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Pioneer shares jump on Exxon mega-merger talks

by Mark Mendoza

Exxon Mobil in Advanced Talks to Acquire Pioneer Natural Resources in $60 Billion Deal

Shares of Pioneer Natural Resources surged nearly 11% on Friday following the news that Exxon Mobil, the largest oil and gas company in the United States, was in advanced discussions to buy the shale producer in a deal valued at an astonishing $60 billion. If finalized, this would be Exxon’s largest acquisition since its $81 billion purchase of Mobil in 1998. The deal would position Exxon as one of the leading producers in the highly profitable Permian Basin, which is the largest shale oil field in the U.S. As the country’s oil production is on track to reach a record-breaking 13 million barrels per day, this deal would be strategically advantageous for Exxon.

Pioneer’s shares closed at $238.50 on Friday, giving the company a valuation of nearly $56 billion. In contrast, Exxon’s shares were down 1.6% on the same day. The proposed offer suggests a premium of approximately 20% compared to Pioneer’s closing price on Thursday. However, the value of the deal remains subject to change during negotiations.

Andrew Dittmar, a director at Enverus, commented on the premium offered, stating that it appears slightly low considering Pioneer’s unique scale and inventory quality. On the other hand, Biraj Borkhataria, an analyst at RBC Capital Markets, noted that Exxon might not be willing to pay a substantial premium due to limited alternative buyers for an acquisition of this magnitude.

Pioneer currently holds an estimated 6,300 net locations of high-quality inventory, according to Enverus. The deal’s value indicates that Exxon is paying around $4.5 million for Pioneer’s premium locations and approximately $3.7 million for all locations. These figures exceed recent trends in merger and acquisition valuations, which have averaged around $3 million per location.

According to Reuters, if negotiations reach a successful conclusion, an agreement between Exxon and Pioneer could be reached in the coming days. However, any potential deal is likely to attract political and regulatory scrutiny. Scott Hanold, an analyst at RBC Capital Markets, mentioned that the Federal Trade Commission (FTC) might scrutinize the consolidation given Pioneer’s status as the largest operator in the Permian, with Exxon ranking fifth. The combined operation would account for 15% of operated Permian production but only 6% of total U.S. production.

The U.S. crude oil output climbed to nearly 13 million barrels per day in July, approaching the record set in November 2019. Oil majors, including Exxon, have prioritized returning cash to shareholders rather than increasing production. Despite record profits and near-record U.S. oil output, these companies have been slow to raise spending.

Experts believe that this deal could establish a precedent for further large-scale mergers and acquisitions in the sector. If Exxon becomes the dominant player in the Permian, it would transform the shale industry into a more mature and consolidated business, according to Matthew Bernstein, a senior shale analyst at Rystad Energy.

In conclusion, Exxon Mobil’s potential acquisition of Pioneer Natural Resources for $60 billion would have significant implications for the U.S. oil and gas industry. If the deal goes through, Exxon would solidify its position in the Permian Basin and potentially pave the way for future consolidation in the sector. However, the transaction is likely to face scrutiny from regulators, and the final agreement is still subject to negotiation.

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