ExxonMobil agrees to buy shale group Pioneer in $59.5bn deal

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ExxonMobil has agreed to buy Pioneer Natural Resources in a $59.5bn deal that is set to unleash a wave of consolidation in the US shale oil industry.

The biggest western oil supermajor said on Wednesday it had sealed an all-stock deal that values Pioneer at $253 per share. The combination hands Exxon a dominant position in the Permian Basin, the vast field in western Texas and New Mexico that has helped turn the US into the world’s largest oil and gas producer.

The purchase of Pioneer, which was founded by chief executive Scott Sheffield in 1997, is the group’s biggest acquisition since it was formed through the merger of Exxon and Mobil in 1999. It is also the first of any significant size under Darren Woods, who has led Exxon since 2017.

“The combined capabilities of our two companies will provide long-term value creation well in excess of what either company is capable of doing on a standalone basis,” said Woods.

The bet on Pioneer also underlines Exxon’s resolve to boost oil production despite forecasts that climate change will eventually force the world to switch to renewable sources of energy. In contrast to Exxon, BP is targeting cuts in oil and gas production of 25 per cent by 2030.

Exxon is paying an 18 per cent premium for Pioneer based on the shale producer’s closing share price on Thursday, when news of the pending transaction leaked. The enterprise value of the deal, including net debt, is about $64.5bn.

Houston-based Exxon has been on the hunt for acquisitions after amassing a substantial cash pile over the past year. Russia’s invasion of Ukraine sent oil prices soaring, driving Exxon’s profits to a record.

Analysts expect the deal will herald consolidation across the still fragmented US shale industry, which has been subject to cycles of boom and bust over the past decade.

After years of reckless spending, Wall Street has forced shale operators to stop pursuing costly drilling ventures from scratch, leaving acquisitions as the best means to secure a shrinking number of prime drilling sites.

Speaking before the deal was announced, Andrew Dittmar, analyst at consultancy Enverus, said the transaction represented a “significant win” for Exxon and a “reasonable conclusion” for Pioneer.

Pioneer is the pre-eminent operator in the Permian field and the deal brings 15 per cent of the basin’s output under Exxon’s control, according to RBC Capital Markets.

Following the acquisition, Exxon’s output from the Permian field would more than double to 1.3mn barrels of oil equivalent per day. The transaction would transform its oil and gas business by lowering costs and increasing its capacity to rapidly boost production, Exxon added.

Woods told reporters that the increased scale of its production in the Permian would be “good from an environmental standpoint”.

“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,” Woods added.

The Permian produces about 5.8mn barrels of oil a day, out of about 13mn b/d in total US oil production.

Antitrust experts said the deal would probably draw scrutiny from US regulators but should win approval as the companies’ combined holdings in the Permian only make up a fraction of global oil production.

“A Federal Trade Commission review is quite possible but the market share of this combination appears to be under thresholds typically warranting action,” said Scott Hanold, analyst at RBC Capital Markets.

Pioneer’s sale comes after Sheffield in April announced plans to retire for a second time at the end of this year. He had stepped down in 2016 before returning to the helm three years later.

A tie-up between Exxon and Pioneer increases the pressure on Chevron to pursue an aggressive acquisition strategy to ensure that its oil and gas assets can compete effectively.

After news of Exxon’s talks with Pioneer broke last week, shares in several Permian-focused companies such as Diamondback Energy, Permian Resources and Matador Resources Company jumped on speculation that they could become acquisition targets.