The King of Carbon

Exxon Mobile just secured it's future and America too!

On 10/12/2023 news broke that Exxon Mobil will acquire Shale driller Pioneer Natural resources for $60 billion. This is Exxon Mobil second major acquisition of 2023 and the biggest since it’s acquisition of Mobile in 1999 for $79 billion and XTO in 2009 for $36 billion. This deal will double Exxon’s arceage and production numbers while lower it’s breakeven cost in the Permain. Bring Exxon’s Permain production to 1.3 million b.o.e and total production to 4.5 million b.o.e. Exxon’s Permain production are set to exploded in the futrue as the company will be deploying novel frac technology—frack more precisely along the well so that more oil-soaked rock gets drained & developing methods to keep the fracked cracks open longer so as to boost the flow of oil—production is only set to increase. Coupled with curret refrac technology which can be up to 40% cheaper than a new well and double or triple oil flows from aging wells, Exxon has cement it’s future production!

Exxon’s finished it’s porfolio upgrade and deriskement with recent M&A activities giving Exxon increased it’s exposeure of short cycle barrels (~40%+ from 28% ) and became more U.S. centeric (~45% from 31% today). Allowing the company to have better responses to market forces—such as prices swings—and geopolitcal risk such as the resources nationalism fever that has sept thru the developing world. Hedging this way is a senseible managerial decision. Allowing Exxon to extract value all along to price cruve all without incuring expoloration and legal cost. Tilling it’s portfolio more towards the United States my come as a surprise to many people, however, giving that the United States is the only country were personal proerty is extended to mineral rights, it makes sense from a geopolitcal point regardless of reverses.

The market seemed to be in high praise of this deal—no doubt the investment bankers are high fiving each other from those fees—but the market is seeing the tip of the iceberg. Exxon’s leastest deals are tail end of a transformation that people do not yet understand, but they soon will. The geneis of the transformation started in 2009:

• with the purchase of XTO energy—then the leading natural gas company in the United States

• upgradeding it’s refinery portfolio to produce lower sulfur & low carbon intenst fuels

• Purchase of Permain assets from the Bass Family

• next came the building out it’s chemial plants to take advantage of low feed stock producing value added products

• their plan to double their LNG handling to 40 million annually up from 22 million today

• working on developing the Houston CCS Innovation Zone

• Exxon’s agreement to develop more than 6,100 lithium-rich acres in Arkansas with Tetra Technologies Inc (TTI.N)

• Purcahse of Denbury For $4.9 Billion In "Hard To Replicate" CO2 Pipeline Push

• Finally it’s purchase of Pioneer Resources

CEO Darren Woods masterful navigation of Exxon thru his tenture has been something to admire. He has mightly handed assaults from outside—influence from large asset managers costing him three board seat as the result passive indexing to Exxon’s first back-to-back quarterly loss in 36 years—while laying the foundation for vast shareholder wealth in the future. He has poistion Exxon to thrive in the new energy paradigm, transforming itself from an pure liquid hyrdocarbon company to a carbon company handling all aspects of carbon from drilling, logistic (pipelines, trucking, & shipping), marketing(retail), chemicals—value added products like paints, fertilizer, plastics—to the removing & sequestering of carbon. The company’s structures will allow Exxon to drill for oil & natural gas in any price enviorment, supply lithum for batteriers which will make up for some of the gas demand lost thru EVs adoption, deliver low carbon natural gas and LNG—which is forecasted by the I.E.A to grow even in a net zero scenario—helping developed countries replace their coal fleet, E.O.R (enhanced oil recovery), & sequestering carbon!

Let’s take a look at Exxon purchase of Denbury Inc. for $4.9 billion for some clarity

Denbury is a premier carbon solutions company focused on responsibly meeting the world’s energy needs while reducing global carbon dioxide (CO₂) emissions. We are strategically focused on Enhanced Oil Recovery (“EOR”) and Carbon Capture, Utilization, and Storage (“CCUS”). Through our EOR operations, we use CO₂, both natural and from industrial sources, to increase production from mature oil fields. Our operations are based in the Gulf Coast and Rocky Mountain regions, with 202.2 million barrels of oil equivalent (“MMBOE”) of estimated proved oil and natural gas reserves as of December 31, 2022.

Denbury has been using CO₂ in its EOR operations for more than 20 years and has been active in CCUS through the injection and repurposing of captured industrial CO₂ emissions since 2013. Using captured industrial-sourced CO₂ prevents its release into the atmosphere. We own and operate the largest CO₂ pipeline network in the U.S. and have extensive experience managing the safe transportation and injection of more than 14 million metric tons of CO₂ every year.

This set up will give rise to the concept of Blue Oil—same concept as the color schemes of hyodren were blue indicates CCS usage or negative carbon measurements. Here is how Blue Oil is described by Denbury:

Blue Oil (Carbon-Negative Oil)

Utilizing CO₂ in EOR operations is a critical element to the successful development of the CCUS industry in the U.S. In our EOR operations, we are injecting more CO₂ to produce each barrel of oil than that oil barrel’s combined Scope 1, 2, and 3 emissions. These barrels are carbon negative when we utilize industrial sourced CO₂, and this carbon-negative or Blue Oil is an important energy transition fuel. Approximately 28% of our total production is Blue Oil, and we anticipate the scale of our Blue Oil operations to increase substantially in 2023 as the CCA project comes online. Earlier in 2022, we received third-party verification of the carbon-negative balance of the oil barrels in our West Hastings and Bell Creek fields, and we are pursuing third-party verification on all of our fields that utilize industrial-sourced CO₂. Ultimately, we believe that our Blue Oil is some of the most environmentally-friendly oil produced on the globe today.

With goverments policies on carbon and the globlal response to the Russo-Urkanie conflict—paradoxically creating a market for carbon—the handling, moving, useage & storage of carbon will be bounty for any company that can provided these services at scale. You tie this with the Houston CCS Innovation Zone & America’s Gwahar oil field the Permian, you get the largest oil & gas producing region & carbon sequestration region in the world. Exxon in fact says its decarbonization business could outgrow oil, in multi-trillion market.

Further positioning company to survival & thrive is how the deals were structured. All of the newly issued shares issued instead of cash-on-hand or debt will be repurchased and cancelled, undoing the dilution owners experienced, with all the new cash flows effectively converting it to a nearly all-cash deal (minus a necessary adjustment for the market price differential that occurred as the stock fluctuated in the interim, whereas it would have been a fixed amount in cash).

We are watching the makings of the most important energy company in the world with some of the best management and the market isn’t relfecting it. Exxon is selling for 8.86 times at the current time of this publication, the makings of a compelling investment case.

Big Oil will become Big Carbon with Exxon it’s disputed leader all hail THE KING OF CARBON.

This is not investment adivce. I am not a financial advisor this are merely though processes and guidance to my child. Please seek your own advisor and do you homework.