Pioneer adds 7% as Exxon deal ‘would make a lot of sense’, analysts say

By Senad Karaahmetovic

Shares of Pioneer Natural Resources (NYSE:) are trading over 7% higher in pre-market Monday after the Wall Street Journal reported on Friday that the company’s officials held “preliminary talks” with their counterparts at Exxon Mobil (NYSE:) over a potential buyout.

The talks are said to be “informal” so far, as cash-rich Exxon browses the oil market looking for a deal that would push it further into West Texas shale.

The report also notes that Exxon has held M&A talks with at least one other company. Still, Pioneer is likely a top target. PXD has a $48.92 billion market cap, based on Friday’s closing price. Exxon is valued at over $468B.

For Roth MKM analysts, such a deal would “make a lot of sense given XOM’s existing Permian footprint and its higher valuation.”

“We rate Pioneer Natural Resources a Buy as this pure play Permian E&P has the lowest cost and longest inventory life in the Permian Basin, a very high cash dividend, solid growth rates and a pristine balance sheet,” the analysts said in response to the WSJ report.

Stifel analysts agree and see Pioneer and Endeavor Energy (private Midland operator) as the most likely targets for Exxon.

“Further, our rig intensity, valuation, and relative performance assessments indicate a deal would make sense for XOM but would be difficult for Pioneer to digest given PXD’s ~40% underperformance over the last year. Net-net, we view an imminent deal as unlikely unless a +25% premium is attached to it.”

Evercore ISI analysts added:

“PXD is amongst the few remaining large/scalable upstream entities that would ‘move the needle’ for an Integrated acquiror, likely to refocus the market on other entities that could provide similar benefits.” 

Exxon shares are down almost 1% in pre-market Monday.