ExxonMobil has agreed to pay $59.5 billion to acquire rival Pioneer Natural Resources in a deal that will secure the energy giant access to the crucial Permian Basin across West Texas. Texas and New Mexico, with nearly 40% of production), are leaders in hydraulic fracturing. Accounting for 15% of the total U.S. oil and 15% of the U.S. natural gas.
If the acquisition passes federal antitrust review, it would be Exxon’s largest acquisition since its merger with Mobil in 1999. Some in the industry believe the aggressive push into the West Texas shale oil sector is a sign that the outlook for the green energy transition is changing.
“This means that the energy transition becomes more rational. Jay Hatfield, CEO of Infrastructure Capital Advisors, an investment company specializing in energy and infrastructure investments, said that in about 50 years it will be possible The fantasy world of renewable energy as electricity is now clearly not a reality. wealth. “There’s a recognition that these forms of energy are not going away anytime soon.”
If Hatfield is right, ExxonMobil’s new view on the energy transition will contrast sharply with the green ambitions of most Western countries as they fight climate change.EU countries call for transition away from fossil fuels, agree European Green Deal Last year, the plan aimed to make the continent carbon neutral by 2050 and reduce emissions by 55% below 1990 levels by 2030. April 2021, President Biden set a goal The United States will have “carbon pollution-free electricity” by 2035 and achieve net-zero emissions by 2050.
Last year, the administration even established a Greenhouse Gas Reduction Fund for the EPA through the Inflation Reduction Act, which is paying $27 billion Provides loans and grants to “promote investment in clean energy projects and combat the climate crisis.”
Environmentalists were quick to condemn ExxonMobil’s acquisition of Pioneer on Wednesday. “This deal shows that ExxonMobil is doubling down on fossil fuels and has no intention of moving to clean energy,” Fossil Free Media Director Jamie Henn told the progressive nonprofit outlet common dream. “Even after the hottest summer on record, ExxonMobil is determined to push the thermostat higher.”
In the case of ExxonMobil declare Its “ambition” is to achieve net-zero greenhouse gas emissions by January 2022 and by 2050. But Infrastructure Capital’s Hatfield believes Europe’s recent experience with soaring natural gas prices after the war in Ukraine could help convince U.S. energy majors, often called Big Energy, that investing in fossil fuels is still worth doing to ensure U.S. energy security. , even as the world will eventually move on to greener pastures.
Comments from ExxonMobil when it announced the deal seemed to support that idea.The company stressed on Wednesday statement Pioneer’s acquisition represents an “opportunity to strengthen U.S. energy security” and believes it will help expand an important source of domestic oil and natural gas supplies, “beneficial to the U.S. economy and its consumers.”
Soaring oil and natural gas prices have propelled Exxon Mobil to third place on the 2022 Fortune 500 list, up from sixth place last year. The energy giant’s revenue rose 45% last year to $413 billion, while profits soared 141% to $56 billion. The windfall of cash has Exxon looking for acquisitions to bolster its portfolio.For this, it cost US$5 billion In June, about pipeline operator Denbury.
Hatfield said ExxonMobil not only recognizes that “the energy transition will take much longer than politicians hope” but also “reduces risk” and “diversifies” its oil and gas production assets by acquiring pipeline operators Combined and expanded into the Permian Basin.
In terms of diversification, he noted that Pioneer owns land in different parts of the Permian Basin, while Exxon does not. The Texas-based shale giant owns 850,000 net acres in the Midland Basin, while Exxon owns 570,000 net acres primarily in the Delaware Basin.
“There are really two very different basins. They have different infrastructure needs,” Hatfield explained. “This diversifies their (ExxonMobil’s) Permian exposure.”
Hatfield said another major reason Exxon invested in Pioneer was that the deal could help “de-risk” the company’s portfolio of oil production assets. He noted that Exxon Mobil and other energy majors have historically relied on offshore oil rigs to produce large amounts of crude oil, which are expensive to build and operate, meaning it takes a long time to generate a return on the initial investment.
At a time when governments around the world are saying the transition to green energy should happen sooner rather than later, such long-term investments in offshore rigs may be difficult to justify. Onshore, domestic oil production also poses less geopolitical risk.For example, Israel ordered Chevron closure on Monday, its offshore natural gas platform as a safety precaution amid ongoing conflicts in the region.
“Because of the political issues and the very quick returns that shale generates, the lowest-risk way to get hydrocarbons in the world is onshore in the United States,” Hatfield explained. “You drill a well and you’re in the top five. Most of the money will be recovered within the year, or even sooner. Therefore, major companies are trying to reduce business risks by doing more business within the United States.”
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