Exxon Mobil's monumental $US59.5 billion ($93 billion) acquisition of Pioneer Natural Resources, marking the largest energy deal in the United States in decades, is poised to herald a new era of transformative takeovers within the industry.
The shale sector is currently abuzz with consolidation discussions, as well-heeled oil companies vie for prime drilling portfolios in the Permian Basin, North America's largest crude source. Over the past six years, production in this West Texas and New Mexico region has doubled, surpassing the daily output of OPEC heavyweight Iraq.
This impressive expansion has depleted some of the Permian's most valuable drilling prospects, prompting cash-flush companies to turn to acquisitions to fortify their future production capacities. Investors have a lot at stake, as tapping into untapped reserves is crucial for sustaining generous dividends over the long term.
Pioneer's CEO, Scott Sheffield, stated during a conference call just two months before the Exxon deal emerged, “People are definitely going to run out of inventory over the next several years.” This dynamic is expected to drive significant consolidation.
In the first three quarters of the year, North American energy companies completed $US75 billion worth of deals, roughly on par with the previous year. However, when you combine Exxon's acquisition of Pioneer with all the other proposed deals at various stages of progress, this could make it the industry's most significant year for deal-making since the pre-pandemic era, as per Bloomberg's compiled data.
Looking ahead, the focus is shifting to CrownRock, one of the Permian's largest privately held oil and gas producers. The company, led by Republican Party fundraiser Tim Dunn, is reportedly up for sale and could command a price of around $US8 billion, according to an insider source. CrownRock has not responded to requests for comment.
The consolidation of the shale sector involves several key players:
Chevron: Chevron is actively expanding its presence in the Permian Basin, aiming to increase daily oil output to 1 million barrels by 2025. The company's CEO, Mike Wirth, has a history of successful dealmaking, including the acquisition of Noble Energy and PDC Energy.
ConocoPhillips: ConocoPhillips has aggressively expanded in the Permian Basin through acquisitions like Concho Resources and Shell Plc's Permian assets. The company's stock has seen a 60% increase in value over the past two years.
Civitas Resources: Civitas Resources has been actively acquiring assets in the Permian, including an acquisition from NGP Energy Capital Management and oil assets in West Texas from Vitol Group.
Coterra Energy: Formed through a merger, Coterra Energy is cautious about M&A but remains open to value-adding transactions in the future.
Devon Energy: Devon Energy is considered a potential takeover target due to its diversified footprint across major US shale fields, primarily the Permian.
Diamondback Energy: Diamondback Energy has expanded its Permian footprint significantly through acquisitions of companies like Firebird Energy and Lario Oil and Gas.
EOG Resources: EOG Resources focuses on organic growth and small, bolt-on acquisitions, rather than large-scale M&A.
Marathon Oil: Marathon Oil has assets across various shale fields and recently acquired Ensign Natural Resources' Eagle Ford Shale assets in South Texas.
Permian Resources: Permian Resources has grown into a major independent shale operator through a series of mergers, including the acquisition of Earthstone Energy Inc.
When assessing the Australian landscape, Pioneer chief executive officer Scott Sheffield’s son, Brian Sheffield, has already made his presence felt.
The third-generation oil and gas executive has made a big bet on gas in the Northern Territory’s Beetaloo Basin, representing one of the upcoming major developments in this sector globally.
Brian currently has a 4.12% in Empire Energy (ASX:EEG)
and a 12.98% stake in Tamboran Resources (ASX:TBN)
, two of three of the companies currently operating in the Beetaloo.
“He’s made a big play in the Beetaloo,” stated former Empire chairman Paul Espie.
“What his endgame is - you can come to your own conclusion.”
In addition, it is important to note that Scott Sheffield previously held a position on board of Santos, the third player in the Beetaloo.
“When Scott Sheffield was on Santos’ board, he was aware of the Beetaloo, and it was still sort of in the early days of the drilling programs, and early data was coming in,” said Joel Riddle, Managing Director and CEO of Tamboran Resources.
“And the Beetaloo is pretty well regarded by those in the business as the next big thing,” Mr. Riddle stated.