Why is Exxon willing to pay so much for PXD?

[dan_s]

Exxon employs a lot of very smart people. They are playing the "Long Game". They know we have run out of "Cheap Oil" and they know "The Green New Deal" is a Bad Deal. What Exxon already knows will spread. We are in Phase Two of The Big Paradigm Shift.
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Over the past decade, American shale has been the driving force behind 83% of global oil supply growth. However, these shale fields, spanning from the Marcellus to Eagle Ford and culminating in the Permian, are now approaching their peak. The Permian Basin, the final major shale basin, is projected to reach its peak production by the end of this year or the next. The latest reports from the EIA reveal a consistent decline in production in the Permian over the past three months, signaling our proximity to this peak.

The IEA, in what I view as an optimistic scenario, considers factors like greater efficiencies and widespread adoption of alternative fuels. This outlook suggests that with concerted efforts, we could facilitate a successful transition to greener energy sources. The primary emphasis is on discovering new fields to replace those reaching their peak, a challenge given the global depletion rate of 8% per year on most oil fields. Unfortunately, new oil discoveries have dwindled over the past decade, with the remaining reservoirs often situated in demanding environments like oil sands, deep-sea reserves, or the Arctic. Shale oil has been the stalwart that saved us over the last decade, driving global oil production growth. As Goehring and Rozencwajg have repeatedly pointed out, just six counties in West Texas have been responsible for 100% of all global production growth, a trend now plateauing.

The pressing question is: Where will the new oil, essential for funding economic growth, come from? Shale wells face a daunting depletion rate of over 80% within a three-year span, necessitating ongoing drilling efforts to sustain production. As of September, the active drilling rig count in the U.S. is down by 11, and it's a decline of 134 rigs from a year ago.

[allen46]

Dan, as I calculate, the takeover price is about $250/share which is close to your valuation of $257, so I don't feel that Exxon is "willing to pay so much for PXD" as it isn't much of a premium to the value yesterday or a reasonable value at relatively low WTI prices used in your valuation. I Think PXD should hold out for at least $300.

[dan_s]

My valuation of PXD was based on $90 WTI after Q3 2023, so what Exxon is paying is a fair price.
If you own PXD, wait for the deal terms. I think you will be getting cash plus some Exxon shares that have a lot of upside.