Leading Midland Basin producer Pioneer Natural Resources said it will acquire Parsley Energy for about $4.5 billion in a deal linked through the Sheffield family as the Permian Basin continues to consolidate.
Pioneer CEO Scott Sheffield announced the deal late on Oct. 20 that will merge his company with the Austin-based producer founded and chaired by his son, Bryan Sheffield.
The deal would strengthen Pioneer as the top Midland Basin player while also diversifying with more acreage in the Permian's Delaware Basin, potentially making Pioneer the top overall producer in the Permian and definitely the biggest independent, Permian pure play.
The acquisition comes just one day after ConocoPhillips said it would buy Permian pure play Concho Resources and only two weeks after Chevron completed its acquisition of Noble Energy. There hadn't been any major Permian deal during the coronavirus pandemic until Chevron pulled the trigger. The recent wave to consolidate in the Permian is the most M&A activity since last year's mega-deal when Occidental Petroleum outbid Chevron for Anadarko Petroleum.
The combined Pioneer would count about 930,000 net acres in the Permian -- with no federal acreage -- and crude production of 328,000 b/d and 558,000 boe/d as of the second quarter. Crude oil represents 59% of total production. Scott Sheffield noted the position of strength "regardless of what happens in November," referencing the potential for a White House under Joe Biden banning new drilling on federal lands.
In January, Parsley had just expanded in the Delaware Basin by buying Jagged Peak Energy for more than $1.6 billion.
"This transaction creates an unmatched independent energy company by combining two complementary and premier Permian assets, further strengthening Pioneer's leadership position within the upstream energy sector," Scott Sheffield said in the announcement. "Parsley's high-quality portfolio in both the Midland and Delaware Basins, when added to Pioneer's peer-leading asset base, will transform the investing landscape by creating a company of unique scale and quality that results in tangible and durable value for investors."
Deal details and environmental issues
The all-stock deal is a nearly 8% premium to Parsley's stock price at the end of Oct. 19. If the deal closes as planned in the first quarter of 2021, Pioneer shareholders would own 76% of the combined company and existing Parsley shareholders would hold 24%.
Pioneer would assume about $3.1 billion of Parsley's debt. Scott Sheffield cited the possibility of selling some small tracts of land over time that aren't considered core acreage in order to help pay down some debt.
With crude prices struggling to rise above $40/b, there's been a wave of upstream oil and gas bankruptcies and a push for more consolidation in the Permian. Now that prices have held steady near $40/b for a few months, those deals are happening more frequently.
Without a huge premium attached to the deal, Pioneer and Parsley were quick to point out that Parsley's largest shareholder, Quantum Energy Partners, is in favor of the deal. Quantum holds a 17% stake in Parsley.
"The inevitable consolidation in the Permian marches on, and I couldn't think of a better combination of assets than Pioneer and Parsley," Quantum CEO S. Wil VanLoh, Jr. said in a statement. "This combination will provide Parsley shareholders new structural advantages including a lower cost of capital, a fortified balance sheet, economies of scale, and enhanced ESG capabilities, while amplifying all of the relative strengths of our standalone model."
Again venturing into political and environmental issues, Scott Sheffield said the combined company counts among industry leaders in reducing methane flaring with a methane intensity of 0.6%, versus an industry average of almost 2%.
"We're still focused on removing that as a black eye for the industry," he said.
Both companies have been proactive on pushing the Texas Railroad Commission to get tougher on methane emissions.
And, earlier this year, Pioneer and Parsley led the ultimately failed push to get the Texas commission to enact mandated production cuts in March when the coronavirus pandemic was destroying demand at the same time as Saudi Arabia and Russia waging a pricing war that turned out to be short lived.
