US majors offer up mixed fortunes on M&A

ExxonMobil's $64.5bn acquisition of shale giant Pioneer Natural Resources is already showing signs of paying off, but Chevron's $53bn takeover of US independent Hess is stuck in limbo because of a simmering dispute with its major rival over a Guyanese oil stake that is likely to drag on into 2025.

The contrasting fortunes of the two blockbuster deals that ushered in a frantic round of dealmaking in the shale patch, with billions of dollars of assets changing hands, could have far-reaching consequences for ExxonMobil and Chevron as the two US majors double down on fossil fuels and chase low-cost and lower-carbon barrels that can withstand the challenges of the energy transition. The stakes are high as both have set out ambitious plans to ramp up shareholder returns in the forthcoming years.

In a preview of its global outlook due out later this month, ExxonMobil forecasts that world energy demand will be 15pc higher in 2050, with oil demand holding firm around 100mn b/d, even as renewables and natural gas grow. "We anticipate this year will be a record, and then next year will be a record, so demand continues to be fairly healthy from an oil standpoint," chief executive Darren Woods says.

ExxonMobil looks set to extend its lead over its smaller rival Chevron after closing the Pioneer deal in record time. Woods is citing "extremely encouraging" early results from the integrated assets to hint at even greater cost savings from the Pioneer takeover than the initially estimated $2bn/yr. ExxonMobil has already started to deploy its more efficient "cube" production strategy to the Pioneer assets, which enables it to drill multiple horizontal wells in stacked intervals from a single location. Pioneer, in turn, is contributing expertise in logistics and procurement.

ExxonMobil is now producing more oil than at any other time since the Exxon and Mobil merger in 1999, after achieving record second-quarter output from the Permian and the prolific Stabroek block off Guyana. Output is set to grow further as the latest results only included two months of production from the Pioneer assets.

I drink your milkshake

The story is different over at Chevron, where chief executive Mike Wirth has had to put on a brave face after having his hopes of closing the Hess deal by the end of the year dashed. International arbitration to resolve a disagreement with ExxonMobil over its right of first refusal to a 30pc stake in the Stabroek block currently held by Hess — and the main impetus behind Chevron's proposed takeover — will now not take place until May 2025. That will likely postpone the deal's closure until late 2025, almost two years after it was first announced.

Wirth does not expect the spat to be settled outside of arbitration, saying such a strategy had been tried but "that time has now passed". With the Hess deal on hold, Wirth is talking up Chevron's robust pipeline of projects from the Permian to the Gulf of Mexico and Kazakhstan. Wirth has not ruled out further acquisitions, even as the company waits for the Hess deal to be completed. "If another opportunity were to present itself that was compelling, we're certainly in a position to consider it," he says.

But the Hess deal, with its highly prized Guyana asset, is seen as essential by some analysts for the company to answer questions over its long-term growth plans. That ExxonMobil is refusing to back down shows the extent to which the company is determined to protect its rights over one of the biggest discoveries seen in recent decades, with an estimated 11bn bl of recoverable oil.

By Stephen Cunningham