Oct 12, 2023 - Energy & Environment

Making sense of Exxon's oil earthquake

The ExxonMobil company logo is displayed on the floor of the New York Stock Exchange on May 30, 2023. Photo: Michael M. Santiago/Getty Images

ExxonMobil's plan to buy shale heavyweight Pioneer Natural Resources in a mega-deal valued at roughly $65 billion including debt comes with several defining takeaways.

State of play: The all-stock deal would make Exxon by far the largest player in the Permian Basin, the country's most prolific oilfield, as Axios' Matt Phillips points out today.

It's a climate Rorschach test. Exxon's moving up Pioneer's current target for "net-zero" Permian emissions from operations — and energy supplying them — by 15 years, from 2050 to 2035. Exxon's goal is 2030 for its assets.

  • Exxon also vowed to leverage its "industry-leading new technologies" to stem methane emissions.
  • But some climate groups attacked Exxon for bolstering its oil production plans.
  • Wood Mackenzie analyst Tom Ellacott, in a note, said "Bulking up materially in oil and gas also adds to the challenges of pivoting to low-carbon, especially if the energy transition accelerates."

It may speed up the Permian shopping spree. The deal could prompt other heavyweights to seek out acquisitions, especially as they've got strong balance sheets thanks to high prices over the last two years.

  • "Chevron seems the most likely to respond with a transaction of its own," Enverus Intelligence's Andrew Dittmar said in a note, citing potential targets like Coterra Energy or Devon Energy.

There's a distinct U.S. focus. Exxon has a massive global footprint, but the deal shows growing focus on the future value of domestic barrels.

  • It would more than double Exxon's Permian Basin production to 1.3 million barrels of oil-equivalent per day, with expected growth to 2 million in 2027.
  • Exxon is promoting the acquisition's value proposition, estimating synergies to reach $2 billion annually over the next decade.

Meanwhile, Team Biden stays mum. The White House and Federal Trade Commission did not comment on the deal.

  • Keep an eye on whether they raise any anti-trust concerns. Bloomberg's Liam Denning argues that would be misplaced, noting that even together they're about 15% of current Permian production and vastly less on a global scale.

The bottom line: The deal "demonstrates ExxonMobil's bullishness on longish-term oil demand and prices," Woodmac's Ellacott said in a note.

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