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As the world tries to move away from fossil fuels, the oil supermajor acquires one of the Permian Basin’s biggest players. Here’s why.
ExxonMobil has long been considered by observers as something more akin to a state than a mere oil company. Its signature massive overseas projects, which can take over a decade to go from idea to getting oil out of the ground, require not just billions of dollars of investment, but the type of on-the-ground convincing and conniving typical of interstate diplomacy.
Exxon executives even got the awards typically reserved for statesman, as when the company’s former chief executive (and future secretary of state) Rex Tillerson received the Russian Order of Friendship as a commendation for the work ExxonMobil did with the Russian state oil company Rosneft in the Arctic.
But ExxonMobil now sees the future of the oil business in its relative backyard — namely, the Permian Basin, the massively productive oil field that stretches from western Texas to eastern New Mexico, and specifically its western stretch, the Midland basin. The move represents an acknowledgement that the world’s energy markets have changed and the ability to start — and stop — production quickly may be more valuable than securing massive new projects.
ExxonMobil and Pioneer Natural Resources announced a planned stitch-up on Wednesday, combining the supermajor with one of the Permian’s biggest players. The deal is worth almost $60 billion, making its ExxonMobil’s biggest deal since its purchase for, well, Mobil in 1999.
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The combined companies will, in less than five years, be producing 2 million barrels of oil per day in the Permian (out of over 5 million total), ExxonMobil’s chief executive Darren Woods said Wednesday morning. Today, merged production would represent some 1.3 million barrels per day, about half of Exxon Mobil’s total in 2022. Exxon will own some 1.4 million acres in the Permian, thanks to Pioneer’s 850,000.
The average cost of extracting the oil in territory controlled by Pioneer will be $35, Woods said, well below where oil prices have ranged in the last year.
Now, much of Exxon’s oil portfolio will be in so-called “short-cycle” oil, meaning that the time that elapses between deciding to drill and getting oil out of the ground is shorter.
“Where new, major conventional fields cost billions of dollars, take several years to begin, and a decade or more to produce from, a hydraulic fracturing well costs $10 million or less, takes a few months to set up, and produces the majority of its oil within a few years. It provides a flexible means by which investors can extract oil, distinct from the mainstream industry,” explained University of California geographer Gabe Eckhouse in 2021.
These investments can swing dramatically in response to oil prices. When ExxonMobil slammed the brakes on oil production in the early months of the pandemic, it even announced a 75% cut in its Permian rigs.
ExxonMobil is not positioning itself to a world where the fossil fuel business dries up, but one where demand becomes more unstable. When oil executives can forecast that demand will steadily grow over time, they can justify billion-dollar-investments in massive new oil projects.
“All that Big Oil needed was the geological acumen to find the next reservoir and the political skills to sign a contract with a government in a far-flung corner of the world. Its cash and prowess to build marvels of engineering mega-projects would do the rest for the next 50 years or so,” Bloomberg’s Javier Blas wrote when the deal first came into focus last week.
With a portfolio more heavily weighted towards domestic assets that are cheaper to operate, ExxonMobil can now more nimbly respond to wild swings in energy policy across the globe — whether it’s a major oil exporter disappearing from the legitimate Western market, or countries in the industrialized world deliberately reducing their oil consumption — and more precisely scale its investment to oil demand.
“When commodity markets have downcycles, the short-cycle assets provide additional capital flexibility as shale assets require less long-term capital commitments, compared to conventional operation,” Woods said, essentially explaining to investors that ExxonMobil would be able to conserve cash when oil prices dropped and return it to them when oil prices go back up.
ExxonMobil isn’t the only company buying in the Permian. Pioneer itself previously swallowed up DoublePoint Energy, which had almost 100,000 Midland Basin acres, as well as Parsley Energy. Occidental, which has been a leader in investing in carbon management, bought Andarko in a massive $55 billion deal in 2019. The Pioneer acquisition could be a sign that new wave of consolidation is upon the Permian.
While the deal is not at all consistent with a world without fossil fuels, it’s not entirely inconsistent with where we are today, where much of the rich world at least has some kind of climate policy. Earlier this year, ExxonMobil announced that it would buy Denbury Inc., which operates a massive set of pipelines for transporting carbon dioxide. They could be used in the oil giant’s emerging carbon-management business, which includes deals for carbon capture for its Louisiana ammonia plant, a Nucor steel plant, and a hydrogen plant it’s working on in Texas. Woods said Thursday morning on an investor call that the deal “strengthens our low-carbon solutions business by increasing the volume of low-cost and lower-carbon Permian feed into our planned Baytown low-carbon hydrogen and ammonia facilities,” and that it would use its technology to reduce emissions from its oil operations in the territory it acquired from Pioneer.
