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Pioneer’s  billion deal for ExxonMobil signals an era of “extreme consolidation” for the oil industry

Pioneer’s $60 billion deal for ExxonMobil signals an era of “extreme consolidation” for the oil industry

ExxonMobil (XOM). Acquisition of approximately $60 billion From Pioneer Natural Resources (PXD) highlights the oil majors’ continued appetite for shale producers.

Deal, Announced earlier this week, it will make the oil giant the largest player in US shale oil. He. She It gives ExxonMobil tremendous scale in the Permian Basin, allowing it to double its presence in the largest oil-producing region in the United States and strengthen its investment portfolio. Upstream refers to the initial stages of oil and gas production such as exploration, drilling and extraction.

Major oil companies are increasingly turning to the Permian Basin for oil and gas, where technological and infrastructure advances have driven down extraction costs.

“People are definitely going to run out of stock over the next several years,” Pioneer CEO Scott Sheffield said during the company’s last earnings call on Aug. 2. This “would lead to extreme consolidation.”

Analysts point out that consolidation has been a way of life in the oil business for some time. In recent years, giant Chevron (CVX) acquired Noble Energy, a 92,000-acre oil and gas exploration company in the Permian Basin. A year later, ConocoPhillips (COP) bought Shell’s Permian Basin business for $10 billion and Concho Resources for $17 billion.

In 2019, Occidental Petroleum (OXY) acquired shale producer Anadarko with the help of billionaire Warren Buffett’s Berkshire Hathaway (BRK-A, BRK-B).

Last year, Occidental Petroleum was the best-performing stock in the S&P 500, up a whopping 119%.

“There are still a few of them, but the Permian Basin has seen production start to concentrate in the hands of Chevron, Occidental, ConocoPhillips and ExxonMobil,” Peter said. McNally, global sector leader for industrials, materials and energy at Third Bridge.

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“The rationale for consolidation in the highly fragmented Permian shale industry remains compelling with significant gains from economies of scale through reduced facility spending, improved drilling, and reduced general and administrative expenses,” Citi analysts recently noted. [general and administrative] “He spends.”

The Pioneer acquisition is Exxon’s largest since its merger with Mobil in 1999. The deal comes at a time when the United States and other countries are moving toward an economy less dependent on fossil fuels. The Exxon acquisition highlights the challenges of this transformation.

“Everyone realizes there’s going to be an energy transition, but it’s going to be a lot longer. It’s going to be a lot more difficult. It’s going to be a lot more expensive,” Roger Reed, senior energy analyst at Wells Fargo, told Yahoo Finance.

“So if you look at that side of it — it speaks to why you would invest in oil and why Exxon would do this deal.”

Besides increasing the capacity to produce more oil and gas for its downstream operations, Peter McNally, an analyst at Third Bridge, points to an additional benefit from the merger.

“ExxonMobil is delaying Pioneer’s net zero plan by 15 years – until 2035 – as the company can spread its emissions reduction targets across a wider area of ​​operations,” he added.

Net zero refers to pledges to remove the same amount of carbon from the atmosphere as a company emits, thus offsetting the impact.

An Exxon service station sign in Nashville, Tennessee, April 25, 2017. (Mark Humphrey/AP Photo, File)

The merger announcement comes as Pioneer’s longtime CEO, Scott Sheffield, prepares to retire at the end of the year.

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Sheffield was Pioneer’s founding CEO from 1997 to 2016. He returned to the CEO role three years later, leading the company through the acquisitions of privately held rival DoublePoint Energy in 2021 and Parsley Energy in 2020 when the industry was reeling from The drop in oil prices brought on by the pandemic.

Pioneer shares rose last week amid speculation that Exxon Mobil would buy Pioneer for up to $60 billion.

On Wednesday, ExxonMobil shares fell 4% to hover above $105 per share after the merger was announced. The stock reached an all-time intraday high of $120.70 on September 28.

Ince Ferry is Yahoo Finance’s chief business correspondent. Follow her on Twitter at @ines_ferre.

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