Exxon-Pioneer deal signals oil demand strength: Analyst - Yahoo Finance

Exxon-Pioneer deal signals oil demand strength: Analyst

Exxon Mobil ( XOM) is set to Pioneer Natural Resources ( PXD) in an all-stock deal with a price tag of over $59 billion. Wells Fargo Senior Energy Analyst Roger Read joins Yahoo Finance Live to weigh in on what this acquisition could signal for the transition to renewable energy. Read expects a transition to renewables, but notes “it's going to be a lot longer... a lot tougher... a lot more expensive” as oil demand remains strong.

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Video Transcript

- ExxonMobil acquiring Pioneer Natural Resources. It's an all-stock deal valued at $59 and 1/2 billion. The merged companies say it could add up to 2 million barrels a day to production over the next four years. It's going to make Exxon the largest producer in America's biggest oil field that is the Permian.

Joining us now is Roger Read. He's Wells Fargo senior energy analyst. Hey, Roger, good to see you. Thanks for being here. This is, obviously, a big, big deal for Exxon. What does this investment in the Permian tell us about Exxon's perception of oil demand going forward, what it's going to look like, where it's going to come from, and the sustainability of it?

ROGER READ: I mean, I think it tells us a couple of things. One, you know, we've, obviously, seen the start of the energy transition. We've seen the challenges with it. Energy security rear its head. And then demand, obviously, post-COVID's come back fairly strong on a global basis. And so everybody realizes there's going to be an energy transition, but it's going to be a lot longer. It's going to be a lot tougher. It's going to be a lot more expensive.

And so if you look at that aspect of it, I think it under-- it speaks to why you would invest in oil and why Exxon would do this transaction. The other big part-- and they talked about it on their call today. And they had a spotlight event on their downstream operations a couple of weeks ago. And some of this is by having Pioneer, you establish, no question, about the ability to deliver the necessary feedstock to their chemical plants, to their refining facilities, to their biofuel as we go forward. And so it all really hooks in well. And it speaks to the value of the integrated model.

- Roger, why is Exxon stock down more than 4% right now? Is that because some people think they paid too much? The price tag is a little too hefty? What's going on there, Roger?

ROGER READ: Yeah, I mean, look, I think anytime you have a company do a transaction, right-- this is roughly 20% of the size of Exxon-- you're going to have a little bit of an impact, right? And whatever your expectations were for the company's growth or, in this case, you know, return of shareholder-- or return of cash to shareholders, dividends, share repurchases, and so forth.

So when I look at it, I just say, all right, you've changed the narrative to as-- to an extent. You wouldn't be surprised the stock's down. There's also the [? ARB ?] aspect of it, right? Anytime you have an all-stock deal, there's that opportunity to come in, and they position themselves long in the Pioneer side and short on the Exxon side. So that has to work its way through as well.