Exxon Mobil has announced its acquisition of Pioneer Natural Resources for $59.5 billion. This move further cements Exxon’s focus on fossil fuel production despite growing global concerns about climate change and the industry’s resistance to transition to cleaner energy sources. The deal will primarily center Exxon’s future operations in Texas and the coast of Guyana, highlighting its confidence in US energy policy supporting fossil fuels even as the Biden administration encourages a shift to renewable energy.
Exxon plans to not only increase fossil fuel production but also develop a new business that captures and stores carbon dioxide. However, this technology is still in the early stages and has not been successfully implemented on a large scale. Exxon’s CEO, Darren Woods, stated that the merger would result in significant value creation and allow for the integration of the best practices from both companies.
The acquisition of Pioneer signifies the increasing difficulty in finding new locations for drilling, making it more advantageous to acquire existing oil producers. Exxon, a major player in refining and petrochemicals, requires a substantial amount of oil and gas to produce various products. The majority of this supply is expected to come from the Permian Basin, where Pioneer holds a significant presence. Exxon’s upcoming Golden Pass terminal and the abundance of gas in the Permian Basin make it an important location for exports as Europe reduces its reliance on Russian gas.
This deal marks Exxon’s largest acquisition since its purchase of Mobil in 1999. It surpasses the ill-fated acquisition of XTO Energy in 2010, which resulted in substantial write-offs due to collapsing natural gas prices. Exxon’s decision to acquire Pioneer at a time when oil prices are relatively high demonstrates its reliance on sustained high prices in the coming years. This acquisition represents a significant shift in Exxon’s strategy, which has focused on investing modestly in new production while prioritizing dividends and stock repurchases.
If approved, the merger will position Exxon as the dominant player in the Permian Basin, surpassing its rival Chevron. The combination of Pioneer’s and Exxon’s acreage will create one of the largest undeveloped oil and gas reserves globally. The companies anticipate drilling longer wells to access deeper shale resources in the basin.
The deal reflects the changing perspective of the oil industry on shale drilling over the past decade. Initially, major oil companies were less interested in shale plays like the Permian, focusing more on deepwater drilling and offshore projects. However, this mindset has shifted as shale plays have become more attractive and cost-effective options.
Exxon and Pioneer have emphasized their commitment to reducing emissions and responsible operations. However, environmentalists criticize the deal, arguing that Exxon should be investing in clean energy sources like solar and wind instead of doubling down on dirty oil production.
Pioneer has been highly regarded by Wall Street investors due to its success in capitalizing on the shale drilling boom. The company’s CEO, Scott Sheffield, lauded the merger, highlighting the increased efficiency that the combined company will achieve in managing their adjacent oil and gas acreage. Sheffield plans to retire at the end of the year, and the deal with Exxon positions shareholders and employees for long-term success.
This acquisition marks Exxon’s first major deal since Darren Woods became CEO in 2017. With a record profit of $56 billion in 2020, Exxon has ample cash to invest in Pioneer’s untapped oil and gas fields.
The Exxon-Pioneer deal is part of a larger trend of mergers and acquisitions in the oil industry. Occidental Petroleum’s acquisition of Anadarko Petroleum and Pioneer’s purchases of Parsley Energy and DoublePoint Energy are notable examples. Exxon also acquired Denbury, a Texas energy company with carbon dioxide transportation infrastructure, for $4.9 billion this year.
The merger is expected to close in early 2024 with Pioneer shareholders receiving 2.32 shares of Exxon stock for each Pioneer share. Regulatory issues are not anticipated due to the combined company’s relatively small portion of the Permian and its size compared to the overall oil and gas industry.