ExxonMobil and Pioneer Natural Resources jointly announced a definitive agreement for ExxonMobil to acquire Pioneer. The merger is an all-stock transaction valued at $59.5 billion, or $253 per share, based on ExxonMobil’s closing price on 5 October.
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.
ExxonMobil estimates the acquisition will increase its exposure to short-cycle barrels from 28% to over 40%. 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.
What This Means for Permian
The merger combines Pioneer’s more than 850,000 net acres in the Midland Basin with ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins. Together, the companies will have an estimated 16 billion BOE in the Permian. At close, ExxonMobil’s Permian production volume would more than double to 1.3 million BOED based on 2023 volumes, and is expected to increase to approximately 2 million BOE in 2027.
Specifically, the Permian would move from roughly 30% of the company’s total upstream value to over 40%. Going forward, according to Wood Mackenzie, the market may rerate other Large Caps with Permian inventory and leading capital efficiency metrics.
In its analysis of the move, Wood Mackenzie noted that ExxonMobil will add $5 billion of annual free cash flow and create the world’s largest tight oil player, leapfrogging the leadership Chevron gained when it added PDC. ExxonMobil also secures 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.
“This landmark move is far from counter-cyclical and is something very few of ExxonMobil’s peers could do,” said Tom Ellacott, senior vice president of Corporate Research for Wood Mackenzie. “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.”
Accelerating to Net Zero
ExxonMobil has industry-leading plans to achieve net zero Scope 1 and Scope 2 greenhouse gas emissions from its Permian unconventional operations by 2030. As part of the transaction, ExxonMobil intends to leverage its Permian greenhouse gas reduction plans to accelerate Pioneer’s net zero emissions plan by 15 years, to 2035.
ExxonMobil will leverage the same aggressive strategy and apply its new technologies for monitoring, measuring, and addressing fugitive methane to lower both companies’ methane emissions.
Additionally, using combined operating capabilities and infrastructure, the expectation is to increase the amount of recycled water used in the Permian fracturing operations to more than 90% by 2030.