Business
Exxon Mobil is reportedly interested in buying the club name Pioneer
Pioneer Natural Resources (PXD) is an oil stock worth owning on its own merits. But a new report that Exxon Mobil ( XOM ) could buy the club holdings is likely to unlock even more value. Exxon has held “informal” talks to buy Pioneer, The Wall Street Journal reported Friday, citing people familiar with the matter. An eventual deal won’t happen until later this year or in 2024, the Journal reported. Exxon — which generated $62 billion in free cash flow in 2022 and ended the year with nearly $30 billion in cash — has been in acquisition discussions with at least one other oil and gas company, according to the Journal. Pioneer shares rose more than 6% on Monday, to around $221[ads1] each — making it by far the best-performing energy stock in the S&P 500. Shares of Exxon fell 0.25% to just under $115 apiece. Pioneer and Exxon did not immediately respond to CNBC’s request for comment Monday. Exxon’s reported interest in Pioneer is hardly a surprise because the Texas shale driller is a “marquee” independent exploration and production company in the lower 48 states, Stifel analyst Derrick Whitfield told CNBC on Monday. If Exxon wants to meaningfully bolster its rig count in the Permian Basin, “it’s going to need quality depth of inventory,” which Pioneer has, Whitfield said. The analyst, who has a buy rating and $286 per share price target on PXD, said the likelihood of a Pioneer-Exxon deal comes down to how much Exxon is willing to pay. “I think management wants to … improve the performance of its asset base and arguably have a higher stock price before they come to the table with Exxon Mobil,” Whitfield said. “That’s not to say that if Exxon Mobil offered a 25% premium, it wouldn’t have been done. Personally, that was the number I had in mind. If you saw a 25% premium, I think that would bring them to table because, let’s be realistic, every independent wants to be acquired by Exxon Mobil.” The club believes it may take a little more for Pioneer to seriously consider selling. A 25% premium from where Pioneer closed Thursday, at about $208 per share, would value the shares at about $260 each. However, Jim Cramer said Monday that he thinks Pioneer CEO Scott Sheffield — an industry veteran in his second stint leading the company — would be hesitant to sell at a price per share below $285. That’s Pioneer stock’s all-time closing high, reached in June 2022. “I’m not saying he wouldn’t sell. I’m saying he’s not going to sell below where this stock was, given the fact that oil could go back to $90 [a barrel], given the fact that he has the best Permian assets,” he added. West Texas Intermediate crude — the U.S. oil benchmark — traded down more than 1% Monday afternoon, at $79.70 a barrel. We were pleased with the Pioneer investment spring before Exxon’s reported interest in the company, increasing our PXD stake twice last month at levels below Monday’s market price. Our last purchase of 25 shares on March 20 came in at about $185 each. Pioneer’s attractiveness comes largely from its quality acreage and low oil price breakevens, at about $39 a barrel. This allows the firm to generate large amounts of free cash flow and return most of it to shareholders through share buybacks and quarterly dividends. Investors aware that Exxon is reportedly looking for an acquisition can look at Pioneer and other Permian operators even more favorably. Stifel’s Whitfield believes the Journal story could put a short-term floor under Pioneer’s share price — a view we share. At the very least, Pioneer’s shareholders are more likely to remain invested in the company, Whitfield said. And that is certainly our intention at this time. “What I suspect is that it’s going to further strengthen the shareholder base because now you have an article directly linking Exxon Mobil to Pioneer, and the way it was set up, there’s clearly an interest there,” Whitfield said. “I think if you’ve seen Pioneer at [a] much higher stock price in the past, which gives you that much more conviction to hold it now.” (Jim Cramer’s Charitable Trust is long PXD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer you will you receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in the charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuance of the trade alert before the trade is executed. THE INVESTMENT CLUB INFORMATION ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. NO OBLIGATION OR OBLIGATION IS ASSUMED, YOU ARE NOTIFIED. ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR DILUTION GUARANTEE.
Permian Basin rigs in 2020, as US crude oil production fell by 3 million per day as pressure from Wall Street forced cuts.
Paul Ratje | Afp | Getty Images
Pioneer Natural Resources (PXD) is an oil stock worth owning on its own merits. But a recent report that Exxon Mobil (XOM) could acquire the Club holdings, likely to unlock even more value.
