Frackers Link Up as Exxon Tries to Tamp Down Activist Rebellion

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From oil barrels trading at negative $37 last year…to gasoline hitting highs not seen since 2014 this year…it’s been a volatile time to be an oil and gas operator.

Yesterday, Cabot Oil and Gas announced a $14 billion merger of equals with Cimarex to help it weather market gyrations. Also this week, Exxon is facing down a small, but mighty hedge fund which declared the oil giant is pivoting too slowly away from fossil fuels.

A Long-Distance Relationship

Most recent fracking mergers have united geographically adjacent operators, but Cabot and Cimarex were distant acquaintances — Cimarex working largely in the Permian of West Texas and Cabot in the Marcellus Shale of the Northeast:

  • Analysts say the diverse portfolio of assets in oil, gas, and natural-gas liquids the companies bring to the table will insulate the combination against price swings to any single commodity.
  • “It’s a better way to ride through the cycles in our business,” said Cimarex CEO Thomas Jorden of the merger. “The demands of our sector, in terms of returning free cash flow to our owners, tell us that these swings in our cash flow are poison, and this is just a wonderful antidote to volatility.”

The already $50 billion-worth of M&A struck in the oil and gas sector since Q4 of 2020 has stuck to one precept: bigger is better (and more stable).

Exxon Extends an Olive Branch

Meanwhile, things over at ExxonMobil aren’t particularly cordial. The firm—notoriously dismissive of shareholders—is roiled in a heated proxy battle that’s set to spill into its board elections Wednesday:

  • Upstart hedge fund Engine 1, backed by activist investors, has put forward 4 board nominees it says will begin “purposefully repositioning the company to succeed in a decarbonising world.”
  • In an effort to make nice, Exxon—which has been criticized for being slow to act on climate change—started reporting some emissions numbers, debuted a low carbon business line, and is weighing a $100 billion Texas carbon capture project.

Apparently undeterred, Engine 1 is lining up endorsements and riling up investors over the lowlights of Exxon’s 2020, namely getting dumped from the Dow Jones Industrial Average and stripped of its AAA credit rating, not to mention reporting four consecutive quarterly losses.

Won’t Back Down: “This will reverberate,” cautioned Anne Simpson, head of board governance and sustainability at Calpers, a U.S. pension fund backing the activists.