Mega Merger And Revenue Boost: Exxon Wants To Rule The Shale Patch

The Wall Street Journal has reported that ExxonMobil is planning a takeover of fellow shale operator Pioneer Natural Resources.
WSJ has revealed that ConocoPhillips is also looking at potential deals in the shale patch.
Pioneer is currently the second-largest producer in the Permian Basin by oil production, and an entity formed by the two merged companies would make Exxon the largest producer in the Permian with production potential of ~1.2 million boe/day.

Back in April, Exxon Mobil’s (NYSE:XOM) CEO Darren Woods touted to investors the company’s newly created ‘Low Carbon’ business which he claimed has the potential to outperform its legacy oil and gas business within a decade and generate hundreds of billions in revenues.

Woods outlined projections showing how the business has the potential to hit revenue of billions of dollars within the next five years; tens of billions in 5-10 years, and hundreds of billions after the initial 10-year ramp-up. Exxon believes that this will result in a “much more stable, or less cyclical” that is less prone to commodity price swings through predictable, long-term contracts with customers aiming to lower their own carbon footprint.

But that does not mean America’s biggest fossil fuel company plans to ditch or scale back its legacy business anytime soon.

Indeed, the Wall Street Journal has reported that Exxon is planning a takeover of fellow shale operator Pioneer Natural Resources (NYSE:PXD) in a giant $60B deal. Exxon held preliminary, informal talks with Pioneer earlier in the year about a possible acquisition and also discussed a potential tie-up with at least one other company as it seeks to expand its already formidable operations in the U.S. shale patch.

The offer “could contain a good deal of stock and that Exxon will maintain price discipline,” CNBC’s David Faber said on Monday, citing people familiar with the matter. A merger with Pioneer would be Exxon’s largest M&A deal since its purchase of Mobil in 1999 and the second in recent months after it agreed in July to buy Denbury Resources (NYSE:DEN) for almost $5 billion in all-stock deal.

Pioneer is currently the second-largest producer in the Permian Basin by oil production, and an entity formed by the two merged companies would make Exxon the largest producer in the Permian with production potential of ~1.2 million boe/day, overtaking current leader Occidental Petroleum (NYSE:OXY).

Incidentally, in another universe, the crown of Permian’s largest producer belongs to none other than Exxon Mobil’s largest peer, Chevron Inc. (NYSE:CVX). WSJ has reported that Chevron was exploring a merger with Occidental earlier in the year, but has shifted its focus to smaller targets in recent months.

Meanwhile, WSJ has revealed that ConocoPhillips (NYSE:COP) is also looking at potential deals in the shale patch, adding that smaller producers are increasingly signaling a willingness to be bought if the price is right. To wit, CrownRock, one of the Permian’s biggest private producers, has hired bankers to advise it on a potential deal with an asking price of $10 billion to $15 billion,

“M&A has been sort of heating up. I generally think you are going to see some more deals. I think the bottom line is we are kind of in a sweet spot for oil prices. I think you’ve got more sellers coming out of the woodwork now because the view is that the global economy could turn south over the next year and it’s probably a decent time for us to put our companies up for sale,”Roth MKM analyst Leo Mariani said in an interview on Friday on CNBC.

Mariani has picked Matador Resources (NYSE:MTDR), Permian Resources Corp. (NYSE:PR) and DiamondBack Energy (NASDAQ:FANG) as potential consolidation candidates in the Permian.

Exxon To Receive $2B Earnings Boost

Exxon Mobil is likely to post a good earnings report after disclosing it received a $2.1 billion boost to third quarter earnings from higher oil prices and robust refining margins, only partially offset by a fall in profits by its chemicals segment. According to the company, rising crude prices contributed to a gain of ~ $1.1 billion over the previous quarter, while refining profits increased by ~$1 billion, the company revealed in a filing on Wednesday. Meanwhile, an increase in gas prices added ~$400 million to the bottom line, which was unfortunately offset by a decline in chemicals profits by a similar margin. Exxon will report Q3 2023 earnings on October 27, 2023 before the market opens.

According to John Royall, an analyst at JPMorgan Chase & Co., Exxon’s latest guidance suggests it will report $2.33 earnings per share (eps), a figure in-line with the Wall Street consensus. Analysts estimate Exxon’s Q3 2023 earnings will increase from the second quarter, marking the first sequential increase after three consecutive decreases, the company’s longest losing streak since the crash in oil prices from 2014 to 2016. Exxon is the first oil major to post third-quarter earnings expectations, with similar updates expected from Chevron, BP Plc (NYSE:BP), Shell Plc (NYSE:SHEL) and TotalEnergies SE (NYSE:TTE).

In other news, Reuters has reported that Exxon is considering selling its 70.7% stake in Italy’s main LNG terminal to giant asset manager BlackRock. According to Reuters, at least four international buyers have expressed interest in buying the Adriatic LNG terminal, currently valued at ~€800M (~$881M). Italy plans to increase its LNG imports to replace what it previously received via pipeline from Russia.

By Alex Kimani for Oilprice.com