Exxon to Buy Pioneer for $60 Billion to Dominate Shale Oil

Exxon Mobil Corp. agreed to buy Pioneer Natural Resources Co. for $59.5 billion, the supermajor’s largest takeover in more than two decades, as it seeks to become the dominant producer of shale oil.

(Bloomberg) — Exxon Mobil Corp. agreed to buy Pioneer Natural Resources Co. for $59.5 billion, the supermajor’s largest takeover in more than two decades, as it seeks to become the dominant producer of shale oil.

Exxon will pay $253 per share in an all-stock deal, according to a statement on Wednesday. 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% premium for Pioneer investors, based on the closing price on Oct. 5, when reports of the impending deal began to swirl. If finalized, the combination will make Exxon far and away 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% more than the next biggest supermajor. 

Exxon shares dropped 4.1% to $105.96 at 9:37 a.m. in New York. Pioneer rose 0.6%.

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 $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. 

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.

What Bloomberg Intelligence Says

Fewer and larger E&Ps dominating the Permian Basin remain our central theme, with acquisitions to build scale in the most economic and prolific of the biggest US liquids basin likely to keep up the pace even if Exxon Mobil doesn’t acquire Pioneer Natural Resources.

— Vincent G Piazza and Evan Lee, BI analysts

Read the full report here.

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 $6 billion. Chevron Corp., Shell Plc 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% 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 $59 billion in 2022. Its stock gained more than 80% last year, providing the financial firepower for a 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.”

Questions have swirled about a potential Exxon-Pioneer deal since April, when the smaller company’s Chief Executive Officer Scott Sheffield announced that he planned to retire at year’s end. Sheffield has worked in the Permian since the 1970s and is credited as an architect of the shale boom that made the US an oil powerhouse.

Read More: How Shale’s Oil and Gas Reshaped the World of Energy: QuickTake

Sheffield’s more than 20 collective years at the helm of Pioneer is one of the longest ongoing public CEO tenures in the US oil industry. He cut his teeth in the Permian basin more than 40 years ago, continuing to work there through the dark decades when supermajors including Exxon abandoned the basin to search for crude overseas. By the time drilling and fracking innovations developed in natural gas fields were adapted to oil deposits around 2010, Pioneer was well-placed to become one of the fastest-growing producers. 

Citigroup acted as lead financial advisor, Centerview Partners as financial advisor, and Davis Polk & Wardwell as legal advisor to Exxon. Goldman Sachs Group Inc., Morgan Stanley, Petrie Partners and Bank of America Securities acted as financial advisors to Pioneer; Gibson, Dunn & Crutcher LLP acted as legal advisor to Pioneer.

–With assistance from Joe Ryan and Mitchell Ferman.

(Updates with opening share prices in fourth paragraph.)

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