In a move that has reverberated across the energy sector, ExxonMobil has solidified its position as the world’s first “Megamajor” in the upstream industry through the acquisition of Pioneer Natural Resources for US$64.5 billion.
The deal, according to Wood Mackenzie, demonstrates a resounding belief in oil demand and price optimism and ushers in a new era for Exxon. The piece was written by Tom Ellacott, Senior Vice President, Corporate Research; Robert Clarke, Vice President, Upstream Research; Fraser McKay, Head of Upstream Analysis; David Clark Vice President, Corporate Research; and Matt Woodson, Principal Analyst, US Lower 48.
Wood Mackenzie’s analysts predicted several years ago that major oil companies would continue to grow, and Exxon’s acquisition of Pioneer, the largest upstream deal since Shell’s acquisition of BG Group in 2015, is a testament to this trend. The acquisition will put Exxon as the world’s largest tight oil player, surpassing Chevron’s leadership following its acquisition of PDC.
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Exxon’s equity investment in Pioneer is said to provide an immediate gain of over 700,000 barrels of oil equivalent per day (boed) in Midland Basin production and a substantial addition of US$5 billion in annual free cash flow. According to the WoodMac analysts, this move creates a Permian resource base exceeding 16 billion barrels of oil equivalent (boe) and cements Exxon’s position as the first “Megamajor”.
“The acquisition is a significant driver of portfolio improvement, enhancing Exxon’s competitive edge. Pioneer’s upstream operating cash margins are expected to outperform the global upstream average by 20% over the next five years. Wells in Pioneer’s portfolio boasts rapid paybacks of fewer than 24 months, resulting in stellar returns and some of the industry’s lowest breakevens,” the analysts noted.
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Exxon estimates that the acquisition will elevate its exposure to short-cycle barrels from 28% to over 40%, providing greater flexibility to navigate through energy transition-related market volatility and geopolitical risks.
Furthermore, the deal substantially increases Exxon’s upstream portfolio concentration in the Permian Basin. By early 2024, the Permian will account for approximately 37% of the company’s upstream operating cash flow, outpacing Chevron and closely following ConocoPhillips. The combined portfolio positions Exxon to produce more than 10% of global tight oil on a boe basis over the next decade.
The ripple effects of this landmark deal extend beyond ExxonMobil, affecting the entire energy industry, WoodMac analysts forecast. They noted that independent companies may face strategic decisions, including consolidation or selling out.
