Exxon Mobil Investors Favor Acquisitions to Boost Production

Exxon Mobil’s investors are increasingly advocating for the company to utilize its strong financial position to acquire existing oil and gas production rather than investing in long-term drilling projects. This shift in preference comes as energy investors prioritize higher returns over capital spending in the oil industry.

Exxon Mobil’s shares recently reached a record high of $120, driven by the successful performance of its oil, gas, and refining businesses. To address its previous shortcomings in meeting output targets in the Permian, Exxon Mobil is currently in talks to acquire Pioneer Natural Resources, the second-largest Permian shale oil producer, for a substantial $60 billion. This potential deal would position Exxon Mobil as the largest producer in the oilfield, with a daily output of approximately 1.33 million barrels of oil and gas.

The growing political pressure against new drilling activities has further fueled the appeal of acquiring smaller companies with established reserves. Pioneer Natural Resources, in particular, stands out as a strong candidate for acquisition due to its solid balance sheet, controlled spending, and healthy debt levels. Analysts believe that Exxon Mobil’s interest in this acquisition aligns with its strategic goals and would make significant sense for the company.

Despite the rapid growth of renewable energy sources such as solar and wind, the recent surge in oil and gas prices following geopolitical events highlights the continued demand for fossil fuels. Reduced spending by U.S. oil producers has allowed OPEC members to increase global oil prices by cutting their production. In this context, acquisitions that generate high cash flow for the acquirer are readily embraced by companies with substantial cash reserves.

Exxon Mobil has been accumulating cash throughout the year, holding approximately $30 billion, which provides the company with the flexibility to act opportunistically in the oil market. While some investors express concerns about Exxon Mobil’s track record in acquiring large U.S. producers, the industry has shifted its focus towards purchasing existing production rather than exploring untapped fields. This approach allows oil companies to consolidate their positions and benefit from routine acquisitions.

If the potential acquisition of Pioneer Natural Resources materializes, Exxon Mobil’s Permian acreage position would expand by around 84%, reaching approximately 2 million acres. This move would solidify Exxon Mobil’s presence in two major oil-producing regions, the U.S. shale and Guyana. The company already holds a 45% stake in a Guyana consortium aiming to produce 1.2 million barrels by 2027, with most of the capital spending already allocated.

According to Matthew Bernstein, a senior shale analyst with consultancy Rystad Energy, if ExxonMobil becomes the dominant player in the Permian, the shale sector will undergo a significant transformation into a more mature and consolidated business.

In conclusion, Exxon Mobil’s investors are favoring acquisitions as a means to boost production and capitalize on the company’s financial strength. The potential acquisition of Pioneer Natural Resources would solidify Exxon Mobil’s position in the Permian and further enhance its presence in key oil-producing regions.