© Reuters. The ExxonMobil and Pioneer Natural Resources logos are seen in this illustration taken October 8, 2023. REUTERS/Dado Ruvic/Illustration
By Mrinalika Roy
(Reuters) – Exxon Mobile (NYSE:) $60 billion mega deal for shale rival Pioneering natural resources (NYSE:) could be a catalyst that will drive further consolidation in the U.S. oil and gas industry, analysts said, as they focused on a handful of likely targets.
Deals in the U.S. oil and gas patch have accelerated as producers sought to replenish their inventories after years of underinvestment.
The Permian Basin, the top U.S. oil field known for its low cost of extraction, is undergoing consolidation with deals worth more than $26 billion this year ahead of Exxon’s announcement, according to data from Rystad Energy. That is more than double the total value of agreements signed in 2022 for the region.
“(The Exxon transaction) is a positive read for the sector overall, particularly for Permian Basin players,” said Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co.
Rivals “will step up to try to compete with Exxon,” Sorbara said.
Future buyers are likely to be among Exxon’s closest major rivals in the Permian Basin, such as Chevron (NYSE and ConocoPhillips (NYSE ), the analysts said.
“Chevron appears to be the most likely to respond with a transaction of its own,” said Andrew Dittmar, principal at consultancy Enverus.
The most prized targets for Chevron could be Coterra Energy (NYSE or Devon Energy (NYSE:) he added. Chevron had $9.29 billion in cash and equivalents at the end of June.
Others mentioned included Matador Resources (NYSE , Permian Resources and Diamondback (NASDAQ Energy.
Still, the deal with Exxon, the industry’s largest since 2016, also raised concerns about strict regulatory scrutiny over anti-competitive concerns.
“I’m concerned that Exxon’s massive acquisition will reduce competition and increase costs. Regulators should take a closer look at this big oil merger,” said U.S. Sen. Elizabeth Warren, a Democrat and frequent critic of mergers.
Exxon does not foresee antitrust obstacles to completing the deal, scheduled for early 2024.
“There is now an excellent opportunity to create value through consolidation because the stock market has been giving larger companies better valuation multiples, making smaller companies relatively cheap if they are acquired by larger companies in operations exclusively stocks,” said Sven Del Pozzo, director of research. and Analysis: Company and Transactions, S&P Global Commodity Insights.
