ExxonMobil sealed a megadeal to acquire shale producer Pioneer Natural Resources for about $60 billion, bolstering its holdings in the Permian Basin, a key US petroleum region, the companies announced Wednesday.
ExxonMobil said the takeover, the company's biggest since the late 1990s acquisition of Mobil by Exxon, will enable greater economies of scale, permitting it to deploy drilling and operating technologies over a bigger region and enabling cheaper oil production.
"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 ExxonMobil Chief Executive Darren Woods.
Under the all-stock transaction, ExxonMobil will buy Texas-based Pioneer for $59.5 billion based on ExxonMobil's closing price on October 5. The overall transaction, including debt, is valued at around $64.5 billion, the companies said.
The transaction prices Pioneer at $253 per share, up about 18 percent prior to a Wall Street Journal article last week reporting the talks.
Woods said the "highly contiguous" drilling acreage of the two companies will allow "for greater opportunities to deploy our technologies, delivering operating and capital efficiency as well as significantly increasing production."
Production in the Permian Basin, located in western Texas and eastern New Mexico, accounts for a whopping 5.8 million barrels of oil per day, or about 45 percent of US output.
- Shale revival -
The region has a long and storied history, with the first wells dating to 1920. The basin soared during the energy boom of the 1970s before experiencing a steady decline in subsequent decades.
The US shale boom of the 2010s revived the area, with fracking and new drilling techniques that make development more affordable.
"If it were a country, the Permian Basin would be one of the largest producers of oil in the world," according to the website of the Federal Reserve Bank of Dalls.
"And while the area receives much attention for its oil production, it has also become a major producer of natural gas and of natural gas liquids."
Both ExxonMobil and fellow US petroleum behemoth Chevron have invested heavily in the region in recent years.
With the Pioneer acreage, ExxonMobil said it will be able to drill some wells four miles (6 kilometers) long, boosting efficiency enough to enable it to produce the acquired acreage for less the $35 a barrel.
ExxonMobil said the deal will enable it to boost volumes from the region to 2 million barrels of oil equivalent per day.
That is more than double ExxonMobil's expected output as a free-standing company, according to a note from JPMorgan Chase, which said the deal "makes strategic sense."
The takeover comes as oil currently trades at more than $85 a barrel, a relatively high historical benchmark.
ExxonMobil vowed that it would employ best practices on the environment, accelerating Pioneer's plan to reach "net zero" emissions by 15 years to 2035 and employing technology to limit methane emissions.
But as a longterm bet on oil and gas, the merger is unlikely to please climate activists.
Even as the world transitions to lower-carbon energy, fossil fuels will "continue to play a role over time," Woods told CNBC. "That may diminish with time... but it will be around for a long time."
ExxonMobil has long faced criticism that it intentionally fueled doubts about climate change science in order to protect its core business.
Under Woods, the company has established a low-carbon business, having acquired Denbury Inc., a specialist in enhanced oil recovery and carbon sequestration, for $4.9 billion earlier this year.
While ExxonMobil usually avoids big deals under a high price scenario, analysts noted that Pioneer's shares had retreated prior to speculation of the deal.
Another factor favoring a deal was the impending retirement of Pioneer CEO Scott Sheffield, who has planned to step down at the end of 2023.
Shares of Pioneer climbed 0.3 percent to $238.13 in morning trading, while ExxonMobil dropped 4.8 percent to $105.19.
jmb/des
