As has been widely rumored, ExxonMobil Corp. announced Wednesday that it agreed to buy Pioneer Natural Resources for $59.5 billion in stock. Including debt, the implied enterprise value of the deal is $64.5 billion.
It’s the largest deal involving a Texas-based company since AT&T’s 2016 acquisition of Time-Warner for $85.4 billion. The transaction is also the largest globally in 2023 and the largest by the oil giant since its acquisition of Mobil in 1999.
ExxonMobil said the deal will merge Pioneer’s sizable acreage position in the greater Permian basin, entrepreneurial culture and deep industry expertise with its balance-sheet strength, advanced technologies and industry-leading project development capabilities.
The merger will combine Pioneer’s more than 850,000 net acres in the Midland Basin with ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins, creating the industry’s top high-quality undeveloped U.S. unconventional inventory position. Together, the companies will have an estimated 16 billion barrels of oil equivalent resource in the Permian.
If the deal closes, ExxonMobil’s Permian production volume would more than double to 1.3 million barrels of oil equivalent per day, based on 2023 figures, and is expected to increase to about 2 million BOEPD in 2027.
The deal is expected to be completed in the first half of next year if it clears regulators and Pioneer shareholders.
ExxonMobil said the transaction represents an opportunity for even greater U.S. energy security by bringing the best technologies, operational excellence and financial capability to an important source of domestic supply, benefiting the American economy and its consumers.
“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,” ExxonMobil chairman and CEO Darren Woods said in a statement.
The deal works out to $253 per share based on ExxonMobil’s closing price on Oct. 5 before reports began surfacing, an 18 percent premium over Pioneer’s undisturbed closing price and a 9 percent premium over its previous 30-day volume-weighted average price on the same day.
Pioneer shareholders will receive 2.3234 shares of ExxonMobil for each Pioneer share at closing. The implied total enterprise value of the transaction, including net debt, is around $64.5 billion.
ExxonMobil used Citi and Centerview Partners as its financial advisors and Davis Polk & Wardwell as its outside counsel led by Louis Goldberg. Craig Morford is its general counsel.
The rest of the Davis Polk team included Oliver Smith and Shanu Bajaj and associates Heather Weigel and Edwin P. Paillant. Partner David H. Schnabel and associate Constance Zhang are providing tax advice while partner Jennifer S. Conway and counsel Charlotte R. Fabiani and Joseph S. Brown are providing executive compensation advice.
Goldman Sachs, Morgan Stanley, Petrie Partners and Bank of America Securities were financial advisors to Pioneer, with Suhail Sikhtian leading the effort at Goldman. Gibson, Dunn & Crutcher was its legal advisor.
Key internal legal advisors for Pioneer were general counsel Mark Kleinman, vice president of legal Akshar Patel and executive VP Mark Berg.
The Gibson Dunn corporate team is led by partners Jeffrey Chapman and Tull Florey and includes partners Andrew Kaplan and Michael P. Darden and associates Phillip Sanders, Jonathan Sapp, Jordan Rex, Benjamin Lefler, William Altabef, Alexis Levine and Graham Valenta.
Partners Darius Mehraban and Doug Horowitz and of counsel Adam Lapidus are advising on financing. Partners Michael Cannon and Eric Sloan, of counsel Jennifer Sabin and associates Josiah Bethards and Duncan Hamilton are assisting on tax and partner Krista Hanvey and associate Gina Hancock on benefits. Partners Stephen Weissman, Chris Wilson and Sophia Hansell and associates Zoë Hutchinson and Steve Pet are counseling on antitrust issues.
While TPH analyst Jeoffrey Lambujon believes that ExxonMobil already held the most attractive global upstream portfolio longer term, he also thinks that the highly favorable Pioneer assets will provide the oil giant with the best-in-class short-cycle investment flexibility.
Based on TPH’s model of the two separate entities, it looks like ExxonMobil may be looking to accelerate production on Pioneer’s assets 10 percent per year, versus 5 percent, to hit its 2027 target. Lambujon will be looking for more color on production as well as on synergies and global capital allocation.
On valuation, Piper Sandler said the price was reasonable, accretive on an earnings per share/free cash flow basis assuming modest synergies. Strategically, the firm sees the deal as a “home run” for ExxonMobil, filling the only identifiable “question” in its portfolio (insufficient long-term inventory) and establishing it as one of the most dominant players across nearly every business segment (deepwater, U.S. shale, LNG, refining, chemicals).
“[The deal drives a] leading combination of growth, returns and sustainability against which most of its peers will increasingly be measured,” it added.
Piper Sandler expects the transaction to further increase pressure on its closest competitors, particularly Chevron, in terms of “perceived resource portfolio depth.” The firm anticipates increasing investor focus on future potential consolidation activity, from small to mid-caps up to and including names like Occidental Petroleum, BP and ConocoPhillips.
ExxonMobil said buying Pioneer will transform its upstream portfolio, creating an industry-leading, high-quality, high-return undeveloped U.S. unconventional inventory position.
The oil giant expects to generate double-digit returns by recovering more resource more efficiently and with a lower environmental impact (it plans to accelerate Pioneer’s net zero Permian ambition from 2050 to 2035). It also expects to increase the amount of recycled water used in its Permian fracturing operations to more than 90 percent by 2030.
ExxonMobil anticipates lower cost-of-supply production from Pioneer’s assets of less than $35 per barrel. By 2027, short-cycle barrels will make up more than 40 percent of the company’s upstream volumes, which will allow it to more quickly respond to demand changes and increase capture of price and volume upside, it said.