Exxon to buy shale rival Pioneer for nearly $60 billion in stock

NEW YORK: Exxon Mobil (XOM.N) will buy U.S. rival Pioneer Natural Resources (PXD.N) in an all-stock deal valued at $59.5 billion that would make it the biggest producer in the largest U.S. oilfield, securing a decade of low-cost production.

The deal would be Exxon's biggest since its $81 billion purchase of Mobil Oil in 1998, years before the shale boom began, and the largest acquisition this year by any company. 

Exxon has offered $253 per share for Pioneer, the companies said on Wednesday. Pioneer shares, which closed at $237.41 on Tuesday, were up 1.1% at $239.98 in premarket trading.

Exxon shares were flat. Exxon has pulled itself out of a period marked by deep losses and huge debts in the last two years by slashing costs, selling dozens of assets and benefiting from high energy prices spurred by Russia's invasion of Ukraine.

The $253 price per share represents a 9% premium to Pioneer's average price for the 30 days prior to Oct. 5, which reports of the deal surfaced. The deal will leave four of the largest U.S. oil companies in control of much of the Permian Basin shale field and its extensive oilfield infrastructure.

Still, antitrust experts told Reuters last week that Exxon and Pioneer stood a good chance of completing their deal, even though they would face heavy scrutiny. This is because they could argue that even as the largest Permian producer, together they will account for a small fraction of a vast global market for oil and gas.

Chief Executive Darren Woods has rebuffed investor and political pressure to shift strategies and embrace renewable energy as European oil majors have done. He faced heavy criticism for sticking to a heavy oil-dependent strategy as climate concerns became more pressing.

"The combined capabilities of our two companies will provide long-term value creation well in excess of what either company is capable of doing on a standalone basis,” said Woods, in a statement.

Exxon's decision paid off when the company last year earned a record $56 billion profit, two years after losses ballooned to $22 billion during the COVID-19 pandemic. Exxon socked away some of the huge profits from the oil-price run up, putting aside some $30 billion in cash in anticipation of deals, according to analysts.

Pioneer is the Permian's largest operator accounting for 9% of gross production, while Exxon occupies the No. 5 spot at 6%, according to RBC Capital Markets analysts. “The combination of Exxon, Mobil and Pioneer creates a diversified energy company with the largest footprint of high-return wells in the Permian Basin," said Pioneer CEO Scott Sheffield.

Pioneer has been one of the most successful oil companies to emerge from the shale revolution, which turned the U.S. from a major oil importer into the world's largest producer in little more than a decade.

Permian Basin is highly valued by the U.S. energy industry because of its relatively low cost to extract oil and gas, with rock-bottom production costs averaging about $10.50 per barrel. Under CEO Scott Sheffield, Pioneer grew through rapid-fire purchases, including multi-billion dollar deals in 2021 for DoublePoint Energy and Parsley Energy.

Exxon's purchase would outrank oil major Shell's (SHEL.L) $53 billion acquisition of BG Group in 2016, which put it atop the global liquefied natural gas market.

In July, Exxon agreed to a $4.9 billion all-stock deal for Denbury, a small U.S. oil firm with a network of carbon dioxide pipelines and underground storage. That acquisition was intended to bolster Exxon's nascent low-carbon business.

The largest U.S. oil producer originally made an all-cash bid for Denbury, and at the last minute switched to all stock, reflecting both the target's rise in market value during the talks and investors wanting to take part in any upside in Exxon's stock.

The oil giant's share price has recovered strongly since its early 2020 tumble to about $30 as oil and gas prices collapsed. Exxon shares recently hit an all-time high of $120 per share.