Exxon Mobil to Acquire Pioneer Natural Resources in $60 Billion Stock Deal, Solidifying Dominance in Largest US Oilfield

Reports indicate that Exxon Mobil is poised to announce its acquisition of US rival  for approximately $60 billion; the strategic move will establish Exxon as the leader in the largest US oilfield, securing a decade of cost-efficient production.

According to insiders with knowledge of the situation, Exxon, valued at $442 billion as of Tuesday, is expected to make an all-stock offer exceeding $250 per share for Pioneer; the news unfolded Pioneer’s shares closing at $237.41 on Tuesday, marking an 11% increase since initial reports of the deal emerged last Thursday.

The Mega Acquisition
This proposed acquisition stands as the largest of the year and is Exxon’s most significant since its $81 billion purchase of Mobil Oil in 1998; however, Exxon has refrained from commenting on the “market speculation,” while Pioneer has yet to respond to requests for comment.

The completion of this deal will consolidate four major U.S. oil companies’ control over the Permian Basin shale field and its extensive oilfield infrastructure.

Antitrust experts believe that Exxon and Pioneer have a good chance of overcoming regulatory scrutiny, given that they represent only a fraction of the global oil and gas market when combined.

This acquisition comes after Exxon successfully recovered from significant losses and substantial debts over the past two years by cutting costs, divesting numerous assets, and benefiting from high energy prices driven by Russia’s Ukraine invasion.

Despite investor and political pressure to pivot towards renewable energy, Exxon’s CEO, Darren Woods, maintained a strategy heavily reliant on oil, which ultimately paid off with a record $56 billion profit in the past year.

Exxon had stashed away approximately $30 billion in cash from soaring oil prices, preparing for potential deals; meanwhile, Pioneer has emerged as one of the most prosperous oil companies in the shale revolution, becoming the third-largest oil producer in the Permian basin with exceptionally low production costs averaging around $10.50 per barrel of oil and gas.

Under CEO Scott Sheffield, Pioneer expanded through a series of significant acquisitions, including the multi-billion-dollar deals for DoublePoint Energy and Parsley Energy in 2021.

Exxon’s planned purchase of Pioneer would surpass Shell’s $53 billion acquisition of BG Group in 2016, which propelled Shell to the forefront of the global liquefied natural gas market.

In July, Exxon agreed to a $4.9 billion all-stock deal for Denbury Inc., a small U.S. oil firm with a network of carbon dioxide pipelines and underground storage, aimed at strengthening Exxon’s emerging low-carbon business.

Exxon’s stock price has rebounded significantly since its dip to approximately $30 in early 2020 when oil and gas prices plummeted, recently reaching an all-time high of $120 per share.

How Exxon’s Acquisition of Pioneer May Impact U.S. Shale Oil Industry
Exxon Mobil’s intended acquisition of Pioneer Natural Resources, the leading Permian shale producer, could further limit production growth in the largest U.S. oilfield.

As industry experts and energy advisors have pointed out, the consolidation can potentially affect pipeline companies and suppliers.
A combination of factors, including consolidation, rising costs, and investor demands for returns, has diminished production growth in the Permian shale formation in recent years.

Despite pumping more oil, U.S. oil producers have experienced a slowdown in growth due to reduced drilling activity.

Moreover, mergers have also eaten into drilling budgets, resulting in a 10% reduction in active drilling rigs in the Permian over the past year.
Likewise, the decline in drilling rigs has had broader implications, impacting the oilfield service business and pipelines as well as leading to job cuts at acquired companies.

According to antitrust lawyers and experts, the Exxon-Pioneer deal could grant considerable leverage in contract negotiations with service providers due to its size and volume; the White House would face challenges in thwarting the acquisition.

“There’s no question the position of that magnitude or size would give them considerable leverage in negotiating or contracts with the service providers,” said Ben Crook, a portfolio manager at Hennessy Energy Transition Fund.

Pioneer primarily relies on Targa Resources pipelines for oil transportation to the market, while Exxon’s primary pipeline partners are Energy Transfer and, to a lesser extent, Targa.

The combined entity could potentially optimize pricing by channeling more volume through pipelines it co-owns, such as the Wink-to-Webster line in a joint venture that includes Plains All American and MPLX, among others and in the world of contracting, volume often holds a significant advantage, and the merged company could benefit from this dynamic.

The Last Bit, The acquisition of Pioneer Natural Resources by Exxon Mobil is a defining moment as it not only solidifies Exxon’s dominance in the U.S. oil industry but also presents opportunities and challenges for both companies and the sector as a whole.

As the deal unfolds and the energy transition continues, the consequences of this merger will undoubtedly have a lasting impact on the future of the oil and gas industry.