Axios Markets

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👋 Welcome back. Our toes are still squirming from the Birkenstock IPO.

  • Shares of the shoemaker sunk nearly 13% from its initial offering price yesterday. It was the worst first day for a listing valued at $1 billion or more in at least two years, Bloomberg notes.

Today's newsletter is 980 words, 3½ minutes.

🛢1 big thing: In Permian megamerger, Exxon highlights plans to pump

Photo: Nicky Loh/Bloomberg via Getty Images

Exxon Mobil emphasized plans to boost production as part of its blockbuster deal announced yesterday that would make it the single biggest player in the strategically important U.S. Permian Basin, Matt writes.

Why it matters: Russia's war in Ukraine altered world energy markets, underscoring the importance of domestic production for the U.S.

State of play: The oil giant plans to acquire Pioneer Natural Resources in an all-stock deal valued at roughly $60 billion.

  • The deal would make Exxon the largest single player in the Permian Basin, the largest U.S. oil field.
  • The combined companies plan to boost production by 700,000 more barrels of oil and gas per day over the next four years, bringing total Permian output to 2 million barrels per day by 2027, according to the press release announcing the deal.
  • That's a 21% increase compared to the previous production goals outlined separately by the two companies, according to Wells Fargo analysts.

What they're saying: "We're bringing on low-cost-of-supply barrels into a market that desperately needs them," said Exxon chief executive Darren Woods, on a call with analysts to answer questions about the proposed merger, which will face antitrust scrutiny. "So when we bring these two together, it's not about cutting back, it's about building up."

Context: The oil industry's slow production response to the energy price shock of the last year has been an irritant to the White House.

  • Almost exactly a year ago, President Biden publicly accused oil companies of "war profiteering" by benefitting from energy price spikes that resulted from the war in Ukraine, without boosting production.
  • "Exxon made more money than God this year," the president said in June 2022.
  • Theological implications aside, Exxon did post a profit of more than $55 billion last year. (See chart below.)

Be smart: The Permian Basin, a swath of West Texas and New Mexico, emerged as a cornerstone of the U.S. oil industry over the last 20 years, thanks to hydraulic fracturing techniques.

Flashback: Production there exploded in the early 2010s, amid a wild west atmosphere for drilling and pumping.

  • The pumping bonanza returned the U.S. to the top spot in world oil production, took market share away from OPEC and Russia — now known as OPEC+ — and generated a steady flow of oil and gas.

Yes, but: When crude prices plunged in 2014 and again in 2020, bankruptcies in the Permian surged and investors lost billions.

  • Going forward, Wall Street demanded "capital discipline" from the smaller independent drillers who dominated the Permian.
  • They complied. Oil executives sold fewer barrels at higher prices and distributed that cash to shareholders rather than boosting production.

Between the lines: "We've seen that market power shift dramatically back to OPEC+," Matthew Bernstein, senior analyst at Rystad Energy, tells Axios.

  • "It's because of the conscious decision-making of these public independent shale companies and the fact that they are no longer concerned, for the most part, with ramping up supply. Their concern is on making sure that they're able to deliver dividends, buybacks to investors," he said.

💭 Our thought bubble: As part of its effort to win antitrust approval for the deal, Exxon seems to be positioning itself as a more reliable provider of energy supplies for the American economy than Saudi Arabia or the smaller drillers that have traditionally been the source of the Permian's productivity.

2. 📊 Charted: Don't know what God makes but ...

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Exxon's net income surged to a record $56 billion in 2022, supercharged by the crude oil price spike set off by Russia's invasion of Ukraine.

  • That profit gusher also generated a soaring share price, which the company used as currency in the all-stock deal. It set up Exxon well for what looks to be a coming wave of consolidation.

3. Catch up quick

✈️ Delta Air Lines profit jumped nearly 60% in the third quarter. (CNBC)

ğŸŽ New York wants to be AI's world capital. (Axios)

🛑 CEOs seek to blacklist Harvard students who signed pro-Palestinian letter. (Axios)

4. Brace yourself for lower raises

Illustration: Sarah Grillo/Axios

There are early signs that companies are planning smaller raises for their employees in 2024, Emily writes.

Why it matters: This is obviously less than great news for workers, but it's another sign that inflation is cooling and the dreaded wage-price spiral didn't materialize as some had feared.

Driving the news: U.S. employers are increasing their compensation budgets by 3.5% for merit raises next year and 3.9% for all wage increases, according to a recent survey from Mercer. That's down from 3.8% and 4.1% in actual increases in 2023.

Yes, but: Most companies won't finalize their budgets until December, Mercer points out.

State of play: Wage growth is still well above where it was pre-pandemic, but it's trending down.

  • In September, average hourly earnings were up 4.2% year-over-year, according to the Bureau of Labor Statistics. In March 2022, that number was at 6%.

Of note: Raises are certainly lower for Social Security recipients next year — the cost of living adjustment is expected to be around 3%, as Axios' Neil Irwin wrote yesterday. That's down from an eye-popping 8.7% in 2022.

  • We'll learn the official COLA number this morning — and the latest on inflation — after the Consumer Price Index numbers come out at 8:30 a.m. ET.

5. 💭 Quoted: UAW launches surprise strike

"We have been crystal clear, and we have waited long enough, but Ford has not gotten the message."
— UAW president Shawn Fain

The United Auto Workers union launched a surprise strike at a Ford truck plant in Kentucky late yesterday, with 8,700 workers walking off the job.

Why it matters: It's Ford's largest plant globally and its most profitable. The new action brings the number of striking auto workers to around 33,700.

  • A spokesperson for Ford called the move "wrongheaded," reports Axios' Rebecca Falconer, but "unsurprising given the union leadership's stated strategy of keeping the Detroit 3 wounded for months through 'reputational damage' and 'industrial chaos.'"

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Today's Axios Markets was edited by Kate Marino and copy edited by Carolyn DiPaolo.