ExxonMobil is buying its oil and gas rival Pioneer Natural Resources in a $59.5 billion megadeal that is a bet by the energy giant that the transition away from fossil fuels will play out at a much slower pace than the White House plans.
The all-stock deal, which both companies announced Wednesday, is the biggest merger for the oil company since it acquired Mobil in 1999. It comes as other oil companies are also refocusing their strategies on fossil fuel production, while scaling back their plans for moving into cleaner energy.
The latest ExxonMobil deal creates a shale-drilling behemoth in the U.S. Permian Basin, where both it and Pioneer have considerable sway.
“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 stand-alone basis,” ExxonMobil chairman and chief executive Darren Woods said in a statement.
The move comes after 18 months of elevated energy prices, leaving oil giants such as Exxon flush with cash. Exxon is committing $64.5 billion to the acquisition when debt is included, making it the company’s biggest deal since it acquired Mobil in 1999 for $75.3 billion. It follows a smaller $4.9 billion tie-up with Denbury, which specializes in carbon capture and enhanced oil recovery.
As oil prices shot up amid easing pandemic restrictions and the energy crunch that followed sanctions on Russian oil, companies like Exxon have enjoyed record profits. The oil companies have generally moved to invest those windfalls into increased production rather than expanding their portfolios into more climate friendly energy pursuits.
Shell Oil earlier this year quietly put on the back burner what had been one of the industry’s most aggressive blueprints to reduce greenhouse gases. BP, which markets itself as a pioneer in the transition, substantially rolled back its targets for cutting emissions. The moves are in direct conflict with U.S. and global climate policies, which aim to rapidly phase out the internal combustion engine and shift power grids worldwide to zero emissions energy.
The International Energy Agency reported last month that demand for oil, gas and coal will peak by 2030, before going into a steady decline, leading its executive director, Fatih Birol, to warn oil company executives that their doubling down on fossil infrastructure is misguided.
“They are not only misjudging the market fundamentals, they are misjudging the mood on the streets of the world,” Birol said in a recent interview with The Post. “It is rather myopic to go for large scale fossil fuel investment in a world where we see global oil demand set to peak before the end of this decade.”
But investors continue to reward companies like ExxonMobil for committing increased resources to their core business, which is drilling for oil. The merger with Pioneer is a signal from ExxonMobil that it believes that trend will continue well into the future, despite emissions-reduction commitments from global leaders that aim to make fossil fuels increasingly obsolete.
Pioneer holds more than 850,000 net acres in the Midland Basin of West Texas, which will add to Exxon’s 570,000 net acres nearby.
Together, the two companies will have an estimated 16 billion barrels of oil-equivalent resources in the Permian basin, according to Exxon’s release. Exxon’s production from the Permian would more than double as a result of the acquisition, to 1.3 million barrels per day.
The transaction should improve U.S. energy security, ultimately benefiting the American economy and consumers, Exxon said in its release.
The deal could “reshape the landscape of the onshore U.S. Permian Basin” and usher in a new era for U.S. energy production, wrote analysts at Rystad Energy in a note to investors Friday, as rumors were already swirling of a possible deal.
While the early growth of the U.S. oil sector relied on the rapid development of smaller shale wells by industry pioneers known as “wildcatters,” this next phase of industry development could be marked by massive consolidation, they wrote, noting: “It would see high-spending supermajors, already in possession of large portions of the tight oil inventory, consolidate large swaths of shale inventory under their hold.”
The combined company would “blow all the other [Permian shale drillers] out of the water in terms of size and scale,” as it would possess almost 18,000 drilling locations, the note added.
Among the oil giants, ExxonMobil has been perhaps the most bullish on the future of fossil fuels. But even that company is hedging some bets and working to branch into other areas. The Denbury acquisition earlier this year, for example, is part of an effort to quickly expand into new carbon capture and sequestration technologies.
ExxonMobil is also planning to leverage lucrative tax credits in the climate and infrastructure measures that President Biden championed to build vast new infrastructure to capture carbon emissions created by the petrochemical facilities in the Houston area.
ExxonMobil and other oil companies are hoping such technologies will not only generate revenue but prolong the life of the fossil fuel industry by lowering the carbon footprint of oil and gas production.