Exxon Mobil Corp. will buy out Pioneer Natural Resources Co. and assume the position as the largest Permian Basin crude oil producer, but there are more deal opportunities out there as the Permian consolidates, analysts said in the wake of the Oct. 11 deal news.

Candidates for the next megadeal include majors Chevron Corp. or ConocoPhillips buying Diamondback Energy Inc. or Coterra Energy Inc. or snapping up several small-to-midsize Permian producers, analysts said.

"We continue to see consolidation in the North American upstream sector," Dan Pratt, vice president for upstream research and consulting for S&P Global Commodity Insights, said in an email. "As the shale plays continue to mature, consolidation is a logical path for companies to add to and extend their drilling inventory."

Sharp rise in corporate deals despite dull market

"While overall deal count has fallen, we see a sharp rise in the proportion of corporate deals," Pratt said. "Size and scale is another driver behind these larger deals, as the North American business model is very much focused on maximizing returns and return of capital to shareholders."

Gabriele Sorbara, oil and gas analyst for Siebert Williams Shank & Co. LLC, told clients that the deal is positive for other Permian players as he expects another major — Chevron or ConocoPhillips — to emerge with its own deal or deals.

"The majors are now likely to step up to try to compete with [Exxon], driving up valuations for the high‐quality players remaining," Sorbara said.

Devon Energy Corp., Diamondback, Marathon Oil Corp. and Permian Resources Corp. are among the most likely targets for a major looking for a big deal, Sorbara said. Having exhausted efforts to grow by acquisition, other Permian drillers will have to sell out, Sorbara said, much like Colorado gas producer PDC Energy Inc. did when it was bought by Chevron earlier this year.

Chevron could be the next Permian dealmaker

Chevron is the likeliest buyer of more Permian assets, Enverus Director Andrew Dittmar said in an email.

"There are a number of potential targets that include Matador [Resources Co.] and Permian Resources on the smaller side of public companies. However, Chevron might prefer to make a more significant deal targeting a large-cap company like Coterra Energy or Devon Energy, which have 2,000 and 2,400 net high-quality locations, respectively," Dittmar said.

Those same companies could be targets for ConocoPhillips or EOG Resources Inc., Dittmar said, now that Exxon has established the benchmark for super-sizing.

"Consolidators could also turn to one the Permian's last big legacy family companies and pursue a deal with Endeavor [Energy Resources LP], which has over 2,000 high-quality locations in the Midland Basin," Dittmar said.

Not to be left out: Exxon again

In addition to Chevron and ConocoPhillips is Exxon, with $29.5 billion in cash on the books and no stated plans for all of its money.

While touting the $5 billion in fresh free cash flow that Pioneer will add to Exxon's results next year, Exxon executives did not commit to any specific use for that influx of cash. Exxon does plan to buy back $17.5 billion worth of its stock in 2023 and 2024, CFO and Senior Vice President Kathryn Mikells told analysts during an Oct. 11 conference call to discuss the deal. Mikells would not speculate on what Exxon's board might do to its dividend in the coming months.

The bottom line for Truist oil and gas analyst Neal Dingmann is that there are more deals to come, and they will probably be large players buying smaller operators.

"We anticipate further consolidation in the upstream space given the limited inventory and the inexpensive price of most smaller E&Ps versus both the larger operators and historical valuations," Dingmann told clients after the deal was announced.

Exxon investors were not as thrilled as analysts with the deal news. In heavy trading they shaved 3.6% off Exxon's share price to close at $106.49 per share Oct. 11. Pioneer's stock, also seeing heavy trading, gained 1.4% to $240.82 for the day.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.