Neal Dingmann's take on Exxon buying PXD
Posted: Fri Oct 06, 2023 11:01 am
Note this morning from Neal Dingmand at Truist Financial
E&P: Reports of Exxon Buying Pioneer
Unsurprising
Reuters, WSJ and other sources suggest Exxon (XOM, Hold) could buy
Pioneer (PXD, Hold) in the coming days for ~$60B; a slight premium to yesterday’s
close. We would not be surprised to see further consolidation in the upstream space
given the limited inventory and relatively inexpensive price of most E&Ps as judged
by the latest suggested premium. Various executives we spoke with on the proposed
transaction suggest a deal of this sort was only a matter of time with upstream
consolidation likely to continue.
We continue to believe there are a number of acquisition targets such as Permian
Resources (PR, Buy), Chord Energy (CHRD, Buy), Magnolia Resources (MGY, Buy),
Gulfport Energy (GPOR, Buy), and Silverbow Resources (SBOW, Buy) among others
given their current low trading multiples and notable inventory. < IMO PR will be a "Screaming Takeover" when the merger with ESTE closes.
Potential Accretive Addition
Investors continue to value E&Ps largely on earnings and a FCF basis with asset value
taking a bit of a back seat. The price per flowing BOE an acquirer pays is also of
significant importance especially if the production is stable in nature. Our estimates
suggest PXD current trades at ~5.0x EV/'24 EBITDA, a ~10% FCF yield and $73k per
flowing boe (based on market cap); all notably cheaper than XOM’s current metrics.
Sizeable Inventory
PXD has one of the largest tier one Permian inventory positions with the company most
recently suggesting over 12,000 tier one & tier two well locations or >20 years of high-
return inventory. While XOM also has sizable inventory, the company’s focus on short
cycle high return production suggests XOM could target addition inventory.
XOM Continues to Consider Acquisitions
XOM recently said they would continue to evaluate opportunities in the space where
the company can create unique value and unique shareholder value. Further, XOM
suggested opportunities would have to be bigger than what XOM or any potential
acquisition could do independent of one another; i.e. one plus one has to equal three.
The company has gone on to say that from 2018 when conversations centered on better
leveraging key competitive advantages, one of the drivers to do that would be to open
up value opportunities that basically others can't achieve.
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MY TAKEs:
> Size matters in this business. Exxon has lots of cash flow and access to capital at much lower interest rates than smaller companies.
> This deal tells me that Exxon believes oil & gas prices have upside and will stay "higher for longer".
> This is part of Phase Two of The Big Paradigm Shift.
> It would be interesting to know why Neal has MGY on his list of takeover targets since they are not a Permian Basin company.
> My "Takeover Target's" list would include CPE, FANG, VTLE, MTDR, SM from our Sweet 16.
E&P: Reports of Exxon Buying Pioneer
Unsurprising
Reuters, WSJ and other sources suggest Exxon (XOM, Hold) could buy
Pioneer (PXD, Hold) in the coming days for ~$60B; a slight premium to yesterday’s
close. We would not be surprised to see further consolidation in the upstream space
given the limited inventory and relatively inexpensive price of most E&Ps as judged
by the latest suggested premium. Various executives we spoke with on the proposed
transaction suggest a deal of this sort was only a matter of time with upstream
consolidation likely to continue.
We continue to believe there are a number of acquisition targets such as Permian
Resources (PR, Buy), Chord Energy (CHRD, Buy), Magnolia Resources (MGY, Buy),
Gulfport Energy (GPOR, Buy), and Silverbow Resources (SBOW, Buy) among others
given their current low trading multiples and notable inventory. < IMO PR will be a "Screaming Takeover" when the merger with ESTE closes.
Potential Accretive Addition
Investors continue to value E&Ps largely on earnings and a FCF basis with asset value
taking a bit of a back seat. The price per flowing BOE an acquirer pays is also of
significant importance especially if the production is stable in nature. Our estimates
suggest PXD current trades at ~5.0x EV/'24 EBITDA, a ~10% FCF yield and $73k per
flowing boe (based on market cap); all notably cheaper than XOM’s current metrics.
Sizeable Inventory
PXD has one of the largest tier one Permian inventory positions with the company most
recently suggesting over 12,000 tier one & tier two well locations or >20 years of high-
return inventory. While XOM also has sizable inventory, the company’s focus on short
cycle high return production suggests XOM could target addition inventory.
XOM Continues to Consider Acquisitions
XOM recently said they would continue to evaluate opportunities in the space where
the company can create unique value and unique shareholder value. Further, XOM
suggested opportunities would have to be bigger than what XOM or any potential
acquisition could do independent of one another; i.e. one plus one has to equal three.
The company has gone on to say that from 2018 when conversations centered on better
leveraging key competitive advantages, one of the drivers to do that would be to open
up value opportunities that basically others can't achieve.
----------------------------------
MY TAKEs:
> Size matters in this business. Exxon has lots of cash flow and access to capital at much lower interest rates than smaller companies.
> This deal tells me that Exxon believes oil & gas prices have upside and will stay "higher for longer".
> This is part of Phase Two of The Big Paradigm Shift.
> It would be interesting to know why Neal has MGY on his list of takeover targets since they are not a Permian Basin company.
> My "Takeover Target's" list would include CPE, FANG, VTLE, MTDR, SM from our Sweet 16.