Exxon investors ready to embrace buying existing oil over new drilling
By Sabrina Valle
HOUSTON (Reuters) — Exxon Mobil (NYSE:XOM)'s investors now prefer the company use its share price and financial might to acquire existing oil and gas production rather than spend on drilling that could take years to pay off.
In the last four years energy investors have dumped stocks in oil companies that boost capital spending, favoring higher returns over spending on costly, long-term new projects. But Exxon shares last month hit a record high of $120, lifted by returns on its oil, gas and refining businesses.
Its talks to acquire Pioneer Natural Resources (NYSE:PXD), the No. 2 Permian shale oil producer, for $60 billion, signals it is ready to pay up for production after missing its own output targets in the Permian.
A deal would bring Exxon to about 1.33 million barrels of oil and gas per day, the largest in the oilfield. In 2019, it set a 1 million barrel per day goal for 2025 and more recently pushed it back to 2027.
«There is incredible political pressure against drilling new holes in the ground to find oil and gas,» said Bill Smead, chief investment officer at Smead Capital Management, which manages $5.2 billion in funds, 25% of which are devoted to oil and gas.
«So it makes complete sense to buy a smaller company. Pioneer has fantastic reserves,» he said.
The surge in oil and gas prices following Russia's invasion of Ukraine underscored the need for fossil fuels despite rapid gains in solar and wind energy. Reduced spending by U.S. oil producers allowed OPEC members to increase global oil prices this year by cutting their production.
Analysts say acquisitions are readily embraced if a deal can generate high cash flow for the acquirer, said Rystad's head of Shale Research Alexandre Ramos-Peon.
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