Pioneer Natural Resources (PXD) Update - April 2

[dan_s]

Pioneer Natural Resources Company (NYSE:PXD) ("Pioneer" or "the Company") today announced that it has entered into a definitive purchase agreement to acquire the leasehold interests and related assets of DoublePoint Energy (DoublePoint) in a transaction valued at approximately $6.4 billion as of April 1, 2021, comprised of approximately 27.2 million shares of Pioneer common stock, $1 billion of cash and the assumption of approximately $0.9 billion of debt and liabilities.

Scott D. Sheffield, Pioneer’s CEO stated, "DoublePoint has amassed an impressive, high quality footprint in the Midland Basin, comprised of tier one acreage adjacent to Pioneer’s leading position. We are pleased with their decision to become long-term partners with Pioneer in a transaction that will complement our unmatched position in the core of the Permian Basin. Pioneer will incorporate these assets into our investment model, migrating the assets from significant production growth to a free cash flow model, moderating growth for the U.S. shale industry and generating significant value for our shareholders."

Transaction Enhances Investment Framework

Accretive to Key Financial Metrics – Pioneer expects the transaction to be accretive on key financial metrics including cash flow and free cash flow per share, earnings per share and corporate returns during 2021 and beyond.

Increases Variable Dividend Outlook – Consistent with Pioneer’s priority of returning capital to shareholders, the accretive nature of this transaction to free cash flow leads to an increase in the expected per share variable dividend beginning in 2022 and beyond.

Unmatched Permian Scale – This transaction represents a contiguous position of approximately 97,000 high quality net acres directly offsetting and overlapping Pioneer’s existing footprint. The acquired acreage is primarily undrilled and augments Pioneer’s premium asset base, increasing the Company’s acreage position to greater than 1 million net acres with no exposure to federal lands. The Company expects production from the acquired assets to reach approximately 100,000 barrels of oil equivalent per day by late in the second quarter.

Significant Synergies – The acquisition is expected to result in annual cost savings of approximately $175 million through operational efficiencies and reductions in general and administrative (G&A) and interest expenses. The expected present value of these cost savings totals approximately $1 billion over a 10-year period.

Top-Tier Balance Sheet Maintained – Pioneer’s pro forma leverage metrics will remain relatively unchanged, among the lowest in the industry, preserving the Company’s financial and operational flexibility and allowing for significant return of capital to shareholders.

Geoffrey Strong, Senior Partner and Co-Head of Infrastructure and Natural Resources at Apollo, commented, "The combination of Pioneer and DoublePoint is compelling from both a financial and operational standpoint and a natural fit for DoublePoint. This acquisition continues the trend of consolidation in the prolific Permian Basin, combining two complementary footprints in a transaction with both top- and bottom-line synergies." Dheeraj Verma, President of Quantum Energy Partners added, "we are firm believers in Pioneer’s strategy of free cash flow generation, which enables a competitive base and strong variable dividend."

Cody Campbell and John Sellers, Co-CEO’s of DoublePoint Energy said, "We are proud and appreciative of the work that our team has done to build a company and an asset base that is unparalleled in quality and truly cannot be replicated. We are honored to have the opportunity to combine our business with Pioneer, who we have long admired and regard as the premiere operator in the Midland Basin. The fit and the synergies are clear, and we look forward to working with Pioneer to continue creating value."

Transaction Details

Pioneer will issue approximately 27.2 million shares of common stock in the transaction with an additional $1 billion of cash. After closing, existing Pioneer shareholders will own approximately 89% of the combined company and existing DoublePoint owners will own approximately 11% of the combined company. Pioneer plans to finance the cash portion of the purchase price through a combination of cash on-hand and existing borrowing capacity under its revolving credit facility.

The transaction has been unanimously approved Pioneer’s Board of Directors and is expected to close in the second quarter of 2021, subject to customary closing conditions and regulatory approvals.

The transaction is structured as the acquisition by a Pioneer subsidiary of 100% of the limited liability company interests of DoublePoint’s wholly owned subsidiary, Double Eagle III Midco 1 LLC.

Webcast Discussion

In conjunction with this release, the Company posted a pre-recorded webcast and associated investor presentation to its website.

To view the webcast and associated presentation, visit www.pxd.com > Investors > Earnings & Webcasts.

To access the presentation slides, visit www.pxd.com > Investors > Investor Presentations.

The webcast will be archived on Pioneer’s website and can be accessed here. This replay will be available through April 27, 2021.

Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the United States. For more information, visit Pioneer’s website at www.pxd.com.

DoublePoint Energy is a Fort Worth, Texas based upstream oil and gas company, led by the Double Eagle management team in partnership with FourPoint Energy. DoublePoint is backed by equity commitments from Apollo Global Management, Inc. (NYSE: APO), Quantum Energy Partners, Magnetar Capital, and GSO Capital Partners, LP.

[dan_s]

Pioneer says the DoublePoint Acquisition will add 100,000 Boepd of production when the deal closes, which I assume for modeling purposes will be 7/1/2021. From a practical standpoint, Pioneer will get benefit of production from the Effective Date of April 1 thru the Closing Date as an adjustment to the acquisition cost (a "post-closing adjustment"). However, for SEC financial reporting, the new production, revenues and expenses don't show up until the Closing Date.

Pioneer did not provide the mix of production, but for modelling purposes I am assuming 65% crude oil, 20% ngas and 15% NGLs. To be conservative, I am assuming that the DoublePoint production stays flat after the Closing Date at 100,000 Boepd, but they are running 7 operated rigs and will be completing dozens of new wells this year.

The deal is immediately accretive; increasing EPS by ~$2.00 and operating cash flow by ~$3.00 per share.
Assuming PXD's 2021 full-year capex will increase by ~$0.5 Billion to ~$3.2 Billion, their full-year free cash flow should be $3.0 to $3.1 Billion.

The increase in operating cash flow per share increases my valuation of PXD by $7 to $202 per share.