Exxon Mobil Corp (NYSE:XOM).'s $60 billion acquisition of Pioneer Natural Resources (NYSE:PXD), its largest merger since 1999, is poised to significantly boost production and enhance drilling efficiency in the Midland Basin. The merger combines Pioneer's 850,000 net Midland Basin acres with Exxon's 570,000 net Permian acres.
Following the merger, Exxon's Permian production volume is projected to more than double to 1.3 million barrels of oil equivalent per day (Mboe/d) by this year, and further increase to approximately 2 Mboe/d by 2027. This marks a significant expansion for Exxon, which has been leveraging its technical expertise and Pioneer's basin position to achieve about $2 billion in annual synergies over the next decade.
The strategy includes the use of Exxon's cube development strategy, which is designed to address parent-child well interference by drilling multiple horizontal wells from a single surface location. This approach has proven effective in developing cube wells in the Permian and is expected to contribute $400 million per year.
Moreover, the companies expect a 15% reduction in total development costs, yielding an anticipated $700 million in annual savings. An additional $1.3 billion per year is projected from an extra 1 billion barrels of oil equivalent (Bboe) resource recovery using existing technologies.
Despite recording record profits last year, both Exxon and Chevron Corp. (NYSE:CVX) experienced a significant drop in third-quarter earnings this year. Exxon reported earnings of $9.1 billion, marking a decline of over 50% from the previous year. Meanwhile, Chevron reported a nearly 40% drop to $6.5 billion.
However, the merger highlights Exxon's robust recovery rates in the Midland Basin. Comparing adjacent 10,000-ft-lateral cube wells in Martin County, Texas, Exxon's cubes are delivering around a 20% higher recovery compared to Pioneer and other Midland Basin E&Ps.
As Neil Chapman, Exxon Senior Vice President, stated during a third-quarter earnings call, "When you've got better recovery, when you've got better capital efficiency, it gives access to economically developing what we would describe as secondary benches.”
InvestingPro Insights
In light of the recent merger and future projections, InvestingPro provides valuable real-time data and tips for both Exxon Mobil Corp. (XOM) and Pioneer Natural Resources (PXD).
According to InvestingPro, Exxon has raised its dividend for 41 consecutive years, and Pioneer has done the same for 5 consecutive years. This is a testament to the financial strength and stability of both companies, which is an important factor to consider when evaluating the potential success of their merger.
InvestingPro Data for Exxon shows a market cap of 419.59B USD and a P/E Ratio of 10.51 as of Q3 2023. Pioneer, on the other hand, has a smaller market cap of 55.74B USD but a slightly lower P/E Ratio of 9.76 as of Q2 2023. Both companies have shown profitability over the last twelve months, with Exxon's return on assets being 11.42% and Pioneer's being 15.9%.
InvestingPro's platform includes additional tips for these companies and many others. For Pioneer, there are 12 more tips available, and for Exxon, there are another 9 tips. These tips give a more detailed insight into the companies' performance and future prospects, making them valuable resources for investors.
In conclusion, the data and tips provided by InvestingPro suggest that both companies have a strong financial foundation and promising future, which could potentially lead to the success of their merger.
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