But ExxonMobil itself isn’t being reduced. It’s only getting bigger.
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Today’s conversation is with Chris Moyer of Echo Communications, a D.C.-based communications firm that focuses on defending zero- and low-carbon energy and federal investments in climate action. Moyer, a veteran communications adviser who previously worked on Capitol Hill, has some hot takes as of late about how he believes industry and political leaders have in his view failed to properly rebut attacks on solar and wind energy, in addition to the Inflation Reduction Act. On Tuesday he sent an email blast out to his listserv – which I am on – that boldly declared: “The Wind Industry’s Strategy is Failing.”
Of course after getting that email, it shouldn’t surprise readers of The Fight to hear I had to understand what he meant by that, and share it with all of you. So here goes. The following conversation has been abridged and lightly edited for clarity.
What are you referencing when you say, ‘the wind industry’s strategy is failing’?
Anyone in the climate space, in the clean energy space, the worst thing you can do is go silent and pretend that this is just going to go away. Even if it’s the president and the administration delivering the attacks, I think there’s an important strategy that’s been lacking in the wind and other sectors that I don’t think has been effective. There was a recent E&E News story that noted a couple of wind developers when asked for comment just say, “No comment.” This to me misses a really big opportunity to not get in a fight with people but talk about the benefits of wind.
Not taking advantage of milestones like ground breaking or construction starting is a missed opportunity to drive public opinion. If you lose support in public opinion, you’re going to lose support from public officials, because they largely follow public opinion.
And there’s no way that’s going to change if you don’t take the opportunities to talk about the benefits that wind can provide, in terms of good-paying local jobs or supplying more electrons to the grid. By almost any measure the strategy employed so far has not really worked.
Okay, but what is the wind industry strategy that isn’t working? What are they doing to rebut attacks on the technology, on property values, on the environment?
We’re not hearing them. We’re not hearing those arguments.
You can’t let criticisms go unanswered.It would better serve the industry and these companies to push back against criticisms. It’s not like you can’t anticipate what they are. And what do you have to lose? You’re in the worst position of any energy sector in this political moment. It would be nice to see some fight and sharp campaign skills and strategic effort in terms of communication. And there’s no strategic value from what I can tell in [being silent].
I understand not wanting to pick a fight with folks who hold your fate in their hands, but there’s a way to thread a needle that isn’t antagonizing anybody but also making sure the facts have been heard. And that’s been missing.
You’d specifically said the industry should stop ‘being paralyzed in fear and start going on offense.’ What does that look like to you?
Taking every opportunity to get your message out there. The lowest hanging fruit is when a reporter comes and asks you, What do you think about this criticism? You should definitely reply. It’s lifting up third-party voices that are benefiting from a specific project, talking about the economic impacts more broadly, talking about the benefits to the grid.
There’s a whole number of tools in the toolbox to put to use but the toolboxes remain shut thus far. Targeted paid media, elevating the different voices and communities that are going to resonate with different legislators, and certainly the facts are helpful. Also having materials prepared, like validators and frequently asked questions and answers.
You’re trying to win. You’re trying to get your project to be successful and deliver jobs and tax revenue. And I think it would be wise for companies to look at the playbooks of electoral campaigns, because there’s lots of tools that campaigns use.
How do renewable energy developers get around the problem of partisanship? How do you get outta that through a campaign approach?
These projects are decided locally. It’s deciding who the decision-makers are and not just letting opponents who are getting talking points through right-wing media show up and reiterate these talking points. Oftentimes, there’s no one on the pro side even showing up at all, and it makes it really easy for city councils to oppose projects. They’re losing by forfeit. We can’t keep doing that.
And more on this week’s most important conflicts around renewable energy.
1. Chautauqua, New York – More rural New York towns are banning renewable energy.
2. Virginia Beach, Virginia – Dominion Energy’s Coastal Virginia offshore wind project will learn its fate under the Trump administration by this fall, after a federal judge ruled that the Justice Department must come to a decision on how it’ll handle a court challenge against its permits by September.
3. Bedford County, Pennsylvania – Arena Renewables is trying to thread a needle through development in one of the riskiest Pennsylvania counties for development, with an agriculture-fueled opposition risk score of 89.
4. Knox County, Ohio – The Ohio Power Siting Board has given the green light to Open Road Renewables’ much-watched Frasier Solar project.
5. Clay County, Missouri – We’ll find out next week if rural Missouri can still take it easy on a large solar project.
6. Clark County, Nevada – President Trump’s Bureau of Land Management has pushed back the permitting process for EDF Renewables’ Bonanza solar project by at least two months and possibly longer .
