The Daley Note: October 10, 2023
ExxonMobil (XOM) is reportedly near a deal to buy Pioneer Resources (PXD) for $60B. The blockbuster merger would be the biggest yet amid a consolidation trend that is slowing rig activity in the Permian Basin.
The XOM-PXD discussions were reported last Friday by the Wall Street Journal. Given the scale of the two companies’ operations, the tie-up could potentially impact rigs on a dozen G&P systems in the Permian, according to rig allocations in East Daley’s Energy Data Studio. However, we view Energy Transfer (ET) and Targa Resources (TRGP) as the most vulnerable of the lot.
Pioneer sends most of its gas to Targa Resources (TRGP) and also owns 27.2% of the TRGP - West TX system. Exxon primarily sends gas to Energy Transfer (ET) and TRGP, as well as its own Delaware G&P system.
In late September, XOM and PXD operated a combined 38 rigs between the Delaware and Midland sub-basins, according to allocation in East Daley’s Midstream Activity Tracker in Energy Data Studio. The TRGP – West Texas system saw the most combined XOM/PXD rigs for the month (~11 rigs), followed by WTG - North Midland (4 rigs) and EnLink’s (ENLC) Midland system, according to the MAT allocations (see chart). We also allocate 4 Exxon rigs to its XTO – Delaware system.
While no details are available, recent Permian mergers have resulted in rig cuts. EDA’s review of recent upstream deals finds buyers and sellers have dropped rigs by nearly 30% once companies combine. If the trend holds, a merged XOM/PXD would drop 11-12 rigs.
Which midstream companies would be vulnerable? G&P systems where rigs and acreage overlap are candidates, as XOM could consolidate Pioneer’s drilling program to create synergies. On the other hand, a merged XOM/PXD would have an abundance of drilling targets in the Permian and could drop rigs in areas deemed marginal after a merger.
Exxon has been the most aggressive of the two producers in the Permian, targeting 10%/year production growth in 2023. ET and TRGP have benefited the most from XOM’s investment in growth. Will the supermajor stay committed following a PXD bolt-on? East Daley sees particular risk here for these midstream companies.
Energy Data Studio subscribers can use our Shipper Contracts Across Gas Pipelines dashboard to see how these companies market their gas on interstate pipelines, and the G&P Comparative Analysis dashboard to see how the TRGP - West TX system overlaps with ET – Midland. – Ajay Bakshani, CFA and Andrew Ware Tickers: ENLC, ET, PXD, TRGP, XOM.
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