ExxonMobil: Acquisition of Pioneer Done at Fair Price With Sound Strategic Fit; Fair Value Unchanged

ExxonMobil confirmed prior Wall Street Journal news reports by announcing on Oct. 11 its intention to acquire narrow-moat Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion or $253 per share, based on ExxonMobil’s closing price on Oct 5. ExxonMobil shares have been slightly lower since then, implying a per-share value of about $247 based on ExxonMobil’s closing price on Oct. 11 and the exchange ratio of 2.3234 for every one Pioneer share. That is a 22% premium to our Pioneer fair value estimate of $203 per share, which assumes a long-term oil price of $60/barrel. This suggests a modest reduction in our fair value estimate for ExxonMobil once the deal is considered, but that is largely offset by higher oil prices since our last update as well as value assigned to synergies, which nets out leaving our fair value estimate unchanged. The acquisition price implies a long-term oil price of about $70/bbl, which we don’t consider unreasonable, suggesting the valuation for Pioneer, while above our fair value estimate, is fair. We see no impediments to the deal closing in first-half 2024 as expected.

Strategically, the deal is sound as it adds 856,000 net acres with a break-even cost of less than $35/bbl to ExxonMobil’s already large Permian position. Including Pioneer’s assets, ExxonMobil will hold a Permian resource of 16 billion oil equivalent barrels, equating to 15-20 years of remaining inventory. By 2027, the firm expects to produce 2 million barrels of oil equivalent per day from the Permian as it plans no reduction in headcount or rig count after the deal and higher production growth than the two companies would achieve otherwise on their own, which results in ExxonMobil’s total production exceeding 5 mmboe/d. ExxonMobil also expects to improve recoveries and increase drilling and completion efficiencies, leading to $1 billion in annual synergies by the second year after closing and growing to $2 billion on average over the next decade.