Exxon Mobil Corp.’s acquisition of Pioneer Natural Resources in a US$59.5 billion mega-deal is being seen by some as a major vote of confidence in fossil fuels that also bodes well for the Canadian oilpatch.
The U.S. multinational oil giant announced the all-stock deal Wednesday, its largest buyout since acquiring Mobil two decades ago and a move that will create a colossal hydraulic fracturing (fracking) operator in West Texas.
Observers have framed the deal as Exxon doubling down on fossil fuels at a time when the world is seeking to transition to lower-carbon energy sources in order to slow the pace of climate change.
Dan Tsubouchi, Calgary-based principal and chief market strategist with SAF Group, said in an interview that Exxon is clearly confident that global demand for oil will remain strong in at least the immediate future.
“They’re spending US$60 billion today,” Tsubouchi said. “They wouldn’t do that if they didn’t see at least a 10-to-15-year window for oil.”
That “stronger for longer” outlook is due to a variety of factors, Tsubouchi said, including the fact that many of the technologies necessary for the energy transition — including hydrogen development, sustainable aviation fuel and more — have been slower to roll out than advocates may have hoped.
That combined with the war in Ukraine has led to global energy security concerns, spiking prices and leaving oil and gas companies flush with cash.
Exxon itself posted unprecedented profits last year of US$55.7 billion, breezing past its previous record of US$45.22 billion in 2008 when oil prices hit record highs.
“Demand for oil is not going away as quickly as people assumed,” Tsubouchi said, adding that in the wake of the Exxon-Pioneer merger, he wouldn’t be surprised to see an uptick in merger and acquisition activity north of the border.
In particular, he said such deal-making might occur in the Montney region of northeast B.C. and northwest Alberta, where horizontal fracking technology similar to what Exxon will be using in the Permian opens up opportunities for companies to increase production in a relatively cost-efficient manner.
Tsubouchi said oilsands bulls could also be looking to increase production in the coming years, though he said that will likely be accomplished through incremental add-ons to existing facilities — not through the whole-scale construction of a new oilsands mine.
“These companies aren’t going to go into something like the mega-projects of the past,” he said.
“But they will look at short-cycle projects where they can take advantage of a 10-15 year window, just like Exxon has.”
Canadian oil and gas executives have been vocal recently about they what they see as an increasingly rosy outlook for fossil fuels.
Last week, Enbridge CEO Greg Ebel spoke to the Toronto Region Board of Trade about why he thinks a Canadian liquefied natural gas (LNG) industry could be part of the solution for the global energy crisis.
And Suncor Energy Inc.’s chief executive Rich Kruger told analysts on a conference call earlier this year that while lower emissions energy is important, the way for Suncor to win in today’s business environment is to focus on its core oilsands assets.
“Outwardly, the oil bulls are growing,” said Duncan Kenyon of Investors for Paris Compliance, which takes financial positions in Canadian companies in an effort to hold them accountable to their net-zero emissions promises.
“It’s obviously great times for them right now and there are short-term gains to be had.”
But Kenyon said the very fact that companies are favouring short-cycle, disciplined growth over big-spend, long-cycle projects shows there is still a lot of uncertainty in the industry about the pace and scale of the coming energy transition and how the oil industry will be affected.
“I think the industry and investors in this sector are really struggling to understand what’s happening and how to prepare for these emerging risks,” he said.
“And these are emerging risks that have the potential to flip-flop the energy system on its head, and fossil fuels end up on the bottom.”
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