Exxon Mobil said Wednesday it is acquiring Pioneer Natural Resources for $59.5 billion, increasing its reliance on fossil fuel production even as many global policymakers grow increasingly concerned about climate change and the oil industry’s reluctance to do so Make the transition to cleaner energy.
Exxon has invested in projects around the world for decades, but the deal would secure its future right near its base in Houston, as most of its oil production is in Texas and along the coast of Guyana.
By concentrating its operations close to home, Exxon is effectively betting that U.S. energy policy will not be largely directed against fossil fuels, even as the Biden administration encourages automakers to switch to electric vehicles and utilities to make the transition renewable energies.
Exxon executives said that in addition to producing more fossil fuels, the company is building a new business that would capture carbon dioxide from industrial sites and bury the greenhouse gas in the ground. The technology for this is still at an early stage and has not yet been successfully deployed on a large scale.
“We are strengthening our organizations and capabilities,” said Exxon CEO Darren Woods. The combined company would generate value “well beyond what each company can achieve individually,” he added. The focus of the deal is “getting the best out of both organizations,” he said.
American oil production has reached a record of about 13 million barrels a day, about 13 percent of the global market, but growth has slowed in recent years. Despite a wave of consolidation among oil and gas companies and higher oil prices following Russia’s invasion of Ukraine last year, producers are finding it increasingly difficult to find new drilling sites.
The Pioneer deal is a sign that it is now easier to acquire an oil producer than to drill for oil in a new location.
Exxon, a refining and petrochemical company, needs much more oil and gas to convert into gasoline, diesel, plastics, liquefied natural gas, chemicals and other products. Much of this oil and gas is expected to come from the Permian Basin, the most productive oil and gas field in the United States, spanning Texas and New Mexico and in which Pioneer plays an important role.
Exxon’s $10 billion Golden Pass terminal near the Texas-Louisiana border is expected to begin delivering liquefied natural gas to the rest of the world next year. Gas is gushing out of the Permian Basin along with oil, making the basin all the more valuable for exports as Europe weans itself from Russian gas.
The Pioneer deal would be Exxon’s largest acquisition since its takeover of Mobil in 1999. It is larger than the ill-fated $30 billion acquisition of XTO Energy, a major natural gas producer, in 2010. Exxon later had to write off much of that investment as natural gas prices collapsed from the high levels that prevailed when XTO was purchased.
By buying Pioneer now, when the U.S. oil benchmark is around $85 a barrel, Exxon expects prices to remain relatively high over the next few years.
Exxon has been careful to invest modestly in recent years as the company increased its dividends and bought back more of its own shares. Buying Pioneer would increase production, which would represent a major change in its strategy.
The acquisition would make Exxon the dominant player in the Permian Basin, far surpassing Chevron, its biggest competitor. The combined company would combine Pioneer’s 850,000 acres with Exxon’s 570,000 acres in the Permian, giving it one of the largest undeveloped oil and gas reserves in the world. Assuming the deal receives regulatory approval, Exxon’s production in the basin would more than double to 1.3 million barrels of oil and gas per day, the company said.
Combining the companies’ acreage would allow the group to drill longer wells to penetrate deeper into the basin’s layer of shale resources. The companies said they could extend some lateral drilling up to six kilometers.
New wells constantly have to be drilled in shale fields because production runs out after a few years. As oil production declines, production of natural gas from wells increases, promising to make the Permian a major source of gas for decades.
Energy experts noted that the deal underscores a major shift in the industry’s view of shale drilling over the past decade.
“In the early days of the fracking revolution, oil companies were not particularly interested in venturing into the Permian or other shale deposits,” said Bernard Weinstein, an economist at Southern Methodist University in Dallas. “They were more interested in deep-sea drilling and working off the coast of Africa. That has really changed.”
Some major European oil companies, which have generally transitioned to renewable energy more quickly than U.S. companies, have stayed away from the Permian or sold their holdings in recent years.
In a phone call with reporters, Mr. Woods said Exxon and Pioneer would work together to reduce emissions. “As long as the world needs oil and gas,” he said, companies will work to have “the most efficient, effective and responsible” operations.
Environmentalists criticized the deal. “Exxon should transition to clean energy like solar and wind,” said Dan Becker, director of the Campaign for Safe Climate Transportation at the Center for Biological Diversity. “Instead, they are doubling down on dirty oil and Permian production, depleting the region’s limited water supplies.”
Pioneer is a favorite of Wall Street investors because it has benefited from the shale oil drilling boom. Scott Sheffield, its chairman, drove the company out of Alaska, Africa and the offshore fields while buying up shale deposits in the Permian at bargain prices. The fields Pioneer acquired in the Permian years ago included some from Exxon.
By 2020, it was one of the largest American drilling companies with relatively low production costs.
Mr. Sheffield praised the deal, saying the combined company would improve efficiency in managing the companies’ adjacent, contiguous oil and gas acreage. “Our shareholders and our employees will be better positioned for long-term success,” he said.
Mr. Sheffield is retiring at the end of the year. His company has a market value of around $50 billion, about an eighth the size of Exxon. Many of its oil and gas fields are still undeveloped.
The deal would be Exxon’s first major acquisition since Mr. Woods became CEO in 2017, replacing Rex Tillerson, who later became secretary of state.
Exxon, which reported record profits of $56 billion last year, has plenty of cash to invest in Pioneer’s undeveloped fields.
The deal is just the latest in a series of mergers and acquisitions in the oil industry in recent years. Occidental Petroleum acquired Anadarko Petroleum four years ago for nearly $40 billion, a deal that made Occidental a key competitor to Exxon and Chevron in the Permian Basin. Pioneer spent more than $10 billion in 2021 to buy two other Permian producers, Parsley Energy and DoublePoint Energy.
Exxon this year bought Denbury, a Texas energy company that owns pipelines capable of transporting carbon dioxide, for $4.9 billion.
Pioneer shareholders will receive 2.32 Exxon shares for each Pioneer share upon completion of the transaction, which the companies said will occur in early 2024. Mr. Woods said he did not expect serious regulatory problems because the combined company would control a fraction of the Permian and would be small compared to the overall oil and gas industry.
Exxon shares lost about 4 percent on Wednesday morning after the deal was announced. Pioneer gained a little less than 1 percent.