Exxon to buy Pioneer for US$60 billion to dominate shale oil industry
EXXON Mobil has agreed to buy Pioneer Natural Resources for US$59.5 billion, its largest takeover in more than two decades, as it seeks to become the dominant producer of shale oil.
Exxon will pay US$253 per share in an all-stock deal, according to a statement on Wednesday (Oct 11). The agreement paves the way for Exxon’s biggest acquisition since merging with Mobil Corp in 1999 and is the world’s largest corporate takeover announced this year.
The transaction amounts to an 18 per cent premium for Pioneer investors, based on the closing price on Oct 5, when reports of the impending deal began to swirl. If finalised, the combination will make Exxon the biggest player in the Permian Basin of Texas and New Mexico and bring the company’s daily production to nearly 4.5 million barrels of oil equivalent a day – 50 per cent more than the next biggest supermajor.
The agreement will allow Exxon to boost daily output in the Permian region to the equivalent of 2 million barrels in 2027, or more than half of the oil titan’s current worldwide production. Exxon also pledged to reduce net-carbon dioxide emissions from Pioneer assets to zero by 2035, or 15 years sooner than originally planned, according to the release.
Exxon’s inventory of yet-to-be-drilled sites in the world’s biggest shale basin will expand, giving it access to a vast number of potential onshore wells that, unlike deepwater ones, can be brought online within months and make Exxon far more nimble at keeping pace with erratic global demand. The acquired assets will turn a profit even if crude prices dip as low as US$35 a barrel, Exxon said.
The combined company will control the equivalent of 16 billion barrels of crude reserves in the Permian region, according to the statement.
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Exxon combining with Pioneer would also be the biggest push yet by an oil major into the Permian, consolidating a wide swath of the patch where production has been fragmented and largely the province of independent producers. When shale output in the basin began to boom around the middle of the last decade, big companies like Exxon were nowhere to be found.
Supermajors initially shunned the Permian because they were skeptical the wells there could produce sufficient crude over a long enough period of time to yield big profits. It became clear, however, that low-cost, easy-to-drill shale wells enabled companies to quickly ramp up production when needed. It marked a revolutionary departure from Big Oil’s offshore mega projects that cost billions of dollars and require a decade of planning.
The Permian went on to become the western hemisphere’s most-prolific oil field, making the US the top global producer.
The majors began to take serious notice around 2017, when Exxon bought drilling rights in the Permian from the Bass family of Fort Worth for US$6 billion. Chevron, Shell and BP all went on to become big players there, too. Nonetheless, the basin still has more than 1,000 producers, and the majors only make up about 15 per cent of overall production.
Exxon has been hunting for another significant acquisition in the Permian for years. The stars, however, never quite aligned. The company’s finances took a hit during the pandemic as oil prices plunged and as it ramped up spending on large global projects, forcing Exxon to borrow billions of dollars to pay dividends.
The war in Ukraine changed the landscape. Exxon had already been pulling back on spending, cutting costs and reaping the benefits of pandemic-era investments. Then Russia’s invasion sent oil prices surging. Exxon’s profits jumped to a record US$59 billion in 2022. Its stock gained more than 80 per cent last year, providing the financial firepower for an era-defining deal with Pioneer.
The deal is apt to face tough antitrust scrutiny from the Federal Trade Commission. President Joe Biden has asked the commission to investigate high gasoline prices and last year singled out Exxon’s record profits, accusing the company of making “more money than God.” BLOOMBERG
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