Pioneer's $7.6bn Acquisition of Parsley Energy

By Hannah Ohlsson, Knut Örnéus, Edvard Bruu & Wilma Tillqvist (Stockholm School of Economics), Luca Delpippo, William Zhang, Jinghan Jennifer & Sanjana Ramaswamy (University of St. Andrews)

 

Overview of the deal


Acquirer: Pioneer Natural Resources (PXD)

Target: Parsley Energy Inc. (PE)

Implied Equity Value: $4.5bn

Total Transaction Size: $7.6bn

Closed date: 19/10/20

Target advisor: Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC as financial advisors and Vinson & Elkins LLP as a legal advisor.


This $7.6bn acquisition comes in the wake of a significant fall in oil prices following the Saudi-Russia oil war in the context of consolidation in the oil industry. The deal will see Pioneer become the largest producer in the Permian Basin, the world’s most productive oil reservoir. The deal, welcomed by both the boards of Pioneer and Parsley, will generate pro forma benefits as well as expected $325mn per annum cost synergies under the new combination. With benefits such as a potential higher yield for shareholders in Pioneer, a combined effort to promote ESG, and a stronger balance sheet, the strategic rationale of the acquisition is strong. There remains, however, the tension surrounding the future of the oil industry as government- and investor attitudes towards fossil fuels change in the direction of a greener future. Regulatory- and market impacts on the oil industry could be to the detriment of the new company, should oil prices continue to stagnate and political pressure affect the profitability of the oil industry as a whole.


The inevitable consolidation in the Permian marches on and I couldn’t think of a better combination of assets than Pioneer and Parsley. This combination will provide Parsley shareholders new structural advantages including a lower cost of capital, a fortified balance sheet, economies of scale, and enhanced ESG capabilities, while amplifying all of the relative strengths of our standalone model.” -S. Wil VanLoh, Jr., a Parsley director and the Founder and Chief Executive Officer of Quantum Energy Partners, Parsley’s largest shareholder

Company Details: Acquirer – Pioneer Natural Resources


Pioneer Natural Resources explores, develops, and produces oil and gas reserves. It is a Permian pure-play company and operates exclusively in the Permian Basin, one of the world’s largest oil fields located in western Texas and southeastern New Mexico.


Founded in 1997, headquartered in Irving, TX

CEO: Scott D. Sheffield

Number of employees: 2300

Market Cap: $13.08 billion (as of 05/11/20)

EV: $16.3 billion

LTM Revenue: $9.67 billion

LTM EBITDA: $2.82 billion

LTM EV/Revenue: 1.69x

LTM EV/EBITDA: 5.78x


Company Details: Target - Parsley Energy


Parsley Energy is a Permian pure-play company focusing on acquisition, development, exploration, and production of oil and natural gas resources. Properties are located in two areas of the Permian Basin, the Midland Basin, and the Southern Delaware Basin.


Founded in 2008, headquartered in Austin, TX

CEO: Matt Gallagher

Number of employees: 500

Market Cap: $4.08 billion (as of 05/11/20)

EV: $7.6 billion

LTM Revenue: $1.75 billion

LTM EBITDA: -$3.81 billion

LTM EV/Revenue: 4.34x

LTM EV/EBITDA: -1.99x


Projections and Assumptions


Short-term consequences


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