2023-04-12 05:05:00 ET
Summary
- In 2009, Pioneer began, in earnest, to develop its shale oil resources, with the awareness that the Permian was indeed a prize.
- Pioneer's leadership in the Permian has led increasingly to responsibly sourced oil and gas. It's an influencer, a Permian bellwether.
- The U.S. independents have been the pulse of the market changes in oil and gas advances.
- This is the second time Exxon Mobil's eye has been on the prize of the Permian.
The following brief commentary is the background which underscores why Exxon Mobil (XOM) would apparently want to buy Pioneer Natural Resources ( PXD ), per news outlets . In DCEO magazine, features spanning a decade illustrate the developments, the geopolitics and how the U.S. has helped change the very nature of oil and gas markets around the world.
How Kelcy Warren Stays Ahead of the Curve (2014)
The New Energy Landscape (2021)
Solving Europe's Energy Crisis (2022)
This video offers context and color on the developments of Pioneer, the Permian and global oil markets.
Jennifer Warren explains Pioneer, Exxon, the Permian (Concept Elemental)
The video:
The Rise of the Permian and Pioneer: Prescient Leaders of North Texas (Video)
For investors, after the news broke yesterday, Pioneer's stock rose about 6% and has quieted since. In their recent investor presentation, they noted a $26 per share dividend and yield of 11%. They are the top producer of oil in the Permian, recognized as the jewel of the Permian. In this day and age, that's a hard-to-come-by title.
The broader context of the global oil market is what makes the potential purchase of Pioneer by Exxon so interesting. Exxon is one of the largest producers of natural gas in the U.S. If they purchase Pioneer, between their own Permian oil production and Pioneer's, they will be a very large consolidator of barrels, offering scale and efficiency that the market will demand in the future, and requires now. In a decarbonization world, the Permian production of Pioneer offers lower carbon intensity barrels and an ESG profile boost to any would-be acquirer. One day this may allow Permian barrels the title of the cleanest barrels on the globe. Not shabby.
This image is from a 2013 presentation where Pioneer had to explain to the market the rationale of shale - "the thousand layer cake," one foreign joint venture partner noted. It's the layers. (This is all chronicled in the DCEO articles and early works at Seeking Alpha.) They had to convince the market of the economic rationale of shale. Pioneer was a de facto market maker after the shale gas boom had fizzled, owing to overproduction and the wake of the financial crisis.
Influencer barrels
In my November 2021 D CEO energy edition article, the implications of net zero and its impact on cleaner barrels was discussed. This was just eight years after the 2014 break out article about the Permian oil boom. With the attention to decarbonization and other GHG emissions - owing to the science of global warming, the ESG catalyst and sustainability sentiment - top U.S. producers and the global majors are all focused on their emissions profiles. With the Inflation Reduction Act (IRA) legislation, great attention is directed toward carbon capture and storage ((CCS)) as it pairs most easily with oil and gas production. Exxon is well equipped to lead in this space, with several announcements of late, including hydrogen forays.
Additionally, and potentially, as a producer of over 10% of the oil market, the U.S. with its newly-minted Brent inclusion , is an influencer in the future of sustainable barrels. The U.S. Permian is the best chance for responsibly sourced oil and gas leadership. However, other firms are doing heavy lifting as well, such as names like EQT ( EQT ) and ConocoPhillips ( COP ). In transporting hydrocarbons, Energy Transfer's ( ET ) Kelcy Warren was prescient in his observations and outlook as well. Ironically, the majors had sold the very acreage that became the shale booms' ground zeros, respectively, seeking their fortunes in far-flung places, only to return to the U.S.'s Permian Basin in 2014 and onward. The U.S. complex is a well-oiled machine.
So many events roiling oil and gas markets, such as a pandemic and Russia's invasion of Ukraine, are further impetuses for industry consolidation. The recent banking fallout also adds to volatility and uncertainty whose impacts can be diminished at the margin by a flight to scale. Chevron ( CVX ) has been a bellwether stock among stocks, a go-to in times of uncertainty. This potential tie-up would likely ensure Exxon's top placement in that leader board.
U.S. shale has changed the calculus - economically, geopolitically, and sustainably. Pioneer has visibly and remarkably epitomized the best in class of U.S. shale production. Having said that, many players have contributed to the feat of U.S. production, and more consolidation will happen. ( Video here highlights.)
In the future, the innovations in oil and gas production will complement those of the transitioning energy mix. In simple terms, the energy transition is just the shifts to the mix, with new combinations and methods of production that align with physics and the market. The market is whispering once again.
For further details see:
The Prize Of The Permian: Influencer Pioneer Natural Resources (Video)