ExxonMobil's $60 billion purchase of Pioneer creates Permian powerhouse

ExxonMobil said Oct. 11 it would buy Pioneer Natural Resources for $59.5 billion, creating a Permian Basin powerhouse by more than doubling its footprint in the shale play.

The combined assets would lift Permian crude production to 2 million b/d of oil equivalent by 2027, ExxonMobil said. Total global combined output would be roughly 4.4 million boe/d, based on the respective companies' second-quarter 2023 results.

The deal reflects ExxonMobil's commitment to oil and gas, along with its carbon capture ambitions, and is expected to spark additional M&A activity in US shale, highlighting the importance of the Permian Basin in global oil and gas markets.

Trade flows

• Combined crude and condensate production in the Permian Basin is expected to grow to 6.78 million b/d by the end of 2024 from 6.35 million b/d in August, leading US output growth, according to S&P Global Commodity Insights analysts.
• Permian Basin crude is regularly exported via US Gulf Coast terminals to global markets, with Kpler vessel tracking data showing total US crude exports averaging 4.4 million b/d so far in October, closing in on the all-time monthly high of 4.5 million b/d in March.
• Midland WTI makes up a large proportion of those exports, averaging 1.8 million b/d in September, when total US exports averaged 4.2 million b/d, Kpler data shows.
• The bulk of US crude exports are sent to Europe and Asia, with China, South Korea, and the Netherlands the largest buyers by volume.
• Platts, part of S&P Global Commodity Insights, started including WTI Midland delivered to Rotterdam in its Market on Close assessment process for Dated Brent in June 2023.
• Midland WTI was the most common grade in the Cash BFOE chaining mechanism for October, a key part of the forward Brent market that underpins Platts Dated Brent, accounting for 14 of the 16 cargoes nominated.

Prices

• WTI refining margins in Northwest Europe are averaging at a roughly $2/b premium to North Sea Forties margins so far in October, suggesting the spot arbitrage is open, S&P Global data shows.
• WTI refining margins in Southeast Asia are averaging at $5.70/b so far in October, above the $3.95/b average for local Malaysian grade Tapis crude, S&P Global data shows.
• The WTI Midland discount to WTI MEH has averaged 12 cents/b so far in October, Platts data shows, suggesting there is still pipeline capacity to the US Gulf Coast. That discount widened to average roughly $19/b in August and September of 2018, when pipeline capacity out of the Permian was lagging production growth.

Infrastructure

• As the Permian continues to lead total US crude production, pipelines transporting crude from the basin to Corpus Christi, Texas, are running at nearly 100% capacity.
• The Corpus Christi system includes Plains All American's Cactus I and Plains' and Enbridge's Cactus II pipelines, which have a combined 1.06 million b/d capacity; the 900,000 b/d Gray Oak pipeline, which is co-owned by Phillips 66, Marathon Petroleum and Enbridge; and the 600,000 b/d EPIC pipeline, majority co-owned by EPIC Midstream and Chevron.
• Throughputs within the Corpus Christi system have been steadily on the rise since early 2020, going from 1.4 million b/d (84% capacity) during Q1 2020 to 2.5 million b/d (96% of capacity) in Q2 2023.
• The rise in Permian production and the subsequent increase in throughputs to Corpus Christi could require excess barrels be delivered to neighboring systems in Houston and Nederland/Port Arthur, Texas, which still have significant spare capacity.
• Shipments from these ports are expected to climb as analysts forecast the pipeline systems to reach full capacity over the next two years.
• Houston's network includes Magellan's Bridgetex and Longhorn pipelines, which transport a combined capacity of 575,000 b/d of crude from the Permian; Enterprise's Midland Echo I and II pipelines, with a combined capacity of 820,000 b/d; and the Wink-to-Webster pipeline, co-owned by ExxonMobil, Plains and Lotus Midstream, with a capacity of 1.5 million b/d.
• Multiple Texas Gulf Coast offshore crude oil terminals are in development, such as Sentinel Midstream's GulfLink and Phillips 66's offshore Bluewater ports, which aim to build out the region's export capabilities.
• The GulfLink deepwater terminal is expected to see a final Environmental Impact Statement soon, followed by a record of decision, with the company expecting construction to begin as early as next year and the facility to be operational by 2027.
• Bluewater is further behind in the permitting process as it awaits approval of a revised air permit application from the Environmental Protection Agency, with a timeline to construction still uncertain.
• Other applications include the Blue Marlin offshore deepwater crude terminal, which is currently still pending approval from the US Department of Transportation's Maritime Administration.