Shares of Pioneer Natural Resources (NYSE:PXD) soared by 11% on Friday following reports that Exxon Mobil (NYSE:XOM), the largest U.S. oil and gas conglomerate, was engaged in advanced negotiations to acquire the shale producer in a transaction valued at an astounding $60 billion.
Should the deal materialize, it would constitute Exxon’s most substantial merger since its $81 billion acquisition of Mobil back in 1998. This move would position Exxon as one of the principal players in the highly profitable Permian basin, the most extensive shale oil field in the United States, at a time when the nation’s oil production inches closer to an all-time record of 13 million barrels per day.
As of Friday, Pioneer’s shares were trading at $238.50, placing the company’s valuation at nearly $56 billion. In contrast, Exxon’s shares dipped by 1.2% in response to the news. The proposed offer reflects an approximate 20% premium over Pioneer’s closing stock price on Thursday, although the deal’s valuation remains subject to change pending ongoing negotiations.
This premium aligns with the prevailing trends in exploration and production (E&P) mergers this year. However, some industry experts view it as slightly conservative for a company boasting the exceptional scale and inventory quality held by Pioneer. Andrew Dittmar, a director at Enverus, noted, “The premium is in line with other E&P mergers this year, but still strikes us as slightly low for a company with the unique scale and quality of inventory held by Pioneer.”
Nonetheless, there is uncertainty about whether the two companies will ultimately reach an agreement, with analysts at RBC Capital Markets cautioning against expecting a substantial premium due to limited alternative buyers for an acquisition of this magnitude. Pioneer is known to possess an estimated 6,300 net locations of high-quality inventory, according to Enverus.
The proposed deal’s valuation implies that Exxon would pay approximately $4.5 million for Pioneer’s high-quality locations and $3.7 million for all locations. This stands above recent M&A transactions, which have valued assets at approximately $3 million per location, according to Enverus.
Reports indicate that if negotiations proceed successfully, an agreement between Exxon and Pioneer could be reached in the coming days, though it is important to note that any such deal is likely to attract both political and regulatory scrutiny.
Scott Hanold, an analyst at RBC Capital Markets, emphasized the relevance of Pioneer being the largest operator in the Permian at 9% of gross production and Exxon ranking fifth at 6%. This consolidation would constitute 15% of operated Permian production but only 6% of total U.S. production, potentially warranting Federal Trade Commission (FTC) scrutiny concerning consolidation within the industry.
In the context of a sector where major oil companies have prioritized returning cash to shareholders rather than ramping up production, this deal has the potential to set a significant precedent for further large-scale M&A activities.
Matthew Bernstein, senior shale analyst at Rystad Energy, noted, “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.”
