Exxon agrees to buy rival Pioneer in $60bn deal

New York/Houston — ExxonMobil agreed to buy US rival Pioneer Natural Resources in an all-stock deal valued at $59.5bn that would make it the biggest producer in the largest US oilfield and secure a decade of low-cost production.

The deal, valued at $253 a share, would be Exxon’s biggest since its $81bn purchase of Mobil Oil in 1998, years before the shale boom began.

It combines the largest US oil company with one of the most successful names to emerge from the shale revolution that turned the country into the world's largest oil producer in little more than a decade.

The deal is set to close in early 2024, the companies said on Wednesday. Pioneer shares were up 2.4% at $242.90 while Exxon shares fell 1%.

The $253 per share offer represents a 9% premium to Pioneer’s average price for the 30 days prior to October 5, when reports of the deal surfaced.

Exxon has pulled itself out of a period marked by deep losses and huge debts in the past two years by slashing costs, selling dozens of assets and benefiting from high energy prices spurred by Russia’s invasion of Ukraine.

The deal will leave four of the largest US oil companies in control of much of the Permian Basin shale field and its extensive oilfield infrastructure.

Still, antitrust experts said last week that Exxon and Pioneer stood a good chance of completing their deal, even though they would face heavy scrutiny. This is because they could argue that even as the largest Permian producer, together they will account for a small fraction of a vast global market for oil and gas.

Exxon CEO Darren Woods has rebuffed investor and political pressure to shift strategies and embrace renewable energy as European oil majors have done. He faced heavy criticism for sticking to a heavy oil-dependent strategy as climate concerns became more pressing.

"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,” Woods said in a statement.

Exxon’s decision paid off when the company last year earned a record $56bn profit, two years after losses ballooned to $22bn during the Covid-19 pandemic.

The company socked away some of the huge profits from the oil-price run up, putting aside about $30bn in cash in anticipation of deals, according to analysts.

Pioneer is the Permian’s largest operator accounting for 9% of gross production, while Exxon occupies the number five spot at 6%, according to RBC Capital Markets analysts.

"The combination of ExxonMobil and Pioneer creates a diversified energy company with the largest footprint of high-return wells in the Permian Basin," said Pioneer CEO Scott Sheffield.

The Permian is highly valued by the US energy industry because of its relatively low cost to extract oil and gas, with rock-bottom production costs averaging about $10.50 per barrel.

Under Sheffield, Pioneer grew through rapid-fire purchases, including multibillion-dollar deals in 2021 for DoublePoint Energy and Parsley Energy.

Exxon’s purchase would outrank oil major Shell’s $53bn acquisition of BG Group in 2016, which put it atop the global liquefied natural gas market.

In July, Exxon agreed to a $4.9bn all-stock deal for Denbury, a small US oil firm with a network of carbon dioxide pipelines and underground storage. That acquisition was intended to bolster Exxon's nascent low-carbon business.

Exxon originally made an all-cash bid for Denbury, and at the last minute switched to all stock, reflecting both the target’s rise in market value during the talks and investors wanting to take part in any upside in Exxon’s stock.

The oil giant’s share price has recovered strongly since its early 2020 tumble to about $30 as oil and gas prices collapsed. Exxon shares recently hit an all-time high of $120 per share.

Reuters