June 24, 2024

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Exxon acquires Pioneer Natural Resources for $60 billion

Exxon acquires Pioneer Natural Resources for $60 billion

ExxonMobil announced Wednesday it has acquired Pioneer Natural Resources for $59.5 billion, deepening its reliance on fossil fuel production even as many global policymakers grow increasingly concerned about climate change and the oil industry’s reluctance to shift to clean energy.

Exxon has spent decades investing in projects around the world, but the deal will squarely define its future near its base in Houston, where most of its oil production is located in Texas and along the Guyana coast.

By focusing its operations close to home, Exxon is effectively betting that U.S. energy policy won’t move significantly against fossil fuels even as the Biden administration encourages automakers to switch to electric vehicles and utilities to move to renewable energy.

In addition to producing more fossil fuels, the company is building a new business venture to capture carbon dioxide from industrial sites and bury greenhouse gases in the ground, Exxon executives said. The technology to do this is still at an early stage and has not yet been used successfully on a large scale.

“We are doubling down on our organizations and capabilities,” said Darren Woods, Exxon CEO. He added that the combined company would generate value “far beyond what either company could do on a standalone basis.” He said the focus of the deal was “to leverage the best of both organizations.”

US oil production has reached a record level of about 13 million barrels per day, or about 13% of the global market, but growth has slowed in recent years. Despite a wave of mergers between oil and gas companies, and a rise in oil prices after Russia’s invasion of Ukraine last year, producers are having a harder time finding new exploration sites.

The Pioneer deal is a sign that it is now easier to acquire an oil producer than to drill for oil in a new location.

Exxon, a powerful refining and petrochemical company, needs a lot of oil and gas to turn it into gasoline, diesel, plastics, liquefied natural gas, chemicals and other products. Much of this oil and gas is likely to come from the Permian Basin, the most productive oil and gas field in the United States, which stretches between Texas and New Mexico and where Pioneer plays a major role.

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Exxon’s $10 billion Golden Pass terminal near the Texas-Louisiana border is scheduled to begin shipping liquefied natural gas to the rest of the world next year. Gas is rising with oil from the Permian Basin, making the basin more valuable for exports as Europe weans itself from Russian gas.

The Pioneer deal would be Exxon’s largest acquisition since it bought Mobil in 1999. It is larger than the company’s ill-fated $30 billion acquisition of XTO Energy, a major natural gas producer, in 2010. Exxon was forced to write off much of that investment in later. When natural gas prices collapsed from the high levels that prevailed when it bought XTO.

By buying Pioneer now, with US oil at around $85 a barrel, Exxon is counting on prices remaining relatively high for the next few years.

In recent years, Exxon has been keen to invest modestly, increasing its profits and buying back more of its shares. Buying Pioneer will add production, which is a big change in its strategy.

The acquisition would make Exxon the dominant player in the Permian Basin, far ahead of Chevron, its biggest competitor. The combined company will combine Pioneer’s 850,000 acres with Exxon’s 570,000 acres in the Permian Basin, making it one of the largest undeveloped oil and gas reserves in the world. If the deal receives regulatory approval, Exxon’s production in the basin will double to 1.3 million barrels of oil and gas per day, the company said.

Combining the companies’ acreage would allow the group to drill longer wells to reach greater depth into the basin’s shale resource layer. The companies said they can extend some lateral drilling up to four miles.

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Shale fields require constant drilling of new wells because production depletes after a few years. As oil production declines, natural gas production from wells increases, which promises to make the Permian Basin a major source of gas for decades.

Energy experts noted that the deal highlighted a major shift in the industry’s view of shale drilling over the past decade.

“In the early days of the fracking revolution, big oil companies weren’t particularly interested in getting into the Permian or other shale fields,” said Bernard Weinstein, an economist at Southern Methodist University in Dallas. They were more interested in drilling in deeper waters and working off the coast of Africa. This has really changed.

A few major European oil companies, which have generally moved to renewable energy faster than U.S. companies, have moved away from the Permian Basin or sold their holdings in recent years.

On a call with reporters, Mr. Woods said Exxon and Pioneer would work together to reduce emissions. As long as the world needs oil and gas, he said, companies will “work to have the most efficient, effective and responsible operations.”

Environmentalists criticized the deal. “Exxon must move toward clean energy like solar and wind,” said Dan Baker, director of the Safe Climate Transportation Campaign at the Center for Biological Diversity. “Instead, they are doubling down on dirty oil and production in the Permian Basin, which is depleting the region’s limited water supplies.”

Pioneer has been a darling of investors on Wall Street as it has benefited from the shale drilling boom. Scott Sheffield, its CEO, took the company out of Alaska, Africa and offshore fields while buying shale operations in the Permian Basin at cheap prices. Among the fields acquired by Pioneer in the Permian Basin years ago, some were from Exxon.

By 2020, it had become one of the largest US drilling companies, with relatively low-cost production.

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Mr. Sheffield praised the deal, saying the combined company would improve the efficiency of managing the two companies’ adjacent and contiguous oil and gas acreage. “Our shareholders and employees will be better positioned for long-term success,” he said.

Mr Sheffield will retire at the end of the year. His company’s market capitalization is about $50 billion, roughly one-eighth the size of Exxon. Many oil and gas fields remain unexploited.

The deal will be Exxon’s first major acquisition since Mr. Woods became CEO in 2017, replacing Rex Tillerson, who later became Secretary of State.

Exxon, which achieved record profits of $56 billion last year, has plenty of money to invest in untapped Pioneer fields.

This deal is the latest in a series of mergers and acquisitions in the oil industry in recent years. Occidental Petroleum acquired Anadarko Petroleum four years ago for nearly $40 billion, a deal that made Occidental a major competitor to Exxon and Chevron in the Permian Basin. Pioneer spent more than $10 billion to buy two other producers in the Permian Basin, Parsley Energy and DoublePoint Energy, in 2021.

Exxon bought Denbury, a Texas energy company that owns pipelines that can transport carbon dioxide, for $4.9 billion this year.

Pioneer shareholders will receive 2.32 shares of Exxon stock for every share of Pioneer stock upon closing of the deal, which the two companies said will take place in early 2024. Woods said he does not expect any serious regulatory issues because the combined company will control a small portion of the Permian, It will be small relative to the entire oil and gas industry.

Exxon shares fell about 4 percent on Wednesday morning after the deal was announced. Pioneer shares rose slightly less than 1 percent.