See this link. Once at the link, keep scrolling down. The contributor tweeted a series of tweets with a pretty good analysis. In fact, this is as good an analysis that I have seen so far. This one sets the gold standard; let's see if anyone can improve upon it.
This page won't be updated. The Pioneer - DoublePoint Energy deal is tracked elsewhere.
This is the 14-tweet thread that was posted by "WAR52." There may be errors in transcribing. If this is important to you, go to the link at the beginning of the post.
The PXD deal is seeing more discussion after their AMC release and minimal presentation on acquisition of DoublePoint ... the day before a long Easter weekend.
Plenty of detractors due to a perceived high price received by DP, which has been derived from metrics that are often not reliable as true indications of value.
Quick metrics like $/acre using $6.4 B for 100K acres = $65,000/acre, but that does not account for production and the nature of the Permian as a multiple formation play potentially.
At the time of their debt offering late last year, DP had estimated proved reserves of 300 mmboe, something like 25% of which were producing. It claimed > 1,000 "locations," which are obviously a subject for more detailed analysis.
I suspect that estimates of $30,000/acre come from taking a roughly $10/boe proved acquisition price to come up with $3.5 B for the value of the acreage, including zones that may produce on existing HBP acreage. Without further geologic and other information like that provided by Tom Loughrey (LFE) or Enverus Energy, and/or that which PXD could provide but so far has not, speculation reigns.
Looking at the claims that PXD makes about the deal being "accretive" to cash flow, it seems to me that mgt intends to focus on the very short term increase that comes from acquiring high rate, high decline assets early in their development.
As long as that run rate > PXD s existing rate (at a lesser decline), the initial units/share will look attractive, but for how long? If new wells have 50-70%+ declines, new drilling is required to replace reserves, and PXD will ramp drilling down initially to create "FCF" that enhances their message about adhering to the 'Shale 3.0' model.
Delaying CAPEX would have had to have been built into their acquisition economics, lowering it according to their new "plan" and increasing the true cost being paid (?). PXD does not discuss the fact that DP has a very high working and net revenue interest across its 3,000 locations (not 1,000 as mentioned above), but the pace of drilling those should lower than value on a PV basis unless higher oil prices are incorporated. In that regard, it is important to note that DP had/has a significant portion of its production hedged -- 67% in 2021 according to Fitch, at $46.59, with 30% hedged at $41.66 for 2022. This obviously reduces the impact that oil price increases will have in '21, at least if those hedges are still in place within PXD.
Acquisition economics would have taken that into account as well, but I have not seen any commentary about that yet.
Looking at it from the standpoint of PXD, the potential advantages of scale, timing of CAPEX and the ability to create larger and more drilling units due to combining adjoining acreage could be a big advantage (if true), and the extent of new inventory of high rate producers could allow PXD to satisfy investors' demand for cash flow and returns.
On the flip side, that merely creates a bigger treadmill in the absence of price increases.
Personally, I don't think the deal would have been done at all on a cash basis; the attractiveness of a large, highly liquid security allows PXD to pay more (even though it shouldn't), and the question will be whether the PE sellers hold onto their shares for any substantial period of time, or whether they are sellers into the market.
Given that DP was formed fairly recently, there might be less urgency to liquidate their shares after a big "win," but obviously PE firms have relied on public, retail investors to "unload" on in recent years. Time will tell, but clearly PXD is fairly uniquely positioned as a low debt, dominant producer, where many other companies would have been more leveraged and less pervasive as PXD, who has been active in the PB for 30-40 years in some form.
Best, succinct reply to that multi-tweet post is from another tweet:
The year is 2050 and PXD has 15 years of inventory left. Stock analysts across the country, in unison, ask, "why, though?"
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