Last October, ExxonMobil Corp. agreed to acquire Pioneer Natural Resources in a $60 billion all-stock merger. The deal adds Pioneer’s 850,000 acres in the Midland Basin to ExxonMobil’s 570,000 acres in the Delaware and Midland Basins creating the industry’s leading high-quality undeveloped U.S. unconventional oil inventory. Much of the combined acreage is contiguous, which allows the drilling of four-mile-long lateral wells reducing the number of wells needed and their footprint, thus reducing the breakeven oil cost to $35 a barrel.
The company’s combined production this year will be 1.6 million barrels of oil equivalent, which is projected to grow to 2 million BOE by 2027. Importantly, 40% of ExxonMobil’s 2027 production will be short-cycle barrels, enabling the company to quickly adjust production to meet demand fluctuations, which will ensure profitability.
The Federal Trade Commission approved the deal at the beginning of May with one condition. ExxonMobil had to agree to not add Pioneer CEO Scott Sheffield to its board of directors as envisioned in the original merger agreement. This was an unusual condition. Moreover, it was based on “thin” evidence. It represented yet another Biden administration (FTC Chair Lina Khan was nominated by President Joe Biden in March 2021) slam of the fossil fuel industry.
The eight-page complaint against Sheffield contained redacted text messages as well as public statements. The FTC believed Sheffield’s position on the ExxonMobil board would be a bigger platform for him to “pursue his anticompetitive schemes.” The FTC cites as evidence a statement Sheffield made to the Financial Times in the fall of 2021. He said, “everybody’s going to be disciplined, regardless of whether it’s $75 Brent, $80 Brent, or $100 Brent” and "all the shareholders that I’ve talked to said that if anybody goes back to growth, they will punish those companies.”
Sheffield was reflecting on the views of oil investors who were warning that shale oil producers who ramped up production, which drives down oil prices, would have their stock prices punished. This sentiment was not a secret communication to OPEC or national oil companies. The sentiment was expressed openly and frequently on Wall Street and in energy investment conferences. Sheffield was only commenting on this market view when he spoke with the FT.
More frustrating for the domestic oil industry, of which Sheffield was acknowledged as a key player, was that the Biden administration had implemented policies hamstringing the industry from expanding. However, between 2019 and 2023, Pioneer’s daily production more than doubled, which suggests Sheffield wasn’t trying to collude with OPEC to restrict output growth and drive-up oil prices. If anything, he was acting adversely to this assumption.
The thinness of the FTC case against Sheffield is demonstrated by them to not file a complaint against him. Instead, it forced ExxonMobil to accept the consent agreement keeping Sheffield off the board, which limited his ability to contest the conspiracy charge. The lesson: If you criticize Biden administration policies, you risk the rath of regulatory agencies.
