(Bloomberg) — Shale producers rallied Monday as traders bet they could be potential takeover targets for Big Oil companies looking to expand following reported interest from Exxon Mobil Corp. in Pioneer Natural Resources Corp.
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Pioneer shares rose as much as 8.5%, their biggest intraday gain since August 2021, on a report of preliminary Exxon takeover talks, lifting peers of shale oil as the S&P 500 energy index rose as much as 1.8% on Monday. Oil and gas producer Diamondback Energy Inc. rose as much as 4%, while Devon Energy Corp. rose 3.1%.
After years of growth, the American shale patch may be ready for consolidation.
Production is slowing as some of the most productive drilling areas become less fruitful, making acquisitions the main driver of growth in regions such as the oil-rich Permian Basin in West Texas and New Mexico . Buying Pioneer would make Exxon the largest producer in the Permian and provide more than a decade of lucrative locations to drill wells.
Although Stifel analyst Derrick Whitfield believes “an imminent deal with PXD is unlikely,” if Exxon buys Pioneer, then Diamondback and Permian Resources Corp. are “the best derivatives,” he wrote in a note. Whitfield said Diamondback was the closest peer to Pioneer.
Some investors see Exxon’s interest in Pioneer as an isolated move for a significant number of drilling sites. “This may be unique,” said Eric Nuttall, senior portfolio manager and partner at Ninepoint Partners, noting that Pioneer has “the oldest inventory” in the Permian in Texas.
However, Nuttall does not foresee a wave of oil acquisitions, particularly outside of Texas and beyond the United States into Canada and elsewhere.
Truist Securities analyst Neal Dingmann disagrees, and expects the rest of 2023 to be a busy time for oil deals. He expects Exxon and competitor Chevron Corp. are on the lookout, given their desire to increase inventory. And see Devon, Diamondback, Coterra Energy Inc., APA Corp. and Permian Resources as companies that “could remain active in the M&A market,” he wrote in a note.
“There’s no question that this industry is going to consolidate,” said Smead Capital Management President and CEO Cole Smead, adding that more oil majors will become enthusiastic participants. “Where is Chevron if Exxon is making deals?”
–With assistance from Kevin Crowley and Mitchell Ferman.
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