- Pioneer is paying $6.4 billion for private Permian competitor DoublePoint.
- Transaction at the highest deal valuation in the past year.
- Implies Pioneer and DoublePoint financial sponsors may view the equity as expensive.
Pioneer Uses Equity to Buy Permian O&G Company DoublePoint
Amid waves of consolidation of North American oil and gas assets, and in the West Texas and SE New Mexico Permian Basin in particular, Pioneer Natural Resources (NYSE:PXD) is continuing the trend with the announcement that they will acquire privately-held DoublePoint Energy in a transaction valued at approximately $6.4 billion. This comes only 5 months after Pioneer’s announcement to buy Parsley Energy for $4.5B. The PXD-DPE transaction consideration consists of 27.2 million shares of Pioneer common stock (valued at ~$4.5 billion), $1 billion of cash and assuming $900 million of debt and liabilities.
In the deal, Pioneer gains 100,000 boe/d of production and 97K net acres of contiguous Permian basin acreage that is a direct bolt-on to Pioneer’s acreage. However, Pioneer doesn’t provide much more information on the acquired assets. According to Pioneer’s transaction presentation, the pro-forma company will have nearly 600 Mboe/d of production and a 70+% oil mix. Management expects synergies will lead to cost savings of ~$175 million through operational efficiencies ($100 MM), reductions in general and administrative ($15 MM) and interest expenses ($60 MM interest savings).
Source: Pioneer transaction presentation
To get a better idea of how this compares to other transactions in the current pricing environment, it is helpful to reference two recent deals: Earthstone’s (ESTE) Midland assets acquisition and Ovintiv’s (OVV) Eagle Ford sale. Pioneer paid the most per flowing barrel by far at $64k/boe, which is the highest price per flowing barrel seen for comparable transactions in the last year.
Source: Bison Interests analysis
In cost per total acre acquired, Pioneer again paid a steep premium. At nearly $66K per net acre, Pioneer paid 2.3x the Ovintiv deal and nearly 10x the cost that Earthstone acquired their acres for. In addition to our analysis, we have included the below chart with additional analysis of recent Permian deals. The 3rd party analysis validates that the PXD-DoublePoint deal looks expensive on the below metrics compared to the Diamondback (FANG)-QEP (QEP), Devon (DVN)-WPX (WPX) and Conoco (COP)-Concho deals. And a humorous take on these above-average deal metrics can be found here.
This is a synergistic deal and we don’t yet have all the metrics to assess this, but even with a bullish oil outlook, this seems like it was an expensive deal in the current price environment. Pioneer’s willingness to do this transaction with the stock at these high comparable metrics could be indicative of their assessment of the value of their shares, which have nearly doubled in the last 6 months:
This deal may be reflective of a low current cost of capital/that their valuation may be higher than peers on commonly used metrics. Regardless, Pioneer states this “checks all the boxes” for a desirable acquisition. It is clear they value the considerable size and production gains, the oily assets, and the adjacency of the land position.
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