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Analysts surprised at Pioneer-DoublePoint deal

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The wave of consolidations sweeping through the energy industry has not yet reached its peak.

“The march towards further consolidation continues,” Grant Swartzwelder, president of OTA Environmental Services, told Reporter-Telegram via email. “Private companies need exits and the merger / sale to public companies is one of the few exits that exist today.”

He noted that the acquisition appears to be in line with Pioneer’s strategy of generating synergies with existing production and producing cash flow – cash flow that can be used for acquisitions and further development, “but I also assumes for distributions or other means of making the capital markets happy. “

Enverus senior M&A analyst Andrew Dittmar commented to Reporter-Telegram via email: “It’s somewhat surprising to see Pioneer announce another major acquisition so soon after Parsley’s deal, but the company may have felt the assets were just too close to their current position to pass up. While the quality of the lease is high and the square footage is an excellent choice, Pioneer appears to have paid a significant premium for the undeveloped land over the series of state-owned mergers at the end of 2020, including its own. combination with Parsley. The price per acre of this transaction is reminiscent of the Permian transactions in the land bull market from 2016 to 2018. To help offset the high price of the title, Pioneer is primarily handing over equity that has doubled in value since the announcement of the stock market. Parsley agreement in October 2020. “

Dittmar pointed out that the transaction is the largest acquisition of a private US E&P since 2011 and one of the largest private E&P acquisitions in the past 20 years. Combined with Pioneer’s $ 7.6 billion purchase of Parsley Energy in October 2020, the $ 6.4 billion deal for DoublePoint means Pioneer spent $ 14 billion to add Permian assets in about six months and has been the most active acquirer in the upstream space since the COVID-19 slowdown. In the process, Pioneer has gone from already leading the industry in the Midland Basin to controlling an incredibly high portion of the gaming core, he said.

The DoublePoint acquisition provides Pioneer with approximately 97,000 net, high quality, mostly undrilled acres. This brings Pioneer’s acreage to over one million net acres and the company expects production from the acquired assets to reach approximately 100,000 barrels of oil equivalent per day by the end of the second quarter.

Dittmar said: “There have been concerns about the rate at which private companies are increasing drilling and its potential to lead to an oversupplied market. The consolidation of these high-growth private companies through public P&E focused on fiscal discipline is certainly one way to address this concern. Pioneer plans to moderate growth by reducing the number of platforms on DoublePoint’s acreage from the current seven to five by the end of 2021 and to earn $ 175 million in annual synergies. However, Pioneer will likely have to contend with relatively high rates of decline in DoublePoint’s assets, which are currently driving production growth of around 30%, implying new and therefore sharply declining wells. “

Announcing the deal, Scott D. Sheffield, CEO of Pioneer, said his company will not only incorporate assets into its investment model and shift them from significant production growth to a flow model. free cash flow, “moderating the growth of the US shale industry.” and generate significant value for our shareholders. “

Dittmar observed that Pioneer had already indirectly acquired the assets of the first Permian effort from DoublePoint co-CEOs Cody Campbell and John Sellers, who sold Double Eagle Energy to Parsley for $ 2.8 billion in 2017. The Different Creations of Double Eagle have a successful history of monetization. their investments, he said.

“In this case, Double Eagle III, which had been sponsored by Apollo Global Management and Magnetar Capital, significantly increased their scale and potential of attractiveness to a buyer through a combination with FourPoint Permian (formed by FourPoint Energy plus the capital of Quantum Energy Partners, GSO Capital et al) to create a new Midland Basin pure-play in June 2018. The unusually large number of private equity firms involved may have increased the pressure to find a successful exit.

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