Page 5 - NorthAmOil Week 14 2021

NorthAmOil COMMENTARY NorthAmOil

Pioneer has said
DoublePoint’s assets
will complement its
own operations.

senior M&A analyst, Andrew Dittmar, said in a Dittmar was not the only one to highlight
commentary. “Combined with Pioneer’s $7.6bn how DoublePoint’s assets fit with Pioneer’s
purchase of Parsley Energy in October 2020, the operations. Cowen & Co. analysts said Dou-
$6.4bn deal for DoublePoint means Pioneer has blePoint “undoubtedly fits like a glove within
spent $14bn adding Permian assets in about six [Pioneer’s] Midland Basin acreage”, while Mor-
months and been the most active acquirer in the gan Stanley said the acreage overlap of the two
upstream space since the COVID-19 downturn. companies provides industrial logic for the
In the process, Pioneer has leapt from holding transaction.
an already industry-leading position in the Pioneer has also sought to emphasise the
Midland Basin to controlling an impressively synergies it stands to benefit from once the deal
high portion of the core of the play.” closes. It said the acquisition was expected to
result in annual cost savings of around $175mn
Surprise through operational efficiencies and reductions
Dittmar went on to add that it was “somewhat in general and administrative (G&A) and inter-
suprising” to see Pioneer announce another est expenses. It said the expected present value
major acquisition so soon after the Parsley deal. of these cost savings totals roughly $1bn over a
This was echoed other analysts, including those 10-year period.
from KeyBanc, and also RBC Capital Markets,
which said the rationale for the deal seemed to be What next?
part opportunistic and part defensive. The latest wave of consolidation is another step Deals in recent
“The company may have felt the assets are in the shale industry’s evolution. While shale was
simply too close a fit with their existing position characterised by the presence of numerous small months, including
to pass up,” Dittmar wrote. “While the quality drillers in its early days, in recent years the prime those involving
of the leasehold is high and the acreage is an acreage has increasingly become concentrated
extremely good fit, Pioneer looks to have paid in the hands of the leading independents – plus Pioneer, suggest
a hefty premium for the undeveloped land rel- super-majors Chevron and ExxonMobil.
ative to the string of public company mergers Deals in recent months, including those that further
in late 2020, including its own combination involving Pioneer, suggest that further consol-
with Parsley, with the price per acre on this deal idation can still occur. In addition, the trend consolidation can
reminiscent of Permian deals in the bull land potentially bodes well if the dominant shale still occur.
market from 2016-18.” He added, however, that players continue to moderate production
the fact that Pioneer would primarily be hand- growth across the acreage of those companies
ing over equity “that has doubled in value since they take over – especially those bucking the
announcing the Parsley deal in October 2020” trend of exercising restraint.
would help to offset the high headline price “There have been concerns about the rate
involved. that private companies are increasing drilling
Deals paid mostly or entirely in stock have and its potential to lead to an oversupplied mar-
been a popular option for shale players over the ket,” commented Dittmar. “Roll-ups of these
past year as buyers have sought to expand their high-growth private companies by public E&Ps
footprints and add scale without taking on sig- focused on fiscal discipline is certainly one way
nificant new debt. to address that concern.”™

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