Machinery works in front of a drilling platform in an oil field in Midland, Texas.NICK OXFORD (Portal)
Oil company Exxon Mobil announced on Wednesday that it would buy fracking giant Pioneer for $60 billion. The operation is the largest in the United States so far this year and the most important in the fossil fuel sector in more than 20 years. The deal consolidates Exxon, which posted record sales last year, in the natural gas production business in West Texas and New Mexico, an area where Pioneer has huge reserves far exceeding those of its competitors. The oil company had declared this region of the country to be its growth targets.
“Fossil fuels – as the world waits for a transition and looks for cheaper sources of renewable energy for lower emissions, oil and gas will continue to play a prominent role over time,” said Darren Woods in an interview with CNBC following the announcement. The executive has said the companies will use their capacity to produce fuels with lower emissions.
The agreement will allow Exxon to fully establish itself in the Permian Basin, an area rich in crude oil and natural gas. It is extracted through fracking, a method that involves injecting water underground to break up the earth and release the energy. This technology has been harshly criticized by environmental activists for its negative impacts. When Joe Biden arrived at the White House in early 2021, he declared a temporary moratorium on new wells using this technology. In 2022, the Permian accounted for 18% of the country’s natural gas production.
The agreement is expected to close in mid-2024 after approval from the management of both companies. However, regulators may initiate a review process for the union. Pioneer shareholders still have to approve the merger. If they do this, they will receive 2.32 Exxon shares worth $253 per unit for each stock they own in the portfolio. The operation was possible thanks to the results achieved by Exxon Mobil in 2022, with record revenues of $55.7 billion as a result of the increase in fuel prices due to the Russian invasion of Ukraine. Margins achieved last year exceeded gains in 2008, when benchmark crude oil prices hit record highs.
Exxon had invested some of these resources in expansion. In July they acquired Denbury, an oil and gas pipeline operator in the US, for $4.9 billion. However, the merger with Pioneer is the most significant transaction for Exxon since its historic merger with Mobil in 1998. It created a global one-two oil giant in the US market. This was the largest merger in United States history until it was replaced by America Online and Time Warner in the early 2000s.
Pioneer has wells on more than 340,000 acres in the Permian Basin on the Texas-New Mexico border. These, together with Exxon Mobil’s 230,000 in the region, guarantee the new giant at least 16,000 million barrels, a forecast of sufficient reserves for the next 15 to 20 years, according to figures presented by the companies.
A joint statement said production in the aforementioned region will double to 1.3 million barrels of crude oil per day, an output that can expand to 2 million barrels by 2027. Executives expect 60% of the company’s energy production this year to come from Permian sources in Texas, Guyana and Brazil.
Woods assured in the interview that the operation increases the energy security of the United States and benefits consumers by providing the company with large reserves of shale gas. Natural gas production in the country has fallen by 26% since the beginning of 2023 due to increased costs in production technology.
Despite the optimistic tone taken by Woods, some industry analysts believe the operation carries some risks because oil demand could decline sooner than Exxon Mobil expects. Fatih Birol, executive director of the Paris-based International Energy Agency, said in mid-September that demand for the three main fossil fuels (oil, coal and natural gas) would peak this decade. Their statements suggest that the fight against climate change can accelerate the reduction in consumption of this type of pollutant. “They will be with us for many years to come, but judging by our numbers, we could be witnessing the beginning of the end of the fossil fuel era,” Birol said during the presentation of the agency’s 2023 report, which will be published in October this year.
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