Page 10 - NorthAmOil Week 42

NorthAmOil COMMENTARY NorthAmOil

Parsley’s founder
and chairman, Bryan
Sheffield (left), is
the son of Pioneer’s
president and CEO,
Scott Sheffield (right).

handful of attractive acquisition targets in the “There are some investors who worry this
shale industry. could be an outrageous conflict of interest and
“Size, scope and scale have become more there are others who really believe if the deal’s
important,” said Concho’s CEO, Timothy Leach, in everyone’s interest then it’s fine,” a Sankey
who will run the combined company’s US pro- Research analyst, Paul Sankey, commented.
duction excluding Alaska following the merger. Separately a JPMorgan Chase & Co. analyst,
“This combination with ConocoPhillips was the Arun Jayaram, said in a note that the family
best thing for our shareholders.” connection probably meant that “any potential
The transaction is anticipated to close in the transaction would need to clear an incremental
first quarter of 2021. layer of scrutiny from each company’s [board of
directors] before reaching the finish line”.
Pioneer and Parsley And a Citigroup analyst, Scott Gruber, said
The Pioneer-Parsley deal, confirmed on October the family connection may help the two compa-
20, is entirely Permian-focused. The transaction nies decide on who ends up with the most senior
has been valued at roughly $4.5bn as of Octo- roles following the merger. “We think the social
ber 19, and $7.6bn including the assumption of elements of a potential tie-up may be more
Parsley’s debt. Parsley shareholders will receive straightforward to navigate,” he wrote in a note.
0.1252 shares of Pioneer common stock for each
share of Parsley common stock owned. What next?
The companies said the combined entity At least a few more M&As are expected to take
would be the leading Permian independent place between shale producers, with Stifel ana-
exploration and production firm with an asset lysts identifying Cimarex Energy as possibly the At least a few
base of around 930,000 net acres (3,764 square top remaining target given its free cash flow pro-
km) and a production base of 328,000 barrels file and “clean” corporate structure. They added more M&As are
per day (bpd) of oil and 558,000 boepd in total that they also consider Continental Resources expected to take
as of the second quarter of 2020. Based on and Diamondback Energy to be among the top
proven reserves as of the end of 2019, this trans- remaining candidates for M&A deals. place between
action will increase Pioneer’s proven reserves by Meanwhile, Susquehanna analyst Biju Per-
around 65%. incheril said combinations involving compa- shale producers.
The two companies also expect their combi- nies such as Cimarex, Marathon Oil and Apache
nation to result in synergies worth $325mn per “could make sense to lower cost structures”,
year. while Diamondback was the only remaining
Media sources noted that some concerns had mid-to-large-cap pure-play Permian operator.
been raised over a potential conflict of interest On a conference call with analysts, Scott Shef-
– Pioneer’s president and CEO, Scott Sheffield, field said there would only be 3-4 independents
is the father of Parsley’s founder and chairman, that are “investable by shareholders” among oil
Bryan Sheffield. Data compiled by Bloomb- and gas producers following this year’s down-
erg show that the Sheffields have more of their turn and the wave of consolidation that is now
wealth tied up in Parsley than Pioneer. Bryan’s underway. He suggested that the “real survivors”
2.7% stake in Parsley is valued at about $105mn, will be Pioneer-Parsley, EOG Resources, Cono-
making him the firm’s 11th largest shareholder, coPhillips and “maybe” Hess over the long term.
while Scott’s stake in Pioneer is worth about “The best companies have been picked off the
$51mn. past few weeks.”™

P10 www. NEWSBASE .com Week 42 22•October•2020