Unlock the Editor’s Digest totally free
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
ExxonMobil has agreed to purchase Pioneer Pure Sources in a $59.5bn deal that’s set to unleash a wave of consolidation within the US shale oil trade.
The largest western oil supermajor mentioned on Wednesday it had sealed an all-stock deal that values Pioneer at $253 per share. The mixture palms Exxon a dominant place within the Permian Basin, the huge discipline in western Texas and New Mexico that has helped flip the US into the world’s largest oil and fuel producer.
The acquisition of Pioneer, which was based by chief govt Scott Sheffield in 1997, is the group’s largest acquisition because it was fashioned via the merger of Exxon and Mobil in 1999. It is usually the primary of any important measurement below Darren Woods, who has led Exxon since 2017.
“The mixed capabilities of our two corporations will present long-term worth creation effectively in extra of what both firm is able to doing on a standalone foundation,” mentioned Woods.
The wager on Pioneer additionally underlines Exxon’s resolve to spice up oil manufacturing regardless of forecasts that local weather change will finally pressure the world to change to renewable sources of power. In distinction to Exxon, BP is concentrating on cuts in oil and fuel manufacturing of 25 per cent by 2030.
Exxon is paying an 18 per cent premium for Pioneer primarily based on the shale producer’s closing share worth on Thursday, when information of the pending transaction leaked. The enterprise worth of the deal, together with internet debt, is about $64.5bn.
Houston-based Exxon has been on the hunt for acquisitions after amassing a considerable money pile over the previous yr. Russia’s invasion of Ukraine despatched oil costs hovering, driving Exxon’s earnings to a document.
Analysts anticipate the deal will herald consolidation throughout the nonetheless fragmented US shale trade, which has been topic to cycles of growth and bust over the previous decade.
After years of reckless spending, Wall Avenue has pressured shale operators to cease pursuing pricey drilling ventures from scratch, leaving acquisitions as the most effective means to safe a shrinking variety of prime drilling websites.
Talking earlier than the deal was introduced, Andrew Dittmar, analyst at consultancy Enverus, mentioned the transaction represented a “important win” for Exxon and a “cheap conclusion” for Pioneer.
Pioneer is the pre-eminent operator within the Permian discipline and the deal brings 15 per cent of the basin’s output below Exxon’s management, in accordance with RBC Capital Markets.
Following the acquisition, Exxon’s output from the Permian discipline would greater than double to 1.3mn barrels of oil equal per day. The transaction would remodel its oil and fuel enterprise by reducing prices and growing its capability to quickly increase manufacturing, Exxon added.
Woods informed reporters that the elevated scale of its manufacturing within the Permian could be “good from an environmental standpoint”.
“So long as the world wants oil and fuel, we’ll all be targeted on ensuring that they’ve probably the most environment friendly, efficient and accountable operator making and producing oil and fuel, and doing it with the bottom carbon depth,” Woods added.
The Permian produces about 5.8mn barrels of oil a day, out of about 13mn b/d in complete US oil manufacturing.
Antitrust consultants mentioned the deal would most likely draw scrutiny from US regulators however ought to win approval as the businesses’ mixed holdings within the Permian solely make up a fraction of world oil manufacturing.
“A Federal Commerce Fee assessment is kind of doable however the market share of this mixture seems to be below thresholds usually warranting motion,” mentioned Scott Hanold, analyst at RBC Capital Markets.
Pioneer’s sale comes after Sheffield in April introduced plans to retire for a second time on the finish of this yr. He had stepped down in 2016 earlier than returning to the helm three years later.
A tie-up between Exxon and Pioneer will increase the strain on Chevron to pursue an aggressive acquisition technique to make sure that its oil and fuel belongings can compete successfully.
After information of Exxon’s talks with Pioneer broke final week, shares in a number of Permian-focused corporations equivalent to Diamondback Power, Permian Sources and Matador Sources Firm jumped on hypothesis that they might turn out to be acquisition targets.