of the company’s strategic thinking in the current M&A climate.

Evaluate Energy M&A users have access to data and analysis metrics on every major deal around the world in the upstream and wider energy sectors. Find out more here.

Denbury Acquisition

Source: ExxonMobil Acquisition Presentation. For more on Evaluate Energy Documents, watch a short video here or click here for more information. 

The recent US$4.9-billion acquisition of Denbury Inc., a developer of carbon capture, utilization, and storage (CCUS) solutions and enhanced oil recovery (EOR), provides an example of the type of deals ExxonMobil is targeting.

The Denbury acquisition helps fast-track the company’s low-carbon objectives, he said.

“It significantly enhances our competitive position and offers a compelling customer proposition to economically reduce emissions in hard-to-decarbonize heavy industries which, today, have limited, practical options.”

The acquisition provides ExxonMobil with the largest owned and operated CO2 pipeline network in the U.S., at 1,300 miles. The network covers areas of Louisiana, Texas and Mississippi, and is close to various onshore sequestration sites.

The transportation and storage system could accelerate CCUS deployment for ExxonMobil and third-party customers over the next decade, the company noted. It also underpins development of other low-carbon technologies including hydrogen, ammonia, biofuels and direct air capture.

The Denbury deal adds Gulf Coast and Rocky Mountain oil and gas assets with proved reserves of over 200 million boe, and 47,000 boe/d of current production — though this is supplementary to Exxon’s pursuit of the company, said Woods.

“That, frankly, for us, was not a key driver or strategic driver of the opportunity. I think EOR, certainly in the short term, can play a role. But if you think about the broader opportunity, it’s really around carbon capture, storage, and sequestration and keeping the carbon under the ground. So that’s the longer-term play for us.”

Woods said as ExxonMobil continues to invest in and understand new low-carbon technologies it will gain clarity regarding prospective M&A targets.

“The more we do that, the more we advance our technology portfolio, the bigger the opportunity to identify unique value opportunities with other companies. And so, we are continuing to look for that. But we’re not going to compromise our expectation of generating returns and growing value for shareholders.”

The company said it plans to invest $17 billion on lower-emission initiatives between 2022 and 2027 — a 15 per cent spending hike from a year ago — as it reshapes its business as part of a broad, long-term decarbonization effort.

That includes tripling the size of the Low Carbon Solutions unit, pointing at a major structural realignment to come over the next decades.

In forward modelling, capex on low-carbon projects will broadly match that of traditional oil and gas by 2030, the company estimates, and eventually dominate spending by 2040.

ExxonMobil has not moved big into solar and wind, although it is eyeing potential opportunities in lithium production for EV batteries. It is more focused on what Woods calls “the molecules side.”

He also suggested that a narrow focus on wind, solar and electric vehicles (EV) may have hindered progress on low-carbon efforts, referring to it as “an incomplete solution set,” at the expense of other alternatives such as hydrogen or CCUS.

“The fact that other alternatives and other solutions — that, frankly, at the time we were advocating for and, in fact, trying to develop internally — weren’t considered, or actually weren’t accepted, has slowed society’s progress,” he said.

ExxonMobil emissions declining

ExxonMobil’s Scope 1 GHG emissions dropped from 109 million tonnes of CO2e in 2016 to 96 million tonnes in 2021, though it has not always followed a straight, downward trajectory.

It also reduced Scope 1 and 2 emissions intensity in operated assets by more than 10 per cent, it noted in its 2023 Advancing Climate Solutions Progress Report, resulting in an approximately 15 per cent absolute reduction through year-end 2022 versus 2016 levels.

Methane emissions intensity on operated assets, and absolute methane emissions, are down by more than 50 per cent over the same period.