Analysts Look at What Exxon-Pioneer Deal Would Mean


In a statement sent to Rigzone late Friday, Enverus Intelligence Research (EIR) Director Andrew Dittmar told Rigzone that, “per late-breaking media reports, ExxonMobil (XOM) is closing in on a historic shale deal by acquiring Permian juggernaut Pioneer Natural Resources (PXD)”.

“We view the potential merger, which would carry a price tag of $60 billion according to the Wall Street Journal, as a significant win for XOM and a reasonable conclusion for PXD at a reported ~9 percent premium to its share price at its prior-day close,” Dittmar said.

“We view it as an attractive price for XOM to acquire a unique Permian portfolio to offer such scale, quality, and high proportion of operatorship and undeveloped acreage that mitigates risk of interference from parent wells,” he added.

“We have long viewed XOM as the most likely first-mover buyer in large-scale Permian M&A, due in part to its aggressive growth targets, in addition to viewing PXD as its ideal acquisition candidate,” he continued.

In the statement, Dittmar noted that, a key remaining question, “in addition to whether the deal will materialize at the reported price”, is whether such a deal would affect XOM’s current development pace in the Permian, “which already targets a differentiated double-digit growth rate that exceeds PXD’s”.

“We estimate PXD to hold 6,300 net locations of high-quality inventory (well locations that generate a 10% return at a WTI price of below $50), or 16 years of drilling activity at its current rig cadence,” Dittmar said.

“Such duration of operated inventory leads oil-weighted shale producers and would be significantly accretive to XOM’s duration,” he added.

Dittmar also stated that, while the ~9 percent premium is in line with other recent E&P mergers and more than the premium XOM paid for CCUS-focused Denbury, “it still strikes us as slightly low for a company with the unique scale and quality of inventory held by PXD”.

“At that value, the deal would be significantly accretive to XOM on 2024E EV/EBITDA with XOM trading at 6.5x versus an implied 5.4x on the acquisition and modestly accretive on FCF yield with XOM at seven percent versus a deal-implied eight percent,” he added.

“The $60 billion value would also imply XOM is paying $4.5 million for each of PXD’s high-quality locations and $3.7 million for all locations, per our estimates – well above recent M&A trends where nothing has traded north of $3 million per location,” he continued.

“However, those deals were not comparable in scale or inventory duration. A key objective for XOM, in our opinion, is to use a first-mover advantage to acquire a unique, capstone asset in a deal that is accretive to both inventory and financial metrics, which has lately been the dual mandate of equity investors,” he went on to state.

Dittmar also said in the statement that, while XOM’s balance sheet and “large cash hoard” would enable it to pay mostly or all in cash, EIR anticipates any deal to include a mix of cash and equity.

“The key implication for the rest of the sector, in our view, would be setting a precedent for a reasonable premium in large-scale M&A,” Dittmar said.

“We suspect other large-caps that are hungry for inventory would view the deal positively for any efforts to pursue similar deals,” he added.

In a market update sent to Rigzone on the same day, Rystad Energy noted that the U.S. shale industry is on the verge of a monumental deal that could reshape the landscape of the onshore U.S. Permian Basin.

“Rumors have resurfaced suggesting that supermajor ExxonMobil is nearing a $60 billion takeover of Texas-based shale player Pioneer Natural Resources,” Rystad said in the update.

“These rumors first surfaced in April but remained dormant for months as others in the basin kicked off a fast-paced summer of consolidation, which saw a number of public players adding inventory via the acquisition of private exploration and production companies (E&Ps),” the company added.

“With a report by the Wall Street Journal putting the potential Pioneer-ExxonMobil tie-up back in the spotlight, the shale industry could forever change in the coming days,” Rystad continued.

A deal the size of ExxonMobil’s potential acquisition of Pioneer could usher in a new “Shale 4.0” era, Rystad said in the update.

“The period of capital discipline since 2019 has colloquially been called ‘Shale 3.0’, with its capital-conscious nature standing in stark contrast to the technological advancements of the industry’s early beginnings and the free-spending nature of its rapid rise,” Rystad stated.

“While capital discipline would still reign supreme, the ‘Shale 4.0’ era would be unmistakably marked by consolidation. It would see high-spending supermajors, already in possession of large portions of the tight oil inventory, consolidate swathes of shale resources under their hold,” it added.

In a chart included in Rystad’s update, which showed the top inventory holders in the Permian by estimated real WTI breakeven, PXD ranked second while XOM ranked fourth. A combined PXD-XOM company would rank in first place by a notable margin, the chart showed.

“With Pioneer currently the second largest holder, the potential combination with currently fourth-ranked ExxonMobil would blow all others out of the water in terms of size and scale,” Rystad said in the update.

“The combined entity’s inventory would be just shy of 18,000 drilling locations,” it added.

“If ExxonMobil is crowned the undisputed king of the Permian in the coming days, the shale sector will fundamentally become a more mature consolidated business,” Rystad continued.

Rigzone has asked both XOM and PXD if the former is looking to acquire the latter. Both companies responded by saying they don’t comment on market rumor.


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