Exxon-Pioneer tie up could squeeze US shale oil suppliers, pipelines

Exxon Mobil’s planned acquisition of Pioneer Natural Resources could have a significant impact on the Permian shale formation, according to industry experts. The consolidation of these two major players in the oil industry, combined with rising costs and investor demands for returns, is expected to further restrain output growth in the largest U.S. oilfield. While Permian crude production is forecasted to rise by about 430,000 barrels per day this year, it falls short of the 1 million-bpd gain seen in 2019.

Exxon, currently the fifth largest producer in the Permian, has set an ambitious target of up to 1 million bpd for its operations by 2025. However, the acquisition of Pioneer would significantly boost its output to approximately 1.33 million barrels of oil and gas equivalent per day, surpassing its original goal. This potential deal raises the possibility that Exxon may achieve its growth target for Permian production sooner than anticipated, allowing the company to adjust its growth plans accordingly.

The slowdown in drilling activity and recent industry consolidation, including mergers such as Civitas Resources and Callon Petroleum-Percussion, have contributed to a reduction in active drilling rigs in the Permian. This decline in rigs not only impacts oil production but also affects the broader oilfield service business and pipelines. With fewer equipment rentals and customers to compete for their business, service providers may face challenges. However, the potential merger between Exxon and Pioneer could give the combined company considerable leverage in negotiating contracts with service providers, potentially leading to better pricing and improved efficiency.

From a pipeline perspective, Pioneer currently relies on Targa Resources for oil transportation, while Exxon primarily utilizes Energy Transfer and, to a lesser extent, Targa. If the acquisition goes through, Exxon may shift more volumes onto pipelines it co-owns, such as the Wink-to-Webster line, which is part of a joint venture involving Plains All American and MPLX. This increased volume could provide the combined company with greater bargaining power, potentially leading to more favorable pricing and contract terms.

While the acquisition is still under discussion, experts believe that the White House would face challenges in attempting to thwart the deal. Antitrust lawyers and experts suggest that the acquisition would likely proceed without significant obstacles. If successful, the acquisition could have a transformative effect on the Permian shale formation and the broader oil industry.

Overall, the potential acquisition of Pioneer by Exxon represents a significant development in the oil industry. It has the potential to reshape the Permian shale formation, influence oil production growth, and impact pipeline operations. While challenges and uncertainties remain, the combined company could leverage its size and volume to negotiate better terms with service providers and streamline operations. As the industry continues to evolve, these developments will be closely watched by stakeholders and investors alike.