[Editor’s note: This story was updated at 9:44 a.m. CT Oct. 20.]

Pioneer Natural Resources Co. is in talks to buy Parsley Energy Inc., the Wall Street Journal reported on Oct. 19, citing people familiar with the matter.

UPDATE:

Pioneer Natural Resources to Acquire Parsley Energy in All-stock Merger

Pioneer and Parsley, both Permian pure-plays, are discussing an all-stock deal, the report said, and could be completed by the end of the month if talks don’t fall apart. The transaction would follow a wave of consolidation spreading across the E&P space, including the acquisition of Concho Resources Inc., another Permian shale producer, by ConocoPhillips Co. announced on Oct. 19.

“Parsley has long stood as one of our top consolidation targets, and rumor of a potential deal hitting financial headlines shouldn’t come as a big surprise and would make a ton of sense from multiple perspectives,” analysts with Tudor, Pickering, Holt & Co. (TPH) wrote in an Oct. 20 research note.

Austin, Texas-based Parsley Energy was founded in 2008 by Bryan Sheffield, son of Pioneer CEO Scott Sheffield. The younger Sheffield started Parsley with a base of 100 wells first drilled by his grandfather, Joe Parsley, and partner Howard Parker, who were also founders of Parker & Parsley which eventually became Pioneer Natural Resources. He currently serves as executive chairman of the Parsley board, a position he assumed after stepping back from the CEO role in 2019.

The TPH analysts estimate combined the company would have about 928,000 net acres with roughly 310,000 bbl/d of oil production in third-quarter 2020. Additional cost savings would include G&A synergies plus the combined company’s ability to potentially further work down well costs toward leading-edge levels.

“Depending on the transaction we suspect long-only investors would likely be in favor of an equity swap as many accounts are constructive on both names with a deal strengthening an already premium, pure-play Permian heavyweight to own in the space,” the analysts continued.

Pioneer, based in Irving, Texas, currently has a roughly 680,000 net-acre position in the Permian within the Midland Basin. Meanwhile, Parsley holds about 248,000 net leasehold acres in the Permian Basin’s Midland and Delaware sub-basins.

As of Oct. 20’s closing prices, the potential pro forma Pioneer would have a market cap of $18.5 billion and an enterprise value of $23.4 billion, according to Gabriele Sorbara, equity research analyst with Siebert Williams Shank & Co.

“The transaction is logical in that both are pure-play Permian Basin companies with strong capital efficiencies,” Sorbara wrote in a research note on Oct. 20. “However, PXD does not need to execute a transaction, rather PXD is likely picking off one of the best remaining E&Ps in the sector before the competition in an attempt to move down the consolidation path to improve its metrics, build further scale and compete with the largest companies in the sector.”

He added he believes the potential deal would garner a similar 10%-plus premium as in the ConocoPhillips/Concho merger.

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