ExxonMobil Corporation has announced it has acquired Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion, or $253 per share, based on ExxonMobil’s closing price on 5 October 2023.
Under the terms of the agreement, Pioneer shareholders will receive 2.3234 shares of ExxonMobil for each Pioneer share at closing.
The implied total enterprise value of the transaction, including net debt, is approximately $64.5 billion.
Wood Mackenzie Senior VP of Corporate Research Tom Ellacott said: “We predicted several years ago that Big Oil would get bigger, highlighting ExxonMobil as a likely aggregator in US tight oil. Yesterday, the company announced the acquisition of Permian powerhouse Pioneer Natural Resources for US$64.5 billion. This is the largest upstream deal, in nominal terms, since Shell acquired BG for US$82 billion in 2015 and makes ExxonMobil the world’s first Megamajor.”
ExxonMobil will gain over 700,000 barrels of oil equivalent per day (boe/d) of Midland Basin production, which will provide the company will US$5 billion of annual free cash flow and establish a Permian recourse base of over 16 billion boe.
This will make it the world’s largest tight oil player, surpassing the leadership Chevron gained when it acquired independent exploration and production company PDC Energy.
Through this merger, ExxonMobil will also secure decades of supply for its growing integrated full value-chain infrastructure that stretches from the Permian to the Gulf Coast — including midstream, refining petrochemicals, carbon management, LNG and commodity exports.
Ellacott said: “This landmark move is far from counter-cyclical and is something very few of ExxonMobil’s peers could do. A massive oil deal that demonstrates oil demand and price bullishness, the company will now be in a peer group of one. This is also deal done from a position of strength – an acquisition of choice rather than of necessity. ExxonMobil already has one of the strongest oil and gas production growth outlooks this decade, supported by an opportunity-rich upstream portfolio.”
Based on Wood Mackenzie’s analysis, Pioneer’s upstream operating cash margins over the next five years are 20 per cent higher than ExxonMobil’s global upstream average.
Wells payback in less than 24 months, driving stellar returns and some of the lowest breakevens in the sector.
Pioneer’s Scope 1 and 2 emissions intensity is also 75 per cent lower than ExxonMobil’s global upstream average over the next five years, according to Wood Mackenzie’s Emissions Benchmarking Tool.
ExxonMobil estimates the acquisition will increase its exposure to short-cycle barrels from 28 per cent to over 40 per cent.
This step-change in flexibility will help the company manage future volatility in what’s sure to be a bumpy ride through the energy transition.
Domestic, short payback assets are also one of the best tools to manage heightened geopolitical risk.
This deal will meaningfully increase ExxonMobil’s upstream portfolio concentration. The Permian would move from roughly 30 per cent of the company’s total upstream value to over 40 per cent.
Assuming a 1 January 2024 deal close, Wood Mackenzie estimates that the basin will account for about approximately 37 per cent of ExxonMobil’s upstream operating cash flow in 2024.
That is higher than Chevron (28 per cent) and only a bit below ConocoPhillips (41 per cent).
Wood Mackenzie VP of Upstream Research Rob Clarke said: “ExxonMobil had one of the most diversified upstream profiles prior to the deal. With this acquisition, the company’s asset-level upstream operating cash flow concentration exceeds Chevron’s. But the scale of the company’s other businesses across the value chain (midstream, refining, marketing, petrochemicals, low carbon) provide substantial diversification ballast, which differentiates it from its US peer.”
“ExxonMobil favours peer-leading scale in important basins, and with this move it locks-up a dominant position in the Permian with more than 1.4 million mostly contiguous acres and associated infrastructure. The blocky leases will be the size other shale players can only dream of,” said Clarke.
According to Wood Mackenzie, the combined portfolio has enough duration for ExxonMobil to be a standout leader in global tight oil.
Pro-forma, over the next decade, it could produce over 10 per cent of global tight oil on a boe basis.
Clarke believes that this deal will have implications for both the shale sector and the Majors, leaving US Independents to face some big strategic decisions.
“Selling out is one way of solving the portfolio challenges the US Independents face. And if the leader of the pack decides to sell up rather than consolidate, what does that mean for other players with weaker portfolios and market ratings?,” questioned Clarke.
According to Wood Mackenzie, the market may rerate other Large Caps with Permian inventory and leading capital efficiency metrics, as E&Ps like Diamondback, Permian Resources and Matador are now hotter acquisition targets.
Demand for short-cycle resource brings EOG, Devon, and Marathon into play as well, especially considering the premium ExxonMobil is paying.
Ellacott said Chevron and ConocoPhillips may respond for the right price, however, the Euro Majors have much less room to manoeuvre due to discounted equity and stakeholder pressure to decarbonise.
“BP could be a wildcard, with BPX’s refreshed growth strategy part of BP’s pullback from shrinking its upstream business. Shell is also leaning back into upstream, which would suggest the Majors strategies are aligning again. But does ExxonMobil’s landmark transaction mark a new phase of increasing strategic differentiation between the US and Euro Majors? We think so,” said Ellacott.
