Pioneer Natural Resources (PXD) is an oil stock worth owning on its own merits. But a fresh report that Exxon Mobil (XOM) could acquire the Club holding would likely unlock even more value. Exxon has held “informal” talks about buying Pioneer, The Wall Street Journal reported Friday, citing people familiar with the matter. Any potential deal would not transpire until later this year or in 2024, the Journal reported. Exxon — which generated $62 billion in free cash flow in 2022 and ended the year with nearly $30 billion in cash — has held acquisition discussions with at least one other oil-and-gas firm, according to the Journal. Pioneer shares jumped more than 6% Monday, to around $221 each — making it by far the best-performing energy stock in the S & P 500 . Shares of Exxon fell by by 0.25%, to just under $115 apiece. Pioneer and Exxon did not immediately respond to CNBC’s request for comment Monday. Exxon’s reported interest in Pioneer is hardly a surprise because the Texas shale driller is a “marquee” independent exploration-and-production company in the lower 48 states, Stifel analyst Derrick Whitfield told the CNBC Monday. If Exxon wants to meaningfully bolster its rig count in the Permian Basin, it’s “going to need quality depth of inventory,” which Pioneer has, Whitfield said. The analyst, who has a buy rating and $286 per share price target on PXD, said the likelihood of a Pioneer-Exxon deal comes down to how much Exxon is willing to pay. “I think management would want to … improve performance of their asset base and arguably have a higher stock price before coming to the table with Exxon Mobil,” Whitfield said. “That’s not to say if Exxon Mobil offered a 25% premium, it wouldn’t be done. Personally, that was the number I had pegged in my mind. If you saw a 25% premium, I think that would bring them to the table because, let’s be realistic, every independent wants to be acquired by Exxon Mobil.” The Club believes it may take a bit more for Pioneer to seriously consider selling. A 25% premium from where Pioneer closed Thursday, at roughly $208 per share, would value shares at around $260 each. However, Jim Cramer said Monday he thinks Pioneer CEO Scott Sheffield — an industry veteran in his second stint leading the company — would hesitate to sell at a per-share price below $285. That’s Pioneer stock’s all-time closing high, reached in June 2022. “I am not saying he wouldn’t sell. I am saying that he’s not going to sell below where this stock was, given the fact oil could be going back to $90 [a barrel], given the fact that he’s got the best Permian assets,” he added. West Texas Intermediate crude — the U.S. oil benchmark — was trading down more than 1% Monday afternoon, at $79.70 a barrel. We were content with our Pioneer investment prior to Exxon’s reported interest in the company, adding to our PXD stake twice last month at lower levels than Monday’s market price. Our most recent purchase of 25 shares on March 20 came at roughly $185 each. Pioneer’s attractiveness stems in large part from its quality acreage and low oil price breakevens, at roughly $39 per barrel. That enables the firm to generate hefty amounts of free cash flow and return most of it to shareholders through stock buybacks and quarterly dividends. Knowing that Exxon is reportedly on the prowl for an acquisition, investors may look at Pioneer and other Permian operators even more favorably. Stifel’s Whitfield believes the Journal story could put a near-term floor underneath Pioneer’s stock price — a view we share. At the very least, Pioneer’s shareholders may be more likely to remain invested in the company, Whitfield said. And that’s certainly our intention at this time. “What I suspect is it’s going to further firm the shareholder base because you now have an article that directly links Exxon Mobil to Pioneer, and the way it was set up, there is clearly an interest there,” Whitfield said. “I think if you’ve seen Pioneer at [a] much higher share price in the past, that gives you that much more conviction to hold onto it now.” (Jim Cramer’s Charitable Trust is long PXD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Permian Basin rigs in 2020, when U.S. crude oil production dropped by 3 million a day as Wall Street pressure forced cuts.
Paul Ratje | Afp | Getty Images
Pioneer Natural Resources (PXD) is an oil stock worth owning on its own merits. But a fresh report that Exxon Mobil (XOM) could acquire the Club holding would likely unlock even more value.
