Exxon Mobil Corp.’s all-stock bid for Pioneer Natural Resources Co. makes the integrated oil giant’s North America holdings even more attractive for a relatively modest price, several Wall Street analysts said Tuesday after the deal was announced.
“On valuation, we see the price as reasonable,” Piper Sandler analyst Ryan M. Todd said in a note Tuesday. “Strategically, we view the deal as a home run for [Exxon,] filling the only identifiable ‘question’ in its portfolio, and firmly establishing itself as one of the most dominant players across nearly every business segment.”
That question mark was West Texas’s Permian basin, in which Pioneer
PXD,
was thought to be the No. 2 resource holder to Exxon’s
XOM,
No. 4, according to recent Citi estimates.
The combination of the two companies would create a Permian player to rival Chevron Corp.
CVX,
and Occidental Petroleum Corp.
OXY,
the other heavyweights in the basin in terms of production and acreage.
The deal “makes strategic sense as it grows [Exxon’s] Permian footprint, which had been smaller than that of peers [Chevron] and [Occidental], and allows the company to high-grade and apply its own production techniques to [Pioneer’s] acreage, which has a strong overlap” with Exxon’s, J.P. Morgan analyst Arun Jayaram said in his note.
See also: Exxon’s $59.5 billion deal for Pioneer Natural Resources tops 2023 deals in moribund M&A market
Exxon agreed to buy Pioneer in a $59.5 billion deal that values Pioneer at an implied $253 a share, an upside of around 18%.
“We are not surprised to see [Exxon] use all stock for the transaction given the timing of the transaction at well above mid-cycle conditions,” with Brent oil around $87 a barrel, Jayaram said. All-stock deals often have been “a preferred method of de-risking the potential for oil price volatility for the buyer.”
Shares of Exxon fell on Tuesday, and are down four out of the past five sessions and on a downdraft for the most part ever since they hit an all-time record in late September.
Exxon already held “the most attractive global upstream portfolio,” but the deal “further cements that characterization given our highly favorable view of the [Pioneer] assets,” TPH analysts said in their note. Exxon will have a “best-in-class short-cycle investment flexibility.”
Exxon shares have lost around 4% so far this year, contrasting with an advance of around 13% for the S&P 500 index
SPX
in the same period.
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