7. Klickitat County, Washington – Washington State has now formally overridden local opposition to Cypress Creek’s Carriger solar project after teeing up the decision in May.
It’s governor versus secretary of state, with the fate of the local clean energy industry hanging in the balance.
I’m seeing signs that the fight over a hydrogen project in Wyoming is fracturing the state’s Republican political leadership over wind energy, threatening to trigger a war over the future of the sector in a historically friendly state for development.
At issue is the Pronghorn Clean Energy hydrogen project, proposed in the small town of Glenrock in rural Converse County, which would receive power from one wind farm nearby and another in neighboring Niobrara County. If completed, Pronghorn is expected to produce “green” hydrogen that would be transported to airports for commercial use in jet fuel. It is backed by a consortium of U.S. and international companies including Acconia and Nordex.
One can guess why investors thought this rural Wyoming expanse would be an easier place to build: it’s an energy community situated in the middle of the Powder River Basin and the state’s Republican governor Mark Gordon has supported wind projects in the state publicly, not just with rhetoric but votes in favor of them on the State Board of Land Commissioners.
Wind is also often proposed on private land in Wyoming, which is supposed to make things easier. You may remember the Lucky Star and Twin Rivers wind farms, a pair of projects whose progress I’ve watched like a hawk because they’re tied to the future of wind permitting at the national level. As we first reported, the Trump administration is proceeding with potentially approving the transmission line for Lucky Star, a project that would be sited entirely on private land, and Twin Rivers received its final environmental review in the last days of the Biden administration, making it difficult for anti-wind advocates to curtail.
Unlike those projects, Pronghorn has created a fork in the road for wind in Wyoming. It’s because the people in its host community don’t seem to want it, the wind projects were on state land, and there’s politics at play.
Despite being considered an energy community, Converse and Niobrara are both areas with especially high opposition risk, according to Heatmap Pro, largely due to its low support for renewable energy, its demographics, and concerns about impacts to the local ranching economy. After Gordon and other members of the state land use board approved two wind facilities for the hydrogen project, a rancher living nearby sued the board with public support from the mayor of Glenrock and the area’s legislators in the statehouse. A member of the Converse County zoning board even published a “manifesto” against the project, detailing local concerns that are myriad and rooted in fears of overburden, ranging from water use and property value woes to a general resentment toward an overall rise in wind turbines across the county and state.
What’s probably most concerning to wind supporters is that this local fight is bubbling up into a statewide political fracture between Gordon and his secretary of state Chuck Gray, who is believed to be a future candidate for governor. Grey was the lone dissenting vote against the two wind projects for Pronghorn, saying he did not support the projects because they would be assisted by federal tax credits Trump is trying to gut. Gray then took to mocking the governor on social media for his stance on wind while posting photos of broken wind turbines. Gordon wound up responding to his secretary of state accusing him of being the “only member of the state land board to vote against individual property rights and Wyoming schools.”
“That is his prerogative to be sure, but it demonstrates his disregard for the duties of his office and a determination to impose his personal preferences on others, no matter the cost,” Gordon stated.
I’ve been reaching out to Pronghorn and its founder Paul Martin to try and chat about what’s happening in Wyoming. I haven’t heard back, and if I do I’ll gladly follow this story up, but there’s a sign here of an issue in Wyoming whether Pronghorn gets built or not – areas of Wyoming may be on the verge of a breaking point on wind energy.
I heard about the Pronghorn project in conversations this week with folks who work on wind permitting issues in Wyoming and learned that the Gordon-Gray feud is emblematic of how the wind industry’s growth in the state is making local officials more wary of greenlighting projects. Whether Gordon’s position on private property wins out over Gray taking up the mantle of the anti-wind conservative critic may be the touchstone for the future of local planning decisions, too.
At least, that’s the sense I got talking to Sue Jones, a commissioner in Carbon County, directly southwest of Converse County. Jones admits she personally doesn’t care for wind farms and that it’s “no secret with the county, or the developers.” But so far, she hasn’t voted that way as a commissioner.
“If they meet all our rules and regs, then I’ve voted to give them a permit,” she told me. “You can’t just say no to anything. It’s a good thing that we value private property rights.”
Jones said the problem in Carbon County and other areas of Wyoming is “saturation level.” Areas of the state where only a handful of landowners hold thousands of acres? That’s probably fine for wind projects because there’s a low likelihood of a neighbor or two having a genuine grievance. But as wind has grown into population-denser areas of the state the dissent is becoming more frequent.
My gut feeling is that, as we’ve seen in many other instances, this resentment will bubble up and manifest as sweeping reform – unless the wind industry is able to properly address these growing concerns head on.