In a move marking a strategic shift towards becoming the dominant producer in the Permian Basin, Exxon Mobil Corp (NYSE:XOM). has secured a $60 billion purchase agreement with Pioneer Natural Resources (NYSE:PXD) Co., quadrupling Pioneer's 2020 value. The deal was finalized at Pioneer’s Irving, Texas, headquarters earlier this week.
The agreement came after Pioneer's leader, Scott Sheffield, rebuffed Exxon's initial takeover approach during the COVID-19-induced oil price crash. Sheffield successfully navigated the situation leading to this significant acquisition, despite Pioneer's decade-low stock price and skepticism towards shale executives. According to InvestingPro Tips, Pioneer has consistently shown a high return on invested capital and has raised its dividend for 5 consecutive years, which may have contributed to Sheffield's confidence in the company's ability to weather the storm.
Sheffield joined Exxon’s board alongside CEO Darren Woods following the consolidation of the Midland Basin. This was achieved through the acquisition of Parsley Energy (NYSE:PE) and DoublePoint Energy amidst an activist campaign by Engine No. 1 against Exxon over environmental records and poor capital management.
Exxon's aggressive expansion plan and strategic moves by Sheffield, which echo predecessor Rex Tillerson’s investment in megaprojects, were key factors leading to the deal. This comes on the heels of Exxon's record earnings of $55 billion in early 2022 as a result of Woods's countercyclical investments during the market downturn. InvestingPro data shows that Exxon, with a market cap of 447.89B USD and a P/E ratio of 9.01, has maintained a stable financial footing. Additionally, Exxon has raised its dividend for 40 consecutive years, according to InvestingPro Tips, demonstrating a strong financial track record.
Securing approval from the Biden administration may prove challenging due to concerns about cost reduction and Exxon’s past failures with shale deals. The arrest of David Scott, Exxon's top Permian executive, for alleged sexual assault also coincided with the announcement of the deal.
Exxon maintains that the deal is an environmental win and accelerates its net zero target by 15 years, despite criticism from President Biden and underperformance of Exxon's stock post-deal announcement. The company's stock has seen a 12.34% return over the past year, according to InvestingPro data, suggesting that despite recent challenges, the company's long-term prospects remain strong. For more insights like these, consider InvestingPro's premium offerings, which include additional tips and real-time metrics.
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