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Exxon Mobil and Pioneer Merge in $60 Billion Deal to Dominate Shale Market

Acquisition deal: $59.5 billion.
Deal price: $253 per share.
Production target: 700,000 boepd increase in four years, aiming for 2 million boepd total.
Share impact: Pioneer's shares up 1.4%, Exxon's shares down 3.6%.
Deal probability: 72% based on Pioneer's Oct. 5 share price.
Expected deal closure: Early 2024.

This shift in the industry landscape turned the United States into the globe's leading oil producer in just over ten years.

Exxon Mobil (XOM.N) has reached an agreement to acquire its domestic competitor, Pioneer Natural Resources (PXD.N). This all-stock transaction, which places a valuation of $59.5 billion on the deal, promises to establish Exxon as the preeminent producer in the U.S.'s most extensive oilfield.

At a valuation of $253 per share, this merger brings together the prowess of Exxon, America's largest oil entity, with Pioneer, a standout performer that has risen to prominence during the shale boom.

Exxon's CEO, Darren Woods, shared his insights on this strategic move during a media briefing. He stated, "We basically closed this deal fairly quickly. It became very obvious very early on in those discussions that there's a big opportunity here." This comment came after Woods had initiated talks with Pioneer's CEO, Scott Sheffield, merely a fortnight ago.

"The market share of this combination appears to be under thresholds typically warranting action (by U.S. anti-trust regulators)."

Scott Hanold, an analyst at RBC Capital Markets

Deal Statements

The agreement, set to finalize in early 2024, will give four top U.S. oil firms command over a significant part of the Permian Basin shale field and its infrastructure.

Insider look at $59.5 billion merger:

Post-merger projections show a potential increase in production of 700,000 boepd within just four years.
The consolidated entity's output could touch a monumental 2 million boepd.
The integration of Exxon's technology and Pioneer's cost-efficient strategies is anticipated to amplify oil yield per well.
A promising side effect of this merger is a significant reduction in greenhouse gas emissions.
Pioneer's valuation for this deal is marked at a 9% premium over its average 30-day share price as of October 5th.
After the acquisition news surfaced, Pioneer's stock witnessed a 1.4% boost, closing at $240.82.
On the flip side, Exxon experienced a 3.6% decline in its shares post-announcement.
Market experts estimate a robust 72% probability of this deal reaching fruition, based on Pioneer's closing share price on October 5th.

Largest in Permian Shale

Interesting fact: This purchase will be Exxon's largest acquisition since they bought Mobil Oil for $81 billion in 1998. Lastly, acquisition is bigger than Shell's $53 billion buy of BG Group in 2016.

Pioneer is the top well operator in the Permian oilfield, holding 9% of its production. Exxon is fifth with 6%, as reported by RBC.

"The oil shales are running out of Tier 1 inventory. Something has to change strategy-wise"

Bryan Sheffield, founder of energy investors Formentera Partners and Scott Sheffield's son.

Under CEO Sheffield, Pioneer made significant acquisitions:

Bought DoublePoint Energy for $6.4 billion in 2021.
Acquired Parsley Energy for $7.6 billion in 2020.

Upon the deal's closure, Sheffield will get a $29-million exit package. Four other Pioneer leaders will share $42 million in severance.

Sheffield informed employees about the mixed feelings of the sale, assuring job opportunities at Exxon or severance packages for those who decline.

Exxon's CEO, Woods, sees no antitrust problems from the deal but didn't mention who will lead Exxon's expanded shale unit. After the deal, Sheffield, planning to retire from Pioneer by year's end, will join Exxon's board.

The Permian Basin is favored for its low oil and gas extraction costs. Pioneer's production cost is approximately $10.50 per barrel.

Earlier, Exxon bought XTO Energy for about $41 billion in 2010, which later faced challenges with falling gas prices.

Woods Takes the Lead
Exxon managed to recover from big losses and debts over the past two years. They did this by cutting costs, selling many things, and making money from the high energy prices due to the conflict in Ukraine.

Woods, the leader of Exxon Mobil, got a lot of criticism because he kept focusing on oil even when people were getting more worried about the environment. But this focus on oil worked out well for them. Last year, Exxon made a huge profit of $56 billion, especially compared to a big loss of $22 billion two years ago because of COVID-19.

They saved a lot of this profit, keeping $30 billion for future plans. In July, Exxon decided to buy a small oil company Denbury for $4.9 billion using their company stock. Denbury has special equipment and places to store carbon dioxide. This will help Exxon work on cleaner energy. At first, Exxon wanted to pay cash for Denbury, but later they decided to use their company stock. They made this change because Denbury became more valuable during their talks and people wanted a share of Exxon's growth.

After dropping a lot in price in 2020, Exxon's company stock has gone up a lot. It even reached its highest price ever, $120 per share.

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