Oct 6 (Reuters) – Pioneer Natural Resources ( PXD.N ) shares jumped 11% on Friday on news that U.S. oil and gas giant ExxonMobil ( XOM.N ) is in advanced talks to buy a shale producer. A deal worth $60 billion.
The deal is Exxon’s largest since its $81 billion acquisition of Mobil in 1998. That would make the company one of the leading producers in the lucrative Permian Basin, America’s largest shale oil field when the nation’s oil production ends at an all-time high. A record 13 million barrels per day.
Shares of Pioneer traded at $238.50 on Friday, valuing the company at nearly $56 billion, while Exxon shares fell 1.2%. The offer represents an approximately 20% premium to Pioneer’s Thursday close. The value of a contract can change at any point in the negotiations.
The premium is in line with other E&P mergers this year, but “is still a bit low for a company with the unique scale and quality of inventory that Pioneer has,” said Andrew Dittmar, a director at Enverus.
Friday’s gains did not provide an implicit boost to Pioneer’s stock, as the two companies may not reach an agreement.
“Exxon cannot be expected to pay a significant premium for a small number of assets from alternative buyers of this size,” said RBC Capital Markets analyst Braj Borgataria.
Pioneer has 6,300 high-quality inventory net locations, according to Enverus.
Exxon is paying $4.5 million for Pioneer’s high-end locations and $3.7 million for all locations, Enverus said, adding that the deal values assets at $3 million per location, above recent M&A trends.
If the talks are successful, an agreement between Exxon and Pioneer could be reached in the coming days, Reuters reported, citing three sources.
However, any deal is subject to political and regulatory scrutiny.
“Pioneer is the largest operator in the Permian at 9% of total production, while Exxon is 5th at 6%. Operated is 15% of Permian production but only 6% of total US production. These data points are subject to FTC scrutiny. Consolidation,” said RBC. Capital Markets analyst Scott Hanold said in a note.
US crude oil production rose to 13 million barrels per day (bpd) in July, slightly below the record set in November 2019.
Oil companies are more focused on returning cash to shareholders than increasing production. They have been slow to increase spending, despite record profits and almost US oil production.
Industry experts said the deal could set a precedent for more large-scale M&A in the sector.
“If ExxonMobil is crowned the undisputed king of the Permian in the coming days, the shale sector will become a fundamentally more mature integrated business,” said Matthew Bernstein, senior shale analyst at Rystad Energy.
Reporting by Mrunalika Roy, Sourasis Bose and Arunima Kumar in Sabrina Valley, Bengaluru and Houston; Editing by Sriraj Kallu
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