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Exxon Mobil has agreed to acquire Pioneer Natural Resources for $59.5 billion, a move that will trigger a wave of consolidation in the U.S. shale oil industry.
The West’s largest oil giant said on Wednesday it had reached an all-stock deal valuing Vanguard at $253 a share. The merger gives Exxon a dominant position in the Permian Basin, the vast oil fields in western Texas and New Mexico that have helped make the United States the world’s largest oil and natural gas producer.
The acquisition is the largest for Vanguard, which was founded by Chief Executive Scott Sheffield in 1997, since the 1999 merger of Exxon and Mobil. It is also the first major acquisition under Darren Woods. Has led ExxonMobil since 2017.
“The combined capabilities of our two companies will provide long-term value that far exceeds what either company can create on its own,” Woods said.
The bet on Pioneer also underscores Exxon’s determination to boost oil production despite predictions that climate change will eventually force the world to turn to renewable energy. Unlike ExxonMobil, BP aims to cut oil and gas production by 25% by 2030.
On Thursday, when news of the pending deal leaked, Exxon paid an 18% premium based on shale producer Pioneer’s closing price. The transaction has an enterprise value, including net debt, of approximately $64.5 billion.
Houston-based ExxonMobil has been pursuing acquisitions after amassing a pile of cash over the past year. Russia’s invasion of Ukraine sent oil prices soaring and Exxon Mobil’s profits hit record highs.
Analysts expect the deal to herald consolidation in the still fragmented U.S. shale oil industry, which has experienced boom and bust cycles over the past decade.
After years of reckless spending, Wall Street has forced shale players to stop costly drilling operations from scratch, leaving acquisitions as the best means of securing a dwindling number of prime drilling sites.
Andrew Dittmar, an analyst at consulting firm Enverus, said before the deal was announced that the deal was a “significant win” for Exxon and a “reasonable conclusion” for Pioneer.
Pioneer is a prominent operator in the Permian oil fields, and the deal gives ExxonMobil control of 15% of the basin’s production, according to RBC Capital Markets.
After the acquisition is completed, ExxonMobil’s Permian oil field production will more than double to 1.3 million barrels of oil equivalent per day. ExxonMobil added that the deal would transform its oil and gas business by reducing costs and increasing the ability to quickly ramp up production.
Woods told reporters that expanding Permian production “is a good thing from an environmental perspective.”
“As long as the world needs oil and gas, we will be focused on ensuring they have the most efficient, effective and responsible operators to make and produce oil and gas, and to do so with the lowest carbon intensity,” Woods added.
The Permian Basin produces about 5.8 million barrels of oil per day, while total U.S. oil production is about 13 million barrels per day.
Antitrust experts said the deal would likely face scrutiny from U.S. regulators but should be approved because the companies’ combined holdings in the Permian Basin account for only a small portion of global oil production.
“A review by the FTC is very likely, but the market share of this combination appears to be below the threshold that would normally require action,” said RBC Capital Markets analyst Scott Hannold.
The forward was sold after Sheffield announced plans in April to retire for a second time at the end of the year. He stepped down in 2016 and returned to the helm three years later.
The tie-up between ExxonMobil and Pioneer increases pressure on Chevron to pursue an aggressive acquisition strategy to ensure its oil and gas assets can compete effectively.
After news broke last week of ExxonMobil’s talks with Pioneer, shares of several Permian Basin-focused companies including Diamondback Energy, Permian Resources and Matador Resources Company surged on speculation they could be takeover targets.
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