WHEN: Today, Wednesday, October 11, 2023
WHERE: CNBC’s “Squawk Box”
This morning, ExxonMobil announced a merger with Pioneer Natural Resources in an all stock transaction. Following that announcement, ExxonMobil CEO Darren Wood and Pioneer CEO Scott Sheffield sat down for a FIRST ON CNBC interview on CNBC’s “Squawk Box.” Following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2023/10/11/exxon-mobil-ceo-darren-woods-on-pioneer-deal-brings-higher-recovery-at-lower-costs.html. The full video of the interview is available on CNBCPro.
All reference must be sourced to CNBC.
PROGRAMMING NOTE: CNBC will re-air it’s one-hour documentary, “ExxonMobil at the Crossroads,” reported by David Faber on Thursday, October 12 at 8pm ET
REBECCA QUICK: All right. Welcome back, everybody. ExxonMobil announcing that it has entered a definitive agreement to acquire Pioneer Natural Resources. The merger is an all-stock transaction that’s valued at $59.5 billion or $253 a share based on Exxon’s closing price last Friday. Joining us right now to break it all down and a first on CNBC interview is Pioneer Natural Resources’ CEO Scott Sheffield and Exxon’s CEO Darren Woods, and gentlemen, welcome. Thank you for joining us this morning.
DARREN WOODS: Thank you, Becky. Good to see you.
QUICK: Good to see you, too.
SCOTT SHEFFIELD: Thank you, Becky. I’m always talking with Jim, Brian, and David. It’s the first time on your show, so.
QUICK: Well, we welcome you to the program, and we appreciate it. Gentlemen, this is a deal that has kind of been out there in the ether for a while, a lot of speculation about this, reports that this had been happening. In fact, Darren, we asked you about some of those reports back in April, and at the time you said, you know, you wouldn’t believe too much of the rumor mill out there, that you had a lot of cash on hand but that it wasn’t burning a hole in your pocket. I think your point was that you could do something, but it would have to be at the right price. What – what happened between then and now? How did this deal come together?
WOODS: Well, I think when talking about a deal, what we talked about is we have to find an opportunity where the combined entity offers more than any entity separately could do, so the one plus one has to equal three equation. And so, the challenge that we’ve been focused on and looking at opportunities is where can we bring the unique skills and capabilities that ExxonMobil has to bear with another company that has skills that compliment that, and then together create industry-leading value. And I think with this deal, we’ve been working hard in our own business to drive technology, to drive our approaches and improvements, and then finding an opportunity to partner with Scott’s organization. Their capabilities, bringing that in, their Tier 1 acreage, our technology, our development approach, frankly, brings higher recovery at lower cost and the opportunity to do these submissions. And I think that that kind of came around just roughly the last few weeks as we were talking about the opportunity set.
QUICK: Hey, Scott. You are not just the CEO at Pioneer. You’re also the founder. You came back to run the company again, and a lot of people kind of speculated that maybe it would be you putting together a deal, kind of capping off a great run with this company and what you’ve done. Why ExxonMobil?
SHEFFIELD: Yes. Well obviously over the last – I’ve been here 45 years, Becky, and I’ve only had two offers for the company. First offer was back in 1985 when the company sold for about 4 years, and then Darren approached me with an offer a couple weeks ago. This is the best company to take 100 percent stock in the world in my opinion. What Darren has done with this company over the last few years and turning it around, they’ve outperformed all the majors across all indexes. They have great potential with the Permian now becoming the largest Permian producer with Guyana, with Papua New Guinea, with all their downstream capability. It’s really the best stock to own over the next several years.
QUICK: As the founder, you have an awful lot of stake in the company, stock of the company, too. Are you going to keep the ExxonMobil shares or will you sell?
SHEFFIELD: No. Definitely I’m going to keep it. They have a great dividend, one of the highest dividends in the S&P 500, so I’m very excited about that.
QUICK: Hey, Darren. Is this a bet that fossil fuels are here for the foreseeable future despite all this talk of people trying to transition completely off of it? This is a pretty major bet, the biggest deal that Exxon’s done since it acquired Mobil back in the last century. What does this say about your future and the future for fossil fuels?
WOODS: Well, I think, as I’ve said many times before in the past on your show, Becky, I think fossil fuels, as the world looks to transition and find lower sources of affordable energy with lower emissions, fossil fuels oil and gas are going to continue to play a role overtime. That may diminish with time. The rate of that is, I think, not very clear at this stage. But it will be around for a long time. This is really around – this is betting on the capabilities, the people of our two organizations, the technologies that we’ve developed to basically more efficiently recover resources at a lower cost and a better environmental footprint so that we are actually advancing the ambitions of a lower-emissions future by driving down – using our combined capabilities to drive down emissions, produce lower carbon intensity oil and gas, and basically push – continue to be the most responsible operator for providing oil and gas for as long as the world needs that. So, it’s more of a bet on our people and our capability and our technologies than it is about the future of oil and gas.
ANDREW ROSS SORKIN: Hey, Darren. Hoping you can address the issue of regulators in all of this and how you think the Biden administration is going to react to this transaction. We’ve seen a number of big headline-grabbing transactions, of course, catch the ire of this administration and the Department of Justice. Have you had conversations at all with this administration?
