Shale producers are surging Monday as traders bet they could be potential takeover targets for Big Oil companies looking to expand after Exxon Mobil Corp.’s reported interest in Pioneer Natural Resources Corp.
(Bloomberg) — Shale producers are surging Monday as traders bet they could be potential takeover targets for Big Oil companies looking to expand after Exxon Mobil Corp.’s reported interest in Pioneer Natural Resources Corp.
Pioneer shares jumped 5.8%, its biggest gain since October, on a report of Exxon’s preliminary takeover talks, leading shale oil peers higher as the S&P 500 Energy Index gained 0.7% Monday. Oil and gas producer Diamondback Energy Inc. rose 1.9%, while Devon Energy Corp. advanced 0.9%.
After years of growth, the US shale patch may be primed for consolidation.
Output is slowing as some of the most productive drilling areas become less fruitful, making acquisitions the main growth engine in regions including the oil-rich Permian Basin of West Texas and New Mexico. Buying Pioneer would make Exxon the largest producer in the Permian, and provide more than a decade-long runway of lucrative locations to drill wells.
While Stifel analyst Derrick Whitfield views “an imminent deal with PXD as unlikely,” if Exxon does buy Pioneer, then Diamondback and Permian Resources Corp. are “the best derivatives,” he wrote in a note. Whitfield called Diamondback the closest peer to Pioneer.
Some investors see Exxon’s interest in Pioneer as an isolated play for a sizable number of drilling locations. “This may be unique,” said Eric Nuttall, senior portfolio manager and partner at Ninepoint Partners, noting that Pioneer has the “longest-dated inventory” in the Permian in Texas.
However, Nuttall isn’t anticipating a wave of oil takeovers, especially outside of Texas and beyond the US into Canada and elsewhere.
Truist Securities analyst Neal Dingmann disagrees, expecting the rest of 2023 to be a busy time for oil deals. He expects Exxon and competitor Chevron Corp. to be on the hunt, given their desire to boost inventory. And he sees Devon, Diamondback, Coterra Energy Inc., APA Corp. and Permian Resources as firms that “could remain active in the M&A market,” he wrote in a note.
“There is no question that this industry is going to consolidate,” Smead Capital Management President and CEO Cole Smead said, adding that more large oil companies will become eager participants. “Where is Chevron if Exxon is doing deals?”
–With assistance from Kevin Crowley and Mitchell Ferman.
(Updates for market close throughout.)
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