Exxon deal puts spotlight on M&A targets but heightened scrutiny a dampener

By Mrinalika Roy

(Reuters) - Exxon Mobil (NYSE:XOM)'s mega $60 billion deal for shale rival Pioneer Natural Resources (NYSE:PXD) could be a catalyst that will drive further consolidation in the U.S. oil and gas industry, analysts said, as they zeroed in on a handful of likely targets.

Dealmaking in the U.S. oil and gas patch has picked up pace as producers sought to replenish their inventory after years of under-investment.

The Permian Basin, the top U.S. oilfield known for its low cost of extraction, is seeing a consolidation with more than $26 billion worth of deals this year before the Exxon announcement, as per Rystad Energy data. That is more than double the entire value of deals signed in 2022 for the region.

"(The Exxon transaction) is a positive read-through to the sector overall, particularly the Permian Basin players," said Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co.

Rivals will "step up to try to compete with Exxon", Sorbara said.

Future buyers are likely to be among Exxon's closest big rivals in the Permian Basin such as Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP), analysts said.

"Chevron seems the most likely to respond with a transaction of its own," said Andrew Dittmar, a director at consultancy Enverus.

The most-prized targets for Chevron could be Coterra Energy (NYSE:CTRA) or Devon Energy (NYSE:DVN), he added. Chevron had $9.29 billion in cash and equivalents at the end of June.

Others mentioned included Matador Resources (NYSE:MTDR), Permian Resources and Diamondback (NASDAQ:FANG) Energy.

Still, the Exxon deal, the industry's largest since 2016, also set off worries about stiff regulatory scrutiny over anti-competitive concerns.

"I'm concerned that Exxon's massive acquisition will reduce competition and drive up costs. Regulators should closely scrutinize this big oil merger," U.S. Senator Elizabeth Warren, a Democrat and frequent merger critic, said.

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Exxon does not anticipate antitrust hurdles to complete the deal, expected by early 2024.

"There is an excellent opportunity to create value now via consolidation because the stock market has been giving bigger companies better valuation multiples, making smaller companies relatively cheap if acquired by bigger companies in all-stock deals," said Sven Del Pozzo, director of research and analysis - company and transactions, S&P Global Commodity Insights.