Exxon Mobil (XOM.N) is reportedly engaged in advanced negotiations to acquire Pioneer Natural Resources (PXD.N) in a potential transaction valued at around $60 billion, as disclosed by individuals with knowledge of the matter on Thursday.
This prospective acquisition could be Exxon’s most significant move since its monumental $81 billion merger with Mobil back in 1998, significantly extending its presence in the highly lucrative Permian shale basin, one of the United States’ most profitable oil-producing regions.
Following this development, Pioneer’s shares saw an impressive upswing of nearly 12% to $240.47 in premarket trading on Friday, while Exxon experienced a slight dip of 1.7%.
Pioneer, with a market valuation of $50 billion as of Thursday, holds the rank of the third-largest oil producer in the Permian basin, trailing behind Chevron Corp (CVX.N) and ConocoPhillips (COP.N). The Permian basin, spanning parts of Texas and New Mexico, remains the U.S. energy sector’s most sought-after region due to its cost-efficient oil and gas extraction methods.
Insiders with knowledge of the matter suggest that if the ongoing negotiations conclude successfully, an agreement between Exxon and Pioneer could materialize within the coming days. However, they requested anonymity as the details remain confidential.
When approached for comments, spokespersons for both Exxon and Pioneer opted not to provide any statements. The Wall Street Journal initially broke the news of the impending deal between these two energy giants.
Exxon, boasting a market capitalization of $436 billion, stands as the largest U.S. oil producer, generating an average of 3.8 million barrels of oil equivalent per day (boed) from its global operations. The company recorded a remarkable $55.7 billion in earnings last year, propelled by robust oil and gas prices, concluding the year with $29.6 billion in cash reserves.
Nonetheless, some of those profits have tapered off this year, with energy prices declining following Russia’s invasion of Ukraine. Concerns about a global economic slowdown and its impact on fuel demand have led to this drop in energy prices.
Acquiring Pioneer would enable Exxon to access well-established oil-producing territories, providing a reliable source for production expansion without risking capital on the development of unproven acreage.
Bill Smead, the Chief Investment Officer of Smead Capital Management, a firm managing $5.2 billion in funds, remarked, “It makes complete sense. You replenish your reserves without poking holes in the ground.”
In the second quarter, Exxon achieved a record production of about 620,000 boed in the Permian basin. However, this figure was dwarfed by Pioneer’s output in the same period, which averaged 711,000 boed.
It is anticipated that this potential deal will face both political and regulatory scrutiny, particularly following the White House’s accusations against Exxon in February for generating significant profits at the expense of consumers.
This move towards dealmaking is a trend observed among other major oil corporations, who find drilling new acreage to be a risky endeavor. For instance, Chevron Corp (CVX.N) reached an agreement in May to acquire shale producer PDC Energy Inc in a stock-and-debt deal worth $7.6 billion.
Pioneer, in its own right, has bolstered its position through strategic acquisitions, including the purchases of U.S. shale rivals DoublePoint Energy for $6.4 billion in 2021 and Parsley Energy for $7.6 billion in 2020. The company, headquartered in Dallas, is currently led by industry veteran Scott Sheffield, who has announced his retirement at the end of this year, with his chief operating officer, Richard Dealy, poised to succeed him.
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