Exxon-Pioneer tie up could squeeze US shale oil suppliers, pipelines

HOUSTON: Top US oil producer Exxon Mobil’s planned acquisition of the No. 1 Permian shale producer Pioneer Natural Resources could further restrain output growth in the largest US oilfield, squeezing pipeline companies and suppliers, executives and energy advisors said.

Consolidation, steep cost inflation and investor demands for returns have shrunk production growth this year in the Permian shale formation in West Texas and eastern New Mexico. Permian crude production is forecast to rise this year by about 430,000 barrels per day (bpd), well below the 1 million-bpd gain in 2019, according to government data.

Exxon, the fifth largest producer in the Permian, has set an up to 1 million-bpd target for its operations there for 2025 and more recently pushed it back to 2027. Buying Pioneer would boost its output to about 1.33 million barrels of oil and gas equivalent per day, well above its goal.

“With this Pioneer deal, there is a possibility that Exxon might say they’ve achieved that growth target for Permian production and so they don’t have to grow as rapidly as they originally intended,” says Ajay Bakshani, director of analytics at research firm East Daley Analytics.

Exxon has declined to comment on any acquisition discussions. CEO Darren Woods said in June that developing technology in-house ultimately will allow Exxon to better identify acquisition targets.

US oil producers are pumping more oil, but the pace of growth has slowed due to lower drilling activity. Mergers also have chipped away at drilling budgets, analysts and industry executives said. Overall, oil companies have cut 36 active drilling rigs in the Permian in the last year, a 10% drop. Rigs are an indicator of future output.

Recent shale consolidation, including Civitas Resources and Callon Petroleum-Percussion, also led to reductions in the combined companies’ active drilling rigs.