Exxon buys Pioneer Natural Resources for $60 billion

Exxon Mobil on Wednesday announced its $59.5 billion purchase of Pioneer Natural Resources, deepening its reliance on fossil fuel production even as many global policymakers are increasingly concerned about climate change and the oil industry’s reluctance to transition to cleaner energy.

Exxon has been investing in projects around the world for decades, but the deal will put its future close to its Houston base, where most of its oil production is off the coast of Texas and Guyana.

By concentrating its operations closer to home, Exxon is effectively betting that U.S. energy policy won’t move in a major way against fossil fuels, while the Biden administration encourages automakers to switch to electric vehicles and utilities that shift to renewable energy.

Exxon executives have said the company is building a new business that captures carbon dioxide from industrial sites and buries the greenhouse gas in the earth, along with producing more fossil fuels. The technology for this is in its infancy and has not been used successfully on a large scale.

“We are doubling down on our organizations and capabilities,” said Exxon’s chief executive, Darren Woods. He added that the combined company “will create more value than a single company could do alone.” He said the focus of the deal was to “take the best of both companies.”

U.S. oil production reached a record high of about 13 million barrels a day, about 13 percent of the global market, but growth has slowed in recent years. Despite a wave of consolidation among oil and gas companies and high oil prices after Russia’s invasion of Ukraine last year, producers are struggling to find new places to drill.

The pioneering deal is a sign that getting an oil producer is now easier than drilling for oil in a new location.

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Exxon, a refinery and petrochemical powerhouse, needs more oil and gas to turn into gasoline, diesel, plastics, liquefied natural gas, chemicals and other products. Much of that oil and gas is likely to come from the Permian Basin, the most productive U.S. oil and gas field that runs through Texas and New Mexico.

Exxon’s $10 billion Golden Pass terminal near the Texas-Louisiana border is slated to ship liquefied natural gas to the rest of the world next year. Gas bubbles with oil from the Permian Basin, making it more valuable for exports as Europe runs out of Russian gas.

The Pioneer deal is Exxon’s biggest acquisition since it bought Mobil in 1999. That’s bigger than the company’s $30 billion purchase of XTO Energy, a major natural gas producer, in 2010. Exxon later had to write off most of that investment. When natural gas prices fell from the highs that prevailed when XTO was purchased.

By buying Pioneer now, Exxon is counting on the US oil benchmark to remain relatively expensive over the next few years when it hovers around $83 a barrel.

Exxon has been careful to invest modestly in recent years, raising its dividend and buying back its own shares. The acquisition of Pioneer will add production, a major shift in its strategy.

The acquisition would make Exxon the dominant player in the Permian Basin, surpassing its biggest rival, Chevron. The combined company would combine Pioneer’s 850,000 acres with Exxon’s 570,000 acres in the Permian, one of the world’s largest undeveloped oil and gas reserves. If the deal wins regulatory approval, Exxon’s production will double to 1.3 million barrels of oil and gas per day, the company said.

Combining the companies’ acreage will allow the group to drill longer wells. Some lateral drilling could extend up to four miles, the companies said.

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Shale fields require constant drilling of new wells because production runs out after a few years. As oil production declines, the output of natural gas from wells increases, promising that the Permian will become the main source of gas for decades to come.

Energy experts noted that the deal underscores a major shift in the industry’s view of shale drilling over the past decade.

“In the early days of the fracking revolution, Big Oil wasn’t particularly interested in going into the Permian or other shale plays,” said Bernard Weinstein, an economist at Southern Methodist University in Dallas. “They were more interested in dredging and working on the African coast. It’s really changed.”

A handful of major European oil companies, which have generally moved faster than U.S. businesses to renewable energy, have either exited the Permian or sold their stakes in recent years.

In a call with reporters, Mr. Woods said Exxon and Pioneer will work together to reduce emissions. “As long as the world needs oil and gas,” he said, companies will have “more efficient, effective and responsible” operations.

The deal has been heavily criticized by environmentalists. “Exxon needs to move toward clean energy like solar and wind,” said Dan Becker, director of the Safe Climate Transportation Campaign at the Center for Biological Diversity. “Instead they’re doubling down on dirty oil and production in the Permian, which is draining the limited water supply in the region.”

Pioneer is a darling of Wall Street investors. Its chief executive, Scott Sheffield, has driven the company out of Alaska, Africa and offshore areas while buying shale operations in the Permian on the cheap. Some of the fields Pioneer bought in the Permian several years ago came from Exxon.

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By 2020, it had become one of the largest US drillers, with relatively low-cost production.

Mr. Sheffield praised the deal, saying the combined company will enhance the companies’ ability to manage adjacent, contiguous oil and gas acreage. “Our shareholders and our employees will be better positioned for long-term success,” he said.

Mr. Sheffield is retiring at the end of the year. His company’s market value is about $50 billion, one-eighth the size of Exxon. Many of its oil and gas fields are still untapped.

In 2017 Mr. The deal was Exxon’s first major acquisition since Woods became chief executive, replacing Rex Tillerson, who became secretary of state.

Exxon, which posted $56 billion last year, is flush with cash it can invest in Pioneer’s untapped fields.

The deal is the latest in a series of mergers and acquisitions in the oil industry in recent years. Occidental Petroleum bought Anadarko Petroleum four years ago for nearly $40 billion, making Occidental a major competitor to Exxon and Chevron in the Permian Basin. Pioneer spent more than $10 billion to acquire two Permian producers, Parsley Energy and Doublepoint Energy, in 2021.

This year Exxon bought Tenbury, a Texas energy company that owns pipelines that transport carbon dioxide, for $4.9 billion.

Pioneer shareholders will receive 2.32 Exxon shares for each Pioneer share at the end of the deal, which will come in early 2024, the companies said. Since the combined entity will control a portion of the territory, Mr. Woods said. Permian, and will be smaller for the entire oil and gas industry.

Exxon shares fell about 4 percent on Wednesday morning after the deal was announced. The predecessor was slightly less than 1 percent.

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