HOUSTON—Access to the best acreage—and lower-cost barrels—is driving consolidation across the upstream space, including for Exxon Mobil.

Exxon Mobil Corp. admits it was late to the U.S. unconventional space by the time the Texas-based supermajor acquired XTO Energy for $36 billion in 2010.

But Exxon has honed its ability to develop unconventional reservoirs, including the Permian Basin, CEO Darren Woods said during the CERAWeek by S&P Global conference on March 18.

Exxon and XTO have worked to perfect shale drilling and spacing techniques, boost resource recovery and lower production costs. The process became more streamlined after 2019, when XTO’s operations were brought much closer into Exxon’s fold under Woods’ leadership.

However, having the most efficient drilling operations or access to bleeding-edge technology means little without quality locations to go out and drill, Woods said.

The overriding need for high-quality, low-cost acreage was a key driver of Exxon’s $64.5 billion acquisition of Permian juggernaut Pioneer Natural Resources, one of the largest M&A transactions signed around the globe last year. The deal, along with other large-scale oil and gas transactions, is under review by the Federal Trade Commission.

“We’ve got new technology and a new development approach,” Woods said. “What we need is good acreage to apply it to.”

Pioneer is one of the top oil and gas producers in the Permian, the nation’s top oil-producing region. But Woods argues that Pioneer didn’t have the efficiencies of scale, balance sheet resources or technology access that Exxon Mobil can bring to bear.

“The combined Pioneer and Exxon Mobil will produce more resource at a lower cost—and more environmentally friendly,” Woods said.

Pioneer previously laid out a target to achieve net-zero greenhouse-gas emissions in the Permian by 2050. By joining forces with Exxon, the combined company is planning to reduce Permian emissions to net-zero by 2035, Woods said.

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Running room

Industry insiders, analysts and stakeholders tend to disagree on how long the Permian Basin’s run will last.

Even some of the basin’s most adept operators think Permian oil production growth could peak toward the end of the decade.

Woods believes the Permian still has a long life yet to live—but only the biggest and best operators will be able to finish the marathon, he said.

“I think there’s a lot of room to run,” Woods said, “but you’re going to need companies that have large resources that can afford to make those investments upfront, playing the long game.”

Low-cost producers, like the combined Exxon-Pioneer, will be able to access drilling opportunities that E&Ps with smaller balance sheets couldn’t access.

“We are so early in our resource development,” Woods said. “We are so early in the technology curve” in the basin.

That need for greater scale is driving consolidation in the Permian and beyond.

U.S. upstream M&A activity totaled $192 billion last year, including a whopping $144 billion transacted in the fourth quarter alone, according to Enverus Intelligence Research.

And Exxon and Pioneer aren’t the only ones tying the knot: Diamondback Energy’s $26 billion acquisition of Endeavor Energy Resources was the largest buyout of a private upstream company.

Occidental Petroleum is also getting deeper in the Permian with a $12 billion acquisition of CrownRock LP.

Several of the top private equity-backed E&Ps in the Permian have similarly been snapped up by small- and mid-cap producers, including Civitas Resources, Vital Energy, Ovintiv Inc. and Matador Resources.

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