22 Sep 2023
Two recent acquisitions in the oil patch caught the attention of many in the industry, as they should. Exxon Mobil bought Denbury for $5 billion and Occidental (boasting Warren Buffet as its largest shareholder) bought Carbon Engineering for $1 billion.
Both are notable deals, given the size of the transactions and the financial muscle of the acquirers. What grabbed my attention most was what the acquirees bring to the table by way of enhanced oil recovery by using CO2. Denbury is the largest enhanced oil recovery firm in North America and Carbon Engineering has a significant direct air capture plant that is currently under construction in the Permian basin in Texas.
What these transactions reinforce to like-minded energy veterans and professionals – who understand the need for a sustainable energy transformation – is the need to capitalize on existing, proven approaches rather than an obsession to reinvent the energy system.
These deals prove that Big Oil is fully committed to an energy transition, but only one that is based on reality and hard facts. There is no sustainable transition to lower emissions without fossil fuels. In a world of fractured energy security and affordability worries globally, spurring CO2 carbon management by managing (and growing) existing infrastructure and oil recovery ecosystems makes good sense, and these two transactions cement that thesis.
Here are two perfect examples of existing, established energy companies that can vastly accelerate carbon management by leveraging existing infrastructure, including enhanced oil recovery, by scaling up the following key elements of carbon capture:
- Capturing CO2 directly from industrial sources
- Deploying further air capture projects around the US and Canada
- Placing CO2 into enhanced recovery fields and geologic storage
With the new muscle injected into Denbury and Carbon Engineering, we expect much larger buckets of capital to be put to work across the carbon capture realm which should lead to a re-rating of overall Carbon Capture and Storage (CCS) technology.
A successful transition will be easier to achieve if energy companies play a larger part in it and low-carbon technologies such as carbon capture and hydrogen are well suited to the oil industry’s skills and capital budgets.
Now, with ‘capital on steroids’, we believe that Denbury’s already robust CO2 pipeline infrastructure is positioned to see significant growth. Applying the same bullish outlook for direct air capture, the Carbon Engineering unit of Occidental can capture CO2 from the air to be used to increase oil production.
Both case studies reinforce a simple fact; enhanced oil recovery is the original CCS whereby CO2 is both stored permanently and used to create additional energy production. Therefore, the harmful emissions, or greenhouse gases (GHG) are being removed while increasing energy security and affordability.
With regulatory practices and infrastructure already in place in the US, Big Oil and smart money will continue to follow the Exxon and Occidental playbook to enhance the velocity of carbon management activity. That is ultimately for the greater good and gets us all one step closer to realistic and sustainable net zero goals.
Carbon Infrastructure Partners | https://carboninfrastructurepartners.com/