Wrapup 2: Exxon secures lead in top US oilfield with $60 bln buy of shale rival Pioneer
11/10/2023 18:57
(Adds detail on Pioneer stock trading below deal price)
By Sabrina Valle and Anirban Sen
HOUSTON/NEW YORK, Oct 11 (Reuters) - Exxon Mobil XOM.N
agreed to buy U.S. rival Pioneer Natural Resources PXD.N in an
all-stock deal valued at $59.5 billion that would make it the
biggest producer in the largest U.S. oilfield and secure a
decade of low-cost production.
The deal, valued at $253 a share, combines the largest U.S.
oil company with one of the most successful names to emerge from
the shale revolution that turned the U.S. into the world's
largest oil producer in little more than a decade.
Exxon Chief Executive Darren Woods said in an interview the
combination provides a big opportunity for synergies among the
companies.
"We basically closed this deal fairly quickly," Woods said
after approaching Pioneer CEO Scott Sheffield two weeks ago,
"and started talking about the complementary nature of both of
our businesses."
The merged company could add 700,000 barrels per day of oil
and gas (boepd) production within four years of the deal
closing, to 2 million boepd. It also aims to cut greenhouse gas
emissions and increase oil output per well by combining Exxon
technology with Pioneer's lower cost of operations, Exxon said.
The offer represents a 9% premium to Pioneer's average price
for the 30 days prior to Oct. 5, when reports of deal talks
surfaced. Pioneer shares were up 1% at $239.67 in midday
trading. Exxon shares fell 4.4%.
The stock reaction implies investors are assigning a 72%
probability to the deal being completed, based on Pioneer's
share price at the end of trading on Oct. 5, before media
reports surfaced on the deal talks.
The deal, expected to close in early 2024, will leave four
of the largest U.S. oil companies in control of much of the
Permian Basin shale field and its extensive infrastructure.
"The market share of this combination appears to be under
thresholds typically warranting action," RBC Capital Markets
analyst Scott Hanold said in a note.
LARGEST IN PERMIAN SHALE
Pioneer is the Permian oilfield's largest well operator,
accounting for 9% of gross production, while Exxon occupies the
No. 5 spot with 6%, according to RBC Capital Markets.
Pioneer had bulked up through multibillion-dollar deals such
as those of shale rivals DoublePoint Energy for $6.4 billion in
2021 and Parsley Energy for $7.6 billion in 2020 under CEO
Sheffield.
Sheffield will earn a $29-million exit package on the sale's
closing, and four other top Pioneer executives will receive
about $42 million combined in severance pay, RBC estimated.
"Today is a bittersweet day for me," Sheffield told
employees in a letter, promising its oilfield workers and most
office staff will be offered Exxon jobs, or severance pay if
they decline the offer.
"We're not looking at cutting either rig operations, or
people or headcount. We're looking at how do we take the best of
both operations, and grow" volumes and shareholder returns,
Exxon's Woods said separately on a conference call.
Woods said he does not anticipate antitrust hurdles and did
not say who will run Exxon's expanded shale operation. Its chief
was suspended last week after he was arrested. Sheffield, who
will join Exxon's board after the deal closes, has announced his
intention to retire from Pioneer at year-end.
The Permian is highly valued by the U.S. energy industry
because of its relatively low cost to extract oil and gas, with
Pioneer's rock-bottom production costs averaging about $10.50
per barrel.
Recent shale deal-making reflects the dwindling number of
top drilling locations.
"The oil shales are running out of Tier 1 inventory," said
Bryan Sheffield, founder of energy investors Formentera Partners
and Scott Sheffield's son. "Something has to change
strategy-wise," he added.
The acquisition will be Exxon's biggest since its $81 billion
purchase of Mobil Oil in 1998.
But it is not its first move into shale. It acquired XTO
Energy for about $41 billion in 2010, a deal that led to a
massive writedown a decade later as natural gas prices tumbled.
The deal would top Shell's SHEL.L $53 billion acquisition
of BG Group in 2016, which put the oil major atop the global
liquefied natural gas market.
WOODS IN DRIVER'S SEAT
Exxon has pulled itself out of a period of deep losses and
huge debts in the last two years by slashing costs, selling
dozens of assets and benefiting from high energy prices spurred
by Russia's invasion of Ukraine.
He faced heavy criticism for sticking to a heavy
oil-dependent strategy as climate concerns became more pressing,
with its energy transition efforts focused on reducing its own
emissions.
But his decision paid off when the company last year earned
a record $56 billion profit, two years after losses ballooned to
$22 billion during the COVID-19 pandemic.
The company socked away some of the huge profits from the
oil-price run-up, putting aside some $30 billion in cash in
anticipation of deals, according to analysts.
In July, Exxon agreed to a $4.9 billion all-stock deal for
Denbury, a small U.S. 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.
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Exxon investors ready to embrace buying existing oil over new
drilling urn:newsml:reuters.com:*:nL1N3BC1N7
Petrie joins Wall Street powerhouses on Exxon-Pioneer megadeal
urn:newsml:reuters.com:*:nL4N3BH2ZZ
Exxon-Pioneer tie up could squeeze US shale oil suppliers,
pipelines urn:newsml:reuters.com:*:nL1N3BF2EO
ANALYSIS-Exxon Mobil's megadeal to test climate-aware
shareholders urn:newsml:reuters.com:*:nL8N3BC4LP
ANALYSIS-US would struggle to block Exxon's politically
unpopular megadeal urn:newsml:reuters.com:*:nL1N3BC27D
GRAPHIC-Permian Acreage Pricing by Year https://tmsnrt.rs/3Fb9fr6
GRAPHIC-Top 10 Permian Basin Operators https://tmsnrt.rs/48JCKOo
GRAPHIC-Exxon’s purchase of Pioneer among the biggest in this
millennium https://tmsnrt.rs/3LSaDms
ANALYSIS-Oil companies bet on $100 a barrel as they rush to sell
assets urn:newsml:reuters.com:*:nL2N2OD194
QUOTE BOX-Exxon pushes deeper into top US oilfield with $60 bln
deal for Pioneer urn:newsml:reuters.com:*:nL4N3BH3B9
BREAKINGVIEWS-Exxon’s last mega-deal casts shadow on latest one
urn:newsml:reuters.com:*:nL1N3BH1S2
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(Reporting by Arunima Kumar and Shubhendu Deshmukh in
Bengaluru, Anirban Sen in New York and Sabrina Valle and Arathy
Somasekhar in Houston; Writing by Gary McWilliams; Editing by
Rashmi Aich, Jamie Freed, Sriraj Kalluvila and Nick Zieminski)
((mailto:ShubhenduSatish.Deshmukh@thomsonreuters.com;))