Exxon Mobil in Talks to Buy Shale Giant Pioneer Natural Resources

Energy giant ExxonMobil, the largest U.S. oil company, has held preliminary informal talks with U.S. fracking giant Pioneer Natural Resources Co. about a possible acquisition according to people familiar with the matter the WSJ reported Friday. Some of the people cautioned there is no formal process between Exxon and Pioneer. Exxon is in a cash rich position after it delivered its highest-ever annual profit in 2022 fueled by surging oil prices to resurrect it as one of America’s most profitable companies and erase billions of dollars of losses incurred during the pandemic.

Exxon reaped the benefits of its countercyclical investments in oil and gas assets before and during the pandemic. The Covid crisis had primed the company for survival and efficiency and as such benefit from lucrative refining.

We have heard many rumors about Exxon over the years, in particular in the period in and around the oil price collapse a few years back. One popular one doing the rounds was a merger between Exxon and Chevron which never eventuated. This is one to keep your eyes on but as the WSJ stresses any deal, if it happens, likely wouldn’t come together until later this year or next year, the people said, and talks may not morph into formal negotiations at all, or Exxon may pursue another company.

According to the story “Exxon is on the hunt for a seismic deal to put its windfall profits to use and sees Dallas area-based Pioneer as a top target.”

WSJ said: An acquisition of Pioneer, with a market cap of around $49 billion, would likely be Exxon’s largest since its megamerger with Mobil Corp. in 1999. It would give Exxon a dominant position in the oil-rich Permian Basin of West Texas and New Mexico, a region Exxon has said is integral to its growth plans.

Pioneer’s size would likely put an acquisition of the company ahead of the U.S. oil industry’s most recent blockbuster, Occidental Petroleum Corp.’s 2019 purchase of Anadarko Petroleum Corp. for about $38 billion, and top Exxon’s 2010 acquisition of XTO Energy Inc. for more than $30 billion.

The potential blockbuster would combine the largest Western oil company, more than 140 years old and valued at more than $468 billion, with a West Texas driller that holds vast reserves of oil in America’s most-coveted fracking hot spot.

Exxon’s strategy is a point of difference from the European oil majors in particular. Exxon has aimed to maximize it’s oil-and-gas assets where it made a historic profit of $55.7 billion in 2022. While XOM profited from the Russian invasion of Ukraine pushing up energy prices the company also took a loss in a large oil-and-gas project in Russia’s Far East. Exxon took a $3.4 billion accounting charge in the first quarter after declaring its plans to exit Russia.

Exxon just last week ended a major deepwater drilling campaign off Brazil, after failing last year for a third time to find commercially viable amounts of oil, The Wall Street Journal reported this week, citing people familiar with the matter. While Exxon said it was still engaged in Brazil the move was a major hit to the companies’ growth plans.

Exxon Record 2022 Earnings

In 2022 Exxon saw revenue rise to $95.429 billion from $84.965 billion a year ago with cash flow from operations soaring to $76.8 billion last year, up from $48.1 billion in 2021. Net-debt-to-capital ratio improved to about 5%, reflecting 2022 debt retirements of $7.2 billion and a period-end cash balance of $29.7 billion, further strengthening the balance sheet and providing greater financial flexibility.

XOM achieved it’s best-ever annual refining throughput in North America and the highest globally since 2012

Exxon said it incurred a $1.3 billion hit to its fourth-quarter earnings from a European Union windfall tax that began in the final quarter and from asset impairments. The company is suing the EU, arguing that the levy exceeds its legal authority.

Exxon’s spectacular earnings is a turnaround after it lost a historic proxy fight in 2021 to investment firm Engine No. 1, which mocked Exxon’s finances and argued it had no long-term strategy. This followed the oil-market collapse in 2020 where oil prices were negative for a few days. This led to Exxon’s first annual loss in at least four decades, of more than $22 billion. XOM was removed from the Dow Jones Industrial Average that year, after nearly a century in the index, with its shares falling as much as 55%.

From there Exxon shares rose about 80% for the year, the fourth-highest stock-price increase in the S&P 500 index, only behind oil companies Occidental Petroleum Corp. , Hess Corp. and Marathon Petroleum Corp. , according to Dow Jones data. Exxon also banked $76.8 billion in cash from its operations, behind only Apple and Microsoft so far, according to S&P Global Market Intelligence.

We refer back to what Woods said in the last quarter address on that point;

“The investments we’ve made, even though the pandemic, enabled us to increase production to address the needs of consumers. Rigorous cost control and growth of higher-margin petroleum and chemical products also contributed to earnings and cash flow growth in the quarter. At the same time, we are expanding our Low Carbon Solutions business with the signing of the largest-of-its-kind customer contract to capture and permanently store carbon dioxide, demonstrating our ability to offer competitive emission-reduction services to large industrial customers around the world,” concluded Darren Woods, chairman and chief executive officer.

Pioneer largest oil producer in the Permian

Pioneer generated $8.4 billion in surplus cash last year and sent almost $8 billion of that to shareholders via dividends and share repurchases. Pioneer total debt at the end of 2022 was down more than 26% from the end of 2021, according to FactSet.

Pioneer is the largest oil producer in the Permian; Exxon, the sixth-largest, according to analytics firm Novi Labs. A takeover of Pioneer would see Exxon add drilling locations Pioneer amassed through the acquisitions of Parsley Energy Inc. and DoublePoint Energy, two companies that had also drilled in the Permian, for a combined roughly $11 billion in 2021.

Pioneer is exclusively in the Permian and produced an average of about 650,000 barrels of oil equivalent a day there in 2022, about 100,000 more than Exxon produced in the region last year, according to company filings. Pioneer executives said that its recent acquisitions mean it sits on about 30 years of premium inventory.

Source: WSJ ExxonMobil AlphaStreet

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