Market Overview

Pioneer Extends Permian Basin Dominance With $7.6B Parsley Energy Acquisition Deal

Pioneer Extends Permian Basin Dominance With $7.6B Parsley Energy Acquisition Deal

Pioneer Natural Resources Company (NYSE: PXD) on Tuesday confirmed it has agreed to acquire market peer Parsley Energy Inc (NYSE: PE) in an all-stock transaction valued at $4.5 billion. Including Parsley's debt, the transaction is estimated to be valued at $7.6 billion.

What Happened: Once the deal is closed, Pioneer will have a controlling interest with a 76% stake, with the balance held by existing Parsley shareholders.

Parsley shareholders are entitled to 0.1252 shares of Pioneer common stock for each share of Parsley common stock share. Pioneer will issue up to 52 million shares at a 7.9% premium on Monday’s stock price.

Both companies forecast that the deal could result in annual synergies of $325 million. Over a ten year period, the management estimates a present value of cost savings at $2 billion.

Annual interest expenses could reduce by up to $75 million and other financial metrics like return on capital, free cash flow, and earnings per share could also witness a gradual growth starting from 2021.

Pioneer President and CEO Scott Sheffield commented that the transaction would create “an unmatched independent energy company by combining two complementary and premier Permian assets” and solidify “Pioneer's leadership position within the upstream energy sector.”

In addition to the Permian basin properties, Parsley also holds sites in the Midland and Delaware Basins.

Pioneer will retain Goldman Sachs & Co. LLC (NYSE: GS) and Morgan Stanley & Co. LLC (NYSE: MS) as financial advisors, and Credit Suisse Securities (USA) LLC (NYSE: CS) and Wells Fargo Securities, LLC (NYSE: WFC) will represent Parsley. The deal is expected to close sometime in the first quarter of 2021.

Why Does It Matter: The merger will catapult Pioneer as one of the largest producers in the Permian basin, the top producing U.S. oil field, according to the Wall Street Journal.

Pioneer CEO believes that operating at a scale would be the key to survival in the consolidating shale industry.  “The combination of Parsley and Pioneer creates an organization set to thrive as we forge a strong new link at the low end of the global cost curve,” Matt Galagher, Parsley CEO and a former Pioneer employee, said in a statement.

Price Action: Pioneer shares dropped 4.04% on Tuesday to close at $83.53. Whereas, Parsley stock quoted at $10.62 per share, with a 5.15% gain.

Photo by ShavPS on WIkimedia


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