ExxonMobil agreed to purchase Pioneer Natural Resources for $59.5bn, a deal that will unleash a consolidation wave in the US Shale Oil industry.
The largest western oil supermajor announced on Wednesday that it had closed an all-stock transaction, which values Pioneer at $253 per share. The deal gives Exxon the dominant position in Permian basin, the vast oil and gas field in western Texas & New Mexico. This has made the US the largest oil & gas producer in the world.
It is also the first significant acquisition under Darren Woods, who has led Exxon since 2017. This is the first significant acquisition under Darren Woods who has been leading Exxon since 2017.
Woods said that the combined capabilities of both companies would create long-term value far beyond what either company could do on its own.
Exxon’s bet on Pioneer shows its resolve to increase oil production, despite predictions that climate change would eventually force the world switch to renewable energy sources. BP, in contrast to Exxon’s goal of reducing oil and gas production by 25 percent by 2030, is aiming for a similar reduction.
Exxon pays an 18% premium for Pioneer, based on its closing share price of Thursday when the news about the transaction was leaked. Enterprise value, including net debt is approximately $64.5bn.
Exxon, based in Houston, has been looking for acquisitions since amassing substantial cash over the last year. Exxon profits reached a record after Russia’s full-scale invasion of Ukraine.
Analysts believe the deal will lead to consolidation in the fragmented US Shale industry. This sector has seen booms and busts over the last decade.
Wall Street forced shale oil and gas operators to abandon costly drilling projects from scratch after years of reckless spending. Acquisitions are the only way to secure a decreasing number of prime drilling locations.
Andrew Dittmar of consultancy Enverus said that the transaction was a “significant victory” for Exxon, and a reasonable conclusion for Pioneer.
RBC Capital Markets says that Pioneer is the dominant operator in the Permian basin and that the deal will bring 15 percent of the basin’s production under Exxon.
Exxon will more than double its output in the Permian oil field to 1.3mn bbls of oil-equivalent per day after the acquisition. Exxon said that the transaction would transform their oil and gas business, lowering costs and increasing their capacity to quickly boost production.
Woods said to reporters that increasing the scale of production in the Permian was “good for the environment”.
Woods said, “As long the world requires oil and natural gas, we will all focus on finding the most responsible, efficient and effective operator to produce oil and natural gas and do it with the least carbon intensity.”
Permian oil produces 5.8mn barrels a day out of the total US oil production of 13mn b/d.
Experts said that the deal will likely be scrutinized by US regulators, but it should still pass approval because the combined Permian holdings of the two companies only represent a small fraction of the global oil production.
Scott Hanold is an analyst at RBC Capital Markets. He said that a Federal Trade Commission investigation was possible, but the combined market share did not appear to warrant action.
Pioneer’s sale follows Sheffield’s announcement in April that he would retire a second-time at the end this year. He stepped down from the company in 2016, but returned to it three years later.
The tie-up of Exxon with Pioneer puts pressure on Chevron’s acquisition strategy in order to make sure that its oil assets are competitive.
Shares of several Permian companies, such as Diamondback Energy and Permian Resources, soared on speculation they could be acquired.