After completing a $60 billion acquisition, ExxonMobil is doing a little maintenance

ExxonMobil (XOM -0.99%) closed its roughly $60 billion mega-deal for Pioneer Natural Resources in May. The transformational transaction will double its footprint in the resource-rich Permian Basin. It will also give it the fuel it needs to increase its production to 2 million barrels of oil equivalent per day (BOE/d) by 2027, up from 1.3 million BOE/d after the deal closes.

The Pioneer transaction will also enable ExxonMobil improve its portfolio by selling non-core assets. It recently put about $1 billion worth of oil and gas properties in the Permian Basin on the market. This is why the company is selling assets in an area that she has recently spent billions of dollars to improve.

Focusing on the core

ExxonMobil currently markets 14 asset groups in the Permian Basin. It operates eight of these properties and holds non-operating interests in six others. Exxon hope to get $1 billion by selling these oil and gas properties.

What is important to note about these properties is that they are conventional production assets. These legacy oil and gas assets use a different production technique than the mainly unconventional shale assets that Exxon picked up in the Pioneer deal. Because unconventional assets — those developed with horizontal drilling and hydraulic fracturing — produce more oil and gas than conventional wells, drilling these wells generates higher returns on investment.

Exxon is selling these assets as part of the routine evaluation of its global portfolio. The company will regularly sell non-core assets to maintain a strong balance sheet and capital recycling in new investments with higher returns. The oil giant said in its corporate plan update last december that “the value of the portfolio is being continuously updated through divestment of non-strategic assets and continued investment in advantageous sites.” For example, the company is also selling its oil and gas assets in Nigeria for $1.3 billion, as well as those it owns in Malaysia.

These sales generate cash on its balance sheet. Exxon ended the second quarter with $26.5 billion of cash and a minimum of 6% leverage ratio. This gives him the flexibility to continue investing in growing his business over time periods of lower oil prices.

Following the leader

ExxonMobil is not the only oil company with an active divestiture program. For example, rival Occidental Petroleum (OXY -0.11%) has set a target of $4.5 billion to $6 billion in asset sales following its $12 billion acquisition of Permian-focused CrownRock. While Exxon does not need to sell assets, Occidental’s program will help it repay some of the debt it took on to buy CrownRock. Occidental has already agreed to sell $1.7 billion worth of assets, including accepting an $818 million deal for its Barilla Draw assets in the Permian. Those salesalong with excess free cash flow, you have the oil giant on the right track achieves 85% of its original debt reduction target.

Dude, the big oil juggernaut Chevron (CVX -0.65%) also plans to launch an extensive program of asset sales following the pending acquisition of Hess. With a stronger portfolio after the deal closes, the company plans to sell $10 billion to $15 billion in assets by 2028. It plans to sell some assets that will be very attractive to other companies. Chevron can part with them because it has higher quality assets in its enhanced portfolio. These sales will allow it to enhance its portfolio and build additional cash, giving it more flexibility to invest in growing the business and return money to investors during future periods of low oil prices.

Buy and sell to get better, not bigger

ExxonMobil works to build the best oil company possible. It does this by capitalizing on opportunities to improve the portfolio by purchasing underlying assets and then selling the underperforming positions. This strategy allows it to continuously strengthen its portfolio and financial profile. That’s why rivals like Occidental and Chevron follows its leads by selling assets after them major purchases. This strategy of focusing on getting better and not necessarily bigger should create more value for their shareholders in the long run.