The Wall Street Journal has reported that Exxon Mobil (XOM) is in advanced talks to buy Pioneer Natural Resources (PXD) in a deal valued at $60 billion. Pioneer currently has a market cap of $55 billion. Throw in the debt that Exxon would be buying and there’s not a lot of extra upside here, in my opinion. Today’s 10.45% jump in
Pioneer shares took care of a lot of potential deal premium. (I’m assuming that the report is accurate. Today’s news story follows on earlier speculation that the two companies were talking.) Unless you think another bidder will emerge–difficult but not impossible at this deal size, I’d sell my shares here. I like Pioneer as an independent big dividend payer more than I like a post-deal Exxon.
I bought Pioneer in my Jubak’s Picks portfolio on January 21, 2022. That position is up 15% since then as of the close on October 6. I also own it in my Dividend Portfolio where the position is up 16% since inception on February 24, 2023. And, of course, there were all those lovely dividends with the yield on Pioneer running between 7% and 11%.
One reason I think the deal is real is that it makes so much sense. With oil demand on a long-term downward trajectory as the world tries not to burn to a crisp, we’re going to see a scramble to consolidate positions in low-cost production areas. Pioneer is the largest operator in the very low-cost Permian Basin of Texas and Oklahoma at 9% of gross production. Exxon is now the No. 5 Permian producer. In the second quarter Exxon’s Permian production totaled 620,000 barrels a day. Pioneer’s Permian output averaged 711,000 barrels a day. Exxon’s management has been clear that it wants top of the pack positions in the areas where it chooses to operate.
And then, of course there’s the question of what else Exxon is going to do with all the cash on its books. Exxon earned a record $55.7 billion profit in 2022 and was sitting on nearly $30 billion in cash at the end of second quarter on June 30.
Shares of other Permian producers rose today on the possibility that they might get buyout bids. Diamondback Energy (FANG) closed up 4.55% and Devon Energy closed ahead 1.98%. The two stocks yield 4.51% and 7.23%, respectively, in dividends.
