ExxonMobil makes game changing $102 billion Pioneer takeover bid

ExxonMobil (NYSE: XOM) is set to create a global oil and gas “Megamajor” with an approximately $102 billion acquisition of US onshore unconventional oil and gas specialist Pioneer Natural Resources (NYSE: PXD).

Exxon said the move will more than double the company’s US Permian Basin shale footprint and create an industry-leading undeveloped US unconventional inventory position.

The merger combines Pioneer’s more than 850,000 net acres in the Midland Basin of the US with ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins, creating the industry’s leading high-quality undeveloped US unconventional inventory position.

Together, the companies will have an estimated 16 billion barrels of oil equivalent resource in the Permian basin.

At close, ExxonMobil’s Permian production volume would more than double to 1.3 million barrels of oil equivalent per day (moebd), based on 2023 volumes, and is expected to increase to approximately 2 million barrels of oil equivalent per day in 2027.

ExxonMobil chairman and chief executive officer, Darren Woods, said the combination transforms the company’s upstream portfolio by increasing lower-cost-of-supply production, as well as short-cycle capital flexibility.

More flexibility forecast

The company expects a cost of supply of less than $55 per barrel from Pioneer’s assets.

By 2027, short-cycle barrels will comprise more than 40% of the total upstream volumes, positioning the company to more quickly respond to demand changes and increase capture of price and volume upside.

“Pioneer is a clear leader in the Permian with a unique asset base and people with deep industry knowledge. The combined capabilities of our two companies will provide long-term value creation well in excess of what either company is capable of doing on a standalone basis,” Mr Woods said.

“Their tier-one acreage is highly contiguous, allowing for greater opportunities to deploy our technologies, delivering operating and capital efficiency as well as significantly increasing production. As importantly, as we look to combine our companies, we bring together environmental best-practices that will lower our environmental footprint and plan to accelerate Pioneer’s net-zero plan from 2050 to 2035.”

The boards of both companies have unanimously approved the transaction, which is subject to customary regulatory reviews and approvals. It is also subject to approval by Pioneer shareholders.

Creation of a Megamajor

Leading international energy analyst firm Wood Mackenzie says that with one very large dash of equity, ExxonMobil is gaining over 700,000 barrels of oil equivalent per day of Midland Basin production, adds around $8 billion of annual free cash flow, establishes a Permian resource base of over 16 billion barrels of oil equivalent and creates the world’s largest tight oil player, surpassing Chevron.

Wood Mackenzie said the deal has future implications for both the shale sector and the oil and majors.

“US Independents will face some big strategic decisions. Selling out is one way of solving the portfolio challenges the US Independents face. And if the leader of the pack decides to sell up rather than consolidate, what does that mean for other players with weaker portfolios and market ratings?”

“The market may rerate other Large Caps with Permian inventory and leading capital efficiency metrics. E&Ps like Diamondback, Permian Resources and Matador are now hotter acquisition targets. Demand for short-cycle resource brings EOG, Devon, and Marathon into play as well, especially considering the premium ExxonMobil is paying.”

“Chevron and ConocoPhillips may respond – for the right price. But the European Majors have much less room to manoeuvre due to discounted equity and stakeholder pressure to decarbonise.”

“BP could be a wildcard, with BPX’s refreshed growth strategy part of BP’s pullback from shrinking its upstream business. Shell is also leaning back into upstream, which would suggest the Majors’ strategies are aligning again. But does ExxonMobil’s landmark transaction mark a new phase of increasing strategic differentiation between the US and European Majors? We think so.”