This move by Texas-based XOM, the largest US oil company, will more than double its footprint in the Permian Basin of the Southwest USA. Pioneer (PXD US) shareholders will receive 2.3234 shares in XOM for each PXD share held, an 8% premium based on Tuesday’s closing price. However, this deal could face regulatory hurdles, especially under the Biden administration, which has been tough for mergers. Plus, it’s been very critical of big oil, blaming it for high oil and gas prices – an unfounded view, in our opinion, considering they have drained US oil stocks to a 40-year low in anticipation of replenishing the stockpiles at lower levels, oops!
In March of 2022, Biden announced he would release 1 million barrels per day for six months, hoping to “sell high and buy low”, but we can assure you, Joe, it’s not as easy as that! It’s not surprising that Saudi and OPEC partners are reducing production, pushing prices up towards $US100/barrel, just imagine where it might be if/when China’s economy again starts to fire, i.e. Biden et al. are effectively short oil at a very a bad price into a Middle East conflict.
To put the PXD deal into perspective, it’s about 1.5x the size of Woodside Energy (WDS) and 3.7x that of Santos (STO). Last week, XOM announced that big increases in oil, gas and fuel prices would deliver a Q3 operating profit between $8.3 billion and $11.4 billion, up from its second quarter. Full-year results will be released on the 27th, but in our opinion, from here, the share price will be driven by the underlying price of oil, which is short-term supported by the US trying to refill its stockpiles, but if/when we see calm return between Israel & Palestine and/or the Ukraine & Russia we are likely see a sharp drop in prices.
- We can see XOM rotating between $US100 and $125 into 2024.
MM is cautiously bullish toward XOM into 2024
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