ExxonMobil buys Pioneer Natural Resources

Cody Good
ExxonMobil oil tank
Courtesy of GetYarn

The rumors were true, the deal is on.

What happened: ExxonMobil is buying Pioneer Natural Resources in an all-share purchase with an enterprise value of $64.5 billion. It’s the largest M&A deal for the company since Exxon acquired Mobil for $81 billion in 1999 and one of the largest deals for the entire sector since 2000.

  • No word yet on what the future company will be named, but ExxonMobilPioneer doesn’t have a good ring to it, so TBD.

The details: Pioneer is well established as one of the major players Permian Basin—the heart of the US Shale industry—alongside Occidental, Chevron, ConocoPhillips, and ExxonMobil. Acquiring Pioneer will double ExxonMobil’s production in the basin to 1.3 million barrels of oil equivalent per day—more than 20 percent of the total production out of the entire Permian.

  • All said and done Exxon will hold 16 billion oil-equivalent barrels in the basin, with a drilling inventory lifetime of up to 20 years.

Deal drivers: Besides your McKinsey friend’s reference to the idea of “synergies”, the deal is also likely geopolitically driven. The US has been stable relative to much of the rest of the world, making it a desirable place to invest in for growth.

  • The conflict between Israel and Palestine, allegations of sabotage of a Baltic pipeline, and renewed threats of strikes at Australian LNG sites have all underscored the importance of reliability.

Given the agile nature of US Shale, Exxon will also be better equipped to quickly respond and take advantage of short-term price fluctuations.

What will it mean going forward?

Combining the now-established mantra of capital discipline and a general expectation of the industry peaking or at the very least plateauing in the medium-ish future all points to one direction: big new discoveries are out, developing existing ones are in.

  • As Exxon has demonstrated, why risk money on exploration and development of new fields when someone has proven resources next door that you can just buy? As one Lord Cutler Beckett once said: “It’s nothing personal… it’s just good business”.

Zoom out: If the rollercoaster of recent geopolitics and the rise of LNG has given us is any predictor, these days it’s better to be agile.

From Exxon CEO Darren Woods: “As long as the world needs oil and gas, we’ll all be focused on making sure that they have the most efficient, effective, and responsible operator making and producing oil and gas, and doing it with the lowest carbon intensity”.