SA's Wall Street Breakfast: Big Oil Gets Bigger

SEEKING ALPHA writes:

Confirming several earlier reports, Exxon Mobil (XOM) has agreed to acquire Pioneer Natural Resources (PXD) for more than $253/share, in an all-stock transaction valued at nearly $60B. For Exxon, a deal would add valuable acreage near some of its own fields and make it the dominant producer in the Permian Basin. Pioneer is the Permian’s largest operator at 9% of gross production, while Exxon is no. 5 at 6% of gross production.

Backdrop: The acquisition is the second in recent months for Exxon after it scooped up Denbury Resources (DEN) for almost $5B in an all-stock deal in July. Exxon has been flush with cash since earning a record $56B in profits last year, and has set aside tens of billions of dollars for M&A. While investor and political pressure has mounted on Exxon in recent years to shift towards a more renewable energy strategy, CEO Darren Woods has stuck to a heavy oil-dependent approach, setting a 1M barrel per day target in the Permian that will easily be reached with the latest deal.

“Acquiring Pioneer would be accretive for Exxon Mobil due to the valuation difference and potential synergies,” writes Jonathan Weber, explaining the financial impacts behind the deal. SA Investing Group Leader The Value Portfolio agrees, calling it A Crown Jewel For Exxon Mobil, while Leo Nelissen discussed three alternative stocks that he’s buying in the wake of the transaction.

Economies of scale: The Exxon-Pioneer deal could likely jumpstart M&A in the Permian, with ConocoPhillips (COP) looking at potential deals across the shale patch. Chevron (CVX) was also interested in Occidental Petroleum (OXY), one of the largest producers in the Permian basin, in the early part of this year, though the oil giant has reportedly moved on to smaller targets. Permian producers saw gains last Friday following news of a possible Pioneer deal, including Permian Resources (PR) +4.8%, Diamondback Energy (FANG) +4.2%, Coterra Energy (CTRA) +2.6% and Devon Energy (DVN) +2%…

The full post can be found here.