Oil giant Exxon Mobil is making a huge bet on shale with its just-announced $59 billion all-stock acquisition of Pioneer Natural Resources, one of the largest producers in the Permian Basin of West Texas and New Mexico. Shale oil is a type of unconventional oil found in shale rock formations that must be hydraulically fractured to extract the oil.
The deal, which is Exxon’s biggest since its merger with Mobil in 1999, will give it access to Pioneer’s large acreage position in the Permian, allowing Exxon to more than double its current production in the region to over 1 million barrels per day once the deal closes in 2024.
This massive expansion of Exxon’s shale oil production comes even as much of the industry has pulled back investments in new drilling due to investor pressure to improve returns and limit growth. While Exxon is already one of the most active drillers in the Permian, the addition of Pioneer’s operations will make it the largest shale oil producer in the basin by far.
The shale boom propelled U.S. oil production to record highs in recent years, though growth has slowed more recently. The Biden administration has also paused new leases for drilling on federal lands, creating uncertainty around future shale production. However, the industry is still projected to provide most new sources of oil supply worldwide in the coming years.
Exxon’s bet is that shale, especially the Permian where production costs are lowest, will continue to drive future growth. Pioneer outlined an ambitious plan last year to raise Permian production as high as 2 million barrels per day by 2030. Together, the companies expect to capture major cost savings by combining operations.
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But analysts say the deal is not without risk for Exxon. While shale helped supercharge U.S. production, the industry has had a mixed track record of profitability. Investors have lost patience with shale companies struggling to deliver consistent returns, pushing firms like Pioneer to focus more on cost discipline and shareholder payouts rather than maximum production growth.
Outside shale, Exxon is also working to develop large, costly conventional oil projects offshore Guyana and in other regions to replenish reserves. Some analysts question whether Exxon might be spreading itself thin trying to balance massive shale drilling with high-stakes conventional projects.
More broadly for the oil industry, concerns around climate change have made the long-term outlook uncertain. With electric vehicles going mainstream and many governments setting net-zero emissions targets, peak oil demand may already be behind us according to some forecasts.
While Exxon says shale oil will be needed to meet global energy demand for decades to come, increasing pressure on the industry to reduce emissions led Pioneer to accelerate its own net zero target from 2050 to 2035 after the acquisition was announced. With shale methane emissions a major focus for policymakers, combining operations could allow for more investment in leak detection and reductions.
For now, Exxon seems confident in the value of shale, and particularly the Permian’s vast oil riches. The Pioneer deal positions it to be the dominant driller in the West Texas region as others pull back. But only time will tell whether the big bet on shale pays off or leaves Exxon overextended. The deal reflects one of the oil majors’ biggest signals of confidence yet that shale will continue driving growth well into the future.
