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Exxon’s $60 Billion Bet on Fossil Fuels

It's no surprise that Exxon opted to buy Pioneer in a $60 billion agreement. Energy analysts say fossil fuels will still account for half the world's energy mix by 2050.

ExxonMobil plans to acquire a major shale producer for $60 billion, entrenching its future in oil and gas for decades. ,REUTERS/Jessica Rinaldi

ExxonMobil's $60 billion bet that the world will be hooked on fossil fuels for decades is looking like a safe one — at least financially.

CEO Darren Woods has long said that fossil fuels will be central to the world's energy mix for the foreseeable future. The company's acquisition of Pioneer Natural Resources, the largest oil and gas producer in the Permian Basin that spans from West Texas into New Mexico, further entrenches Exxon in that future.

"This is proof of Exxon's strategy to stay in oil and gas as long as possible," Mark van Baal, founder of the activist shareholder group Follow This, told Insider. "It shows that the company doesn't think there's any chance the world will achieve the Paris Agreement, because if they did, they wouldn't buy new assets."

Nearly 200 countries adopted the Paris Agreement in 2016 that aims to limit global temperatures from rising above catastrophic levels. Thousands of the world's largest companies made similar promises. Yet greenhouse gas emissions continue to rise, largely driven by burning fossil fuels. Renewables like solar and wind are gaining ground, but not fast enough, according to climate and energy analysts.

Oil majors are under less pressure from investors and asset managers to accelerate their decarbonization plans after earning record profits last year. The war in Ukraine sent energy prices soaring and led Europe to search for new gas suppliers. Meanwhile, the world is still approving new oil and gas projects, with the US leading the way. Big banks are willing to finance that expansion, even as they pledge to achieve net-zero emissions on their balance sheets by 2050.

Given the trends, it's no surprise that Exxon opted to buy Pioneer. Many of the company's oil and gas fields are still untapped, and new wells pay back in less than two years, analysts at Wood Mackenzie said in a note. If the deal gets antitrust approval, Exxon would immediately double its supplies to 1.3 million barrels of oil equivalent a day, with a goal to boost production to 2 million barrels a day by 2027. The deal secures decades of supply for Exxon's growing plastics, chemicals, and liquified natural gas businesses, according to Wood Mackenzie, a global research and consultancy firm.

Exxon already had plans to ramp up production in the Permian Basin before announcing the deal, even as Pioneer's CEO Scott Sheffield earlier this year predicted that oil production could peak in the Permian in five to six years.

US oil majors have resisted pressure to diversify into renewables like solar and wind, arguing that natural gas is a transition fuel because it produces fewer emissions than coal. Exxon has instead focused on reducing methane leaks along its infrastructure and developing nascent technology that captures carbon emissions at power plants. But those investments are a fraction of Exxon's spending on oil and gas development through 2027, which will account for some 70% of capital expenditures.

Exxon didn't respond to Insider's request for comment.

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The International Energy Agency for the first time in September predicted that fossil fuels — which meet 80% of the world's energy demand — will hit peak demand this decade.

"Our latest projections show that the growth of electric vehicles around the world, especially in China, means oil demand is on course to peak before 2030," Fatih Birol, executive director of the IEA, said in an op-ed in the Financial Times.

Even so, fossil fuels are still expected to account for half of the world's energy mix by 2050, which is nowhere near the steep drop that's needed to hit global climate goals. Exxon recently forecast that oil, gas, and coal will account for 68% of the energy mix by that date.

Some analysts viewed the Exxon-Pioneer merger as a sign that an era of major fossil fuel growth is coming to a close. They predicted similar mergers on the horizon for other companies like Chevron and Shell.

"This deal is about scale and efficiency," Andrew Logan, senior director of oil and gas at Ceres, a sustainability nonprofit that works with investors, told Insider. He added that Exxon could've made a worse deal, given its clear track record of doing little to tackle climate change.

The deal reflects how many investors think they have to choose between profits and protecting the planet, van Baal said.

"I really think that shareholders should think again about how they deal with the oil industry," van Baal said. "They will have to pay for the consequences eventually."