WOODS: Well, I think, Andrew, the context to look at this deal in is the size of the oil and gas industry. And so, while we talk about this being a large merger, a large transaction, when you look at it in the context of the overall oil markets and gas markets, even if you look at it in the context of the Permian production, together, while Scott and I will have a large business together, it will still be less than 15 percent of the production coming out of the Permian. So, I think from a scale standpoint, we’re still a small player in what is a very large market, so we don’t anticipate any regulatory issues here.
QUICK: Gentlemen, let’s talk a little bit about what your production capabilities would be when you put this together. You mentioned 15% Darren, but I think you also think that with your technologies, you’re going to be able to get more out of these wells than otherwise, is that the case?
WOODS: So the work we’ve been doing and I’ve talked about I think quite a bit in the past, is challenging our technology organization to double the recovery rate. Today, if you look at unconventional resources, recovery rates are fairly low within the industry given the challenges associated with with fracking, extracting that resource out of rock. We’ve made a lot of progress in that space, and we’ve got a lot more progress to come. There are a number of emerging technologies that we’re trialing in the field that we think will continue to improve the recovery rate. We’ve got a lot of work we’ve been doing to reduce the cost of that recovery. And so we’ve got kind of a double benefit here is lower cost to drill and to complete the wells and then higher recovery. And so our expectation is with the tier one acreage, which frankly is the best the – has to offer. In Scott’s portfolio, applying that technology to Scott’s portfolio allows us to more effectively recover resources, recover more resources, do it cheaper, and as I said, with the additional technology though we brought to bear around monitoring methane emissions and the technology that we’re bringing in the scale that we’ve created with this and the ability to monitor centrally across all of our operations to make sure that we’re focusing on the areas of emissions and reducing those brings that lower emissions footprint. So there’s a lot of benefits to this. And a lot of it is based on the technology that we’ve been working on developing and we today have separately as two companies very similar plans in terms of growing our production. This will potentially add to that but it’ll certainly lower the cost of it.
QUICK: Scott, are you gonna be sticking around to help with the transition at all?
SHEFFIELD: I am still Becky I’m still retiring at the end of this year, I will be a director of Pioneer and then Exxon’s part of the deal, we’ll be adding two directors and I’ll be one of those directors. So I’m excited about joining the Exxon organization.
QUICK: Hey Darren, part of what you all have said in this release is that you expect that you’d have a cost of supply of less than $35 a barrel from the Permian. Is that if the deal were to go through today or does that include all of these technologies and other things you’ve talked about? Because that is a pretty decent return on profit, especially when you look at oil where it’s been recently.
WOODS: You know that’s where we’re at today. If you look at the portfolio that we’ve developed our costs of supply is less than $35 a barrel and Scott’s got again a really lean and effective organization and they’ve driven their cost of supply down so when you put those two together, that portfolio will be below $35 barrel cost of supply. So it is a very competitive source of supply, which is good news, frankly, for the economy because as you know, it’s a commodity market supply and demand and marginal cost of production sets this market price as producers reduce their costs and then more and more producers reduce their costs, that that translates directly into a lower cost for consumers.
QUICK: And gentlemen, let me ask you both. I mean, we were looking at some pretty wild swings in WTI prices and oil prices in the days leading up to this transaction. We looked at oil prices down $10 in about 10 days That was on concerns that the economy globally there wouldn’t be as much demand going around. Now we’ve seen things pick up again because of what’s happening in the Middle East and the concern that supply will once again be constrained with what’s happening in the war there. What would either both of you say just in terms of your expectation for oil prices, what the Israel-Hamas war means for things, and what you’re seeing globally in terms of demand? Darren, you first.
WOODS: Well I would say we know prices are going to move around. I think we’ve been seeing that. I think it’s a tough game to predict where prices and things are going to go. I’ve said since the pandemic, frankly, that the industry has been, leading into the pandemic, was under investing. The pandemic obviously drove that underinvestment even further. And we still haven’t, as an industry as a whole, completely recovered. So, I think from a supply standpoint, things remain fairly tight. And so, as you see these disruptions on the margin, you’re going to see the prices swing around because there’s not a lot of excess capacity in the marketplace. But I would say more broadly, stepping back from that, the real challenge that we have I think as a company and an industry is to make sure that we’re developing these resources in a very low cost to supply. So, irrespective of, you know, what happens in the marketplace and the turbulence and volatility in the pricing that we have a competitive business and a business that generates returns even in the low part of the cycle. And we’ve built that business today. Scott’s built that business with Pioneer, and the combination of the two of us will have even a stronger business with lower cost to supply. So, we’re basically indifferent to wherever those prices go, making sure that we can supply cost effectively whatever the market conditions are.
QUICK: Scott, how about you?
SHEFFIELD: Yes, Becky. On my last earnings call, I stated that I really thought Brent’s going to trade in the $80 to $100 range. You know, Saudi has reduced production a couple million barrels a day. They’re really focused on keeping that in that range. The effect of the war, interesting point. I was raised in Tehran, so I’ve been following Iranian politics for a long time. And the big question is whether or not Iran is behind this and whether or not Iran enters the war. If Iran enters the war, we’re going to see much higher oil prices obviously.
QUICK: Do you think – what do you think the odds are that Iran enters the war? I know that’s a really tough question to figure out at this point.
SHEFFIELD: It’s going to be up to Netanyahu I believe. It depends on how much evidence that he has that they’re behind it and whether or not he decides to do anything about it.
QUICK: Scott Sheffield, Darren Woods, gentlemen, thank you very much for joining us this morning, and congratulations on this deal.
WOODS: Thank you, Becky.
SHEFFIELD: Thank you, Becky.
