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Oct 6 (Reuters) – Shares of Pioneer Natural Resources (PXDN.N) climbed nearly 8% on Friday on news that Exxon Mobil (XOM.N), the biggest US oil and gas company, advanced talks to buy the shale producer. Still working. In a deal valued at a whopping $60 billion.
The deal would be Exxon’s largest acquisition since its $81 billion acquisition of Mobil in 1998. It would make the company one of the leading producers in the lucrative Permian Basin, the largest U.S. shale oil field as the country’s oil production comes to a halt entirely. All-time record of 13 million barrels per day.
Pioneer shares were trading at $235.25 on Friday, valuing the company at about $55 billion. The offer indicates a premium of about 9% to Pioneer’s close on Thursday.
The stock has fallen below the deal value from Friday’s gains, as it’s possible the two companies won’t reach an agreement.
The premium is in line with other E&P mergers this year, but “it still strikes us as a bit low for a company with the unparalleled scale and quality of inventory held by Pioneer,” said Andrew Dittmar, a director at Enverus.
“This is a significant win for Exxon… at an attractive price to acquire a unique Permian portfolio.”
According to Enverus, Pioneer has an estimated 6,300 net positions of high-quality inventory.
The value of the deal shows Exxon is paying about $4.5 million for Pioneer’s high-quality locations and $3.7 million for all locations, above recent M&A trends, which have seen acquisitions of about $3 million per location. The property has value, Enverus said.
If talks conclude successfully, a deal between Exxon and Pioneer could be reached in the coming days, Reuters reported on Thursday, citing three sources.
However, any deal could attract political and regulatory scrutiny.
“Pioneer is the largest operator of the Permian with 9% of gross production, while Exxon is No. 5 with 6%. The combined volume operated accounts for 15% of Permian production, but only 6% of total US production. These datapoints are from the FTC “There are relevant consolidations around scrutiny,” RBC Capital Markets analyst Scott Hannold said in a note.
US crude oil production rose to 13 million barrels per day (bpd) in July, just short of the record set in November 2019.
However, oil companies have restrained their spending on exploration in the past few years due to expectations of increased renewable energy.
Industry experts said the deal could set a precedent for large-scale M&A in the sector.
“This is the beginning of massive consolidation in the industry,” said Bill Smeed, chief investment officer of Smeed Capital Management, which manages a $5.2 billion fund with a quarter in oil and gas.
Reporting by Mrinalika Roy, Psorasis Bose and Arunima Kumar in Bengaluru and Sabrina Vale in Houston; Editing by Sriraj Kalluvilla
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