Exxon Mobil in $60b deal for shale giant
Exxon Mobil announced Wednesday that it was acquiring Pioneer Natural Resources for $59.5 billion, deepening its reliance on fossil fuel production even as many global policymakers grow increasingly concerned about climate change and the oil industry’s reluctance to shift to cleaner energy.
Exxon has spent decades investing in projects around the world, but the deal would squarely lodge its future close to its Houston base, with most of its oil production in Texas and along the coast of Guyana.
By concentrating its operations close to home, Exxon is effectively betting that US energy policy will not move against fossil fuels in a major way even as the Biden administration encourages automakers to switch to electric vehicles and utilities to make the transition to renewable energy.
Exxon executives have said that in addition to producing more fossil fuels, the company is building a new business that will capture carbon dioxide from industrial sites and bury the greenhouse gas in the ground. The technology to do that remains in an early stage and has not been successfully used on a large scale.
“We’re doubling down on our organizations and capabilities,” Exxon CEO Darren Woods said. The combined company would generate value “well in excess of what either company is capable of doing on a stand-alone basis,” he added. The focus of the deal was “on taking the best of both organizations,” he said.
American oil production has reached a record of roughly 13 million barrels a day, around 13 percent of the global market, but growth has slowed in recent years. Despite a wave of consolidation among oil and gas companies, and higher oil prices after the Russian invasion of Ukraine last year, producers are having a more difficult time finding new locations to drill.
The Pioneer deal is a sign that it is now easier to acquire an oil producer than to drill for oil in a new location.
Exxon, a refining and petrochemical powerhouse, needs a lot more oil and gas to turn into gasoline, diesel, plastics, liquefied natural gas, chemicals, and other products. Much of that oil and gas is likely to come from the Permian basin, the most productive US oil and gas field, which straddles Texas and New Mexico and where Pioneer is a major player.
Exxon’s $10 billion Golden Pass terminal near the TexasLouisiana border is scheduled to begin shipping liquefied natural gas to the rest of the world next year. Gas bubbles up with oil from the Permian basin, making the basin all the more valuable for exports as Europe weans itself from Russian gas.
The Pioneer deal would be Exxon’s largest acquisition since it bought Mobil in 1999. It is bigger than the company’s illfated $30 billion acquisition of XTO Energy, a major natural gas producer, in 2010. Exxon had to write off much of that investment later when natural gas prices collapsed from the high levels that prevailed when it bought XTO.
By buying Pioneer now, when the US oil bench mark is around $83 a barrel, Exxon is counting on prices remaining relatively high in the next few years.
Exxon has been careful in recent years to invest modestly as it raised its dividends and bought back more of its own stock.
Buying Pioneer would add production, a big change in its strategy.
The acquisition would make Exxon the dominant player in the Permian basin, far outpacing Chevron, its biggest rival. The merged company would combine Pioneer’s 850,000 acres with Exxon’s 570,000 acres in the Permian, giving it one of the largest undeveloped oil and gas inventories in the world. Provided the deal receives regulatory approval, Exxon’s production in the basin would more than double to 1.3 million barrels of oil and gas a day, the company said.
Combining the companies’ acreage would allow the group to drill longer wells to reach deeper into the layer cake of shale resources in the basin. The companies said they could stretch some lateral drilling up to 4 miles.
Shale fields require constant drilling of new wells because production exhausts after a few years. As oil production recedes, the output of natural gas from wells increases, promising to make the Permian a major source of gas for decades.
Environmentalists were critical of the deal. “Exxon should be moving toward clean energy like solar and wind,” said Dan Becker, director of the safe climate transport campaign at the Center for Biological Diversity. “Instead they are doubling down on dirty oil, and production in the Permian, which is draining the limited water supplies in the area.”