Shares of Pioneer Natural Resources PXD-N climbed nearly 11 per cent on Friday on news that ExxonMobil XOM-N, the largest U.S. oil and gas company, was in advanced talks to buy the shale producer in a deal valued at a whopping US$60-billion.
A deal would be Exxon’s biggest acquisition since its US$81-billion acquisition of Mobil in 1998. It would make the company one of the leading producers in the lucrative Permian basin, the largest U.S. shale oil field as the country’s oil production closes in on an all-time record of 13 million barrels a day.
Pioneer’s shares were trading at US$238.50 on Friday, valuing the company at nearly US$56-billion. The offer implies a roughly 20-per-cent premium to Pioneer’s Thursday close. Exxon shares were down 1.6 per cent. Friday’s gains leave the stock short of the offer, as it is possible that the two companies will not reach an agreement.
The premium is in line with other E&P mergers this year, but “still strikes us as slightly low for a company with the unique scale and quality of inventory held by Pioneer,” said Andrew Dittmar, a director at Enverus.
“It is a significant win for Exxon … an attractive price to acquire a unique Permian portfolio.”
Pioneer holds an estimated 6,300 net locations of high-quality inventory, according to Enverus.
The deal value implies Exxon is paying about US$4.5-million for Pioneer’s high-quality locations and US$3.7-million for all locations, above the recent M&A trends that have valued assets around US$3-million a location, Enverus said.
If the negotiations conclude successfully, an agreement between Exxon and Pioneer could be reached in the coming days, Reuters reported on Thursday, citing three sources.
However, any deal could attract political and regulatory scrutiny.
“Pioneer is the Permian’s largest operator at nine per cent of gross production while Exxon is No. 5 at six per cent. Combined amounts to 15 per cent of operated Permian production, but only six per cent of total US production. These datapoints are relevant given FTC scrutiny around consolidation,” RBC Capital Markets analyst Scott Hanold said in a note.
U.S. crude oil output rose to just shy of 13 million barrels a day in July, only slightly less than the record set in November, 2019.
However, oil companies have reined in their spending on exploration in the last few years owing to expectations for growth in renewable energy.
Industry experts said the deal could set a precedent for more large-scale M&A in the sector.
“This is the beginning of a massive consolidation in the industry,” said Bill Smead, chief investment officer of Smead Capital Management, which manages US$5.2-billion in funds with a quarter of that in oil and gas.