ExxonMobil (XOM -2.78%) is reportedly close to acquiring Pioneer Natural Resources (PXD -2.28%). The Wall Street Journal said the megadeal could be worth over $60 billion. That would make it Exxon's biggest deal since acquiring Mobil in 1999. 

If Exxon does indeed acquire Pioneer, it could push rivals like Chevron (CVX 0.37%) and ConocoPhillips (COP 0.10%) to pursue a tie-up with a smaller competitor. Here's a look at how an Exxon megamerger could cause big changes in the oil patch.

The desire to get bigger in the Permian

Exxon's reported interest in Pioneer isn't new. The Journal reported in April that the two oil companies had held preliminary merger talks. A deal would seem to follow a similar pattern for the oil giant, which had on again off again rumors of interest in Denbury Resources before sealing a $4.9 billion deal a few months ago. 

The Denbury acquisition was all about carbon dioxide. Pioneer would be all about the Permian Basin. It's the second-largest producer in the region. An acquisition of Pioneer would enable Exxon to leapfrog its rivals and surpass Occidental Petroleum (OXY -0.15%) as the leading producer from the Permian. 

A deal would also give Exxon a massive inventory of future drilling locations. Pioneer estimates that its drilling inventory could last more than 20 years at its current activity pace. Acquiring that drilling inventory would significantly extend Exxon's regional growth runway.

The recent shopping sprees could continue

Chevron and ConocoPhillips aren't ignoring Exxon's rumored interest in Pioneer. Despite recently completing notable acquisitions, they're already on the hunt for their next deals. Chevron is coming off a $7.6 billion purchase of PDC Energy. While the transaction added some land in the Permian, it was mainly about acquiring low-cost resources (primarily in the DJ Basin) that would boost its cash flow. Meanwhile, ConocoPhillips just closed its $2.7 billion cash purchase of TotalEnergies' 50% stake in their Surmount joint venture in Canada. That deal will also boost its free cash flow. 

Chevron reportedly set its sights very high for its next target. It initially looked at Occidental Petroleum. While its interest in Oxy has waned, according to the Wall Street Journal, a tie-up between the two would be fascinating. They're both top holdings of Warren Buffett's Berkshire Hathaway. They also have an interesting recent M&A history. Oxy outbid Chevron for Anadarko Petroleum in 2019 (with the help of Berkshire). Acquiring Occidental would enable Chevron to get that original target plus its acquirer. 

However, Chevron is reportedly now looking at a smaller rival. It has several options, including the largest private producer, CrownRock, which reportedly hired bankers and is exploring a sale in the $10 billion to $15 billion range. There's also a myriad of publicly traded oil companies it could consider, including the Permian-focused Diamondback Energy (FANG 0.32%) or the multi-basin Devon Energy (DVN 0.19%). 

Meanwhile, those smaller players could look to get bigger to increase their scale and ensure they remain independent. Diamondback has an extensive history of making acquisitions. It bought two smaller Permian producers last year. Meanwhile, Devon Energy completed a merger of equals with WPX Energy in 2021 to become what it is today. Last year, it also bought two companies to increase its scale in the Eagle Ford and Willison Basin regions. Diamondback could seek to acquire another Permian producer to increase its scale, while Devon could consider buying a regional or multi-basin producer to get bigger in its core areas. 

The landscape could change significantly

If Exxon buys Pioneer, it will likely spark a consolidation wave in the oil patch. Chevron and ConocoPhillips would probably feel the pressure to boost their positions in the Permian. Meanwhile, smaller players would likely seek to get bigger to better compete with their larger-scale rivals.

While these deals would be about getting bigger, the increased scale would also enable producers to reduce costs. That would put them in a better position to generate more free cash flow, especially at higher prices. They could use the higher cash flows to return more money to shareholders through dividends and repurchases.