By: Myles McCormick – Financial Times – Pioneer Natural Resources has agreed to buy rival Parsley Energy for $7.6bn including debt, marking the second big transaction to be announced in the US shale patch in as many days.
The all-stock acquisition will make Irving, Texas-based Pioneer the biggest independent oil and gas producer in the Permian Basin, the world’s most prolific oilfield, which stretches across Texas and New Mexico, with daily production of 558,000 barrels of oil equivalent.
“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,” said Scott Sheffield, Pioneer chief executive. His son, Bryan Sheffield, founded Parsley in 2008.
The deal marks the fourth big acquisition since oil prices crashed earlier this year, and suggests that consolidation in the space — which analysts said was long overdue — is accelerating.
“[Exploration and production] management teams are rethinking their ability to survive as standalone companies given that the subsector remains out of favor with investors,” said Jennifer Rowland, an analyst at Edward Jones.
ConocoPhillips on Monday announced it had agreed to buy rival Concho in a deal valued at $13.3bn including debt. Chevron agreed to buy Noble Energy in July in a $13bn transaction, while Devon Energy last month agreed to take over rival WPX for $12bn.
Tuesday’s deal values Austin, Texas-based Parsley at $4.5bn, excluding debt. Its shareholders will receive 0.1252 Pioneer shares for each Parsley share they currently own. That represents an 8 percent premium to closing prices on Monday, before reports of the talks became public.
“With neighboring acreage positions located entirely in the low-cost, high-margin Permian Basin, the industrial logic of this transaction is sound,” said Matt Gallagher, Parsley chief executive, who spent a number of years working for Pioneer and will join its board. Pioneer and Parsley have worked together in the past, teaming up in March to call on the Texas regulator to impose production cuts in order to boost prices in the midst of the price crash. Both have also been vocal proponents of reducing the levels of flaring — where drillers burn off the less valuable gas found alongside the oil — in the Permian.
The companies expect the combination to lead to annual cost savings of $325m. They hold assets covering 930,000 net acres — none of which is on federal land, which could be subject to a ban on new drilling should Joe Biden win the US presidential election next month.
Wil VanLoh, chief executive of Quantum Energy Partners, Parsley’s biggest shareholder, welcomed the deal, saying it would provide the group with a lower cost of capital, a stronger balance sheet, and economies of scale. “The inevitable consolidation in the Permian marches on,” he said.