The Pioneer - Double Point Energy - Permian Deal -- April 2, 2021

This page has turned into a real mess. Sorry. Not sorry.

 

Compare the COP - Concho deal here:

• $10 billion vs $6.4 billion
• 550,000 acres vs 97,000 acres

Updates

May 10, 2021: from social media today --

 

April 3, 2021: very nice update here. 

Original Post

 

I found it impossible to put this page in any orderly fashion so just a bunch of links, comments, re-postings, etc. 

I hope readers see the theme.

 

If this page fails to provide that ("the theme"), perhaps this link to twitter will. The only "given" in this deal, and noted by others, Sheffield is betting on $80 - $100 oil.

• $80-oil: he survives as CEO
• $90-oil: he looks brilliant; becomes the new face of the shale sector
• $100-oil: enshrined as a saint at the Holy Lady of Shale

 

Raise your hand if you think we'll see $100 oil by the end of the year. By the way, having said that, based on 2Q21 picks by BofA, others may be thinking the same thing: significantly higher oil prices.

 

As of late Friday night, the most recent article regarding the Pioneer - DoublePoint Energy deal: from The Dallas Morning News -- "Pioneer Natural Resources says it will be Permain Basin's biggest producer with $6.4 billion purchase of DoublePoint. Link here. Data points and observations:

• no financial analysis; nothing more than a reporter's narrative of the press release in the big scheme of things;
• will have more than one million net acres in the Permian (Midland Basin);
• article does say the company paid a "hefty premium" relative to recent mergers and acquisitions but doesn't say what that "hefty premium" was;

Much of this was posted earlier today. It is interesting that very little has been written about this deal (so far -- maybe everyone took off early for the Easter weekend). I am re-posting the following and then below this will add updates. 

Pioneer to acquire DoublePoint Energy assets, press release here:

• bolt-on acquisition
• Midland Basin
• $6.4 billion
  
• 97,000 high quality (tier 1) net acres
• back of the envelope: $6.4 billion / 97,000 net acres = $66,000 / acre
• 27.2 million shares of Pioneer common stock
• $1 billion in cash
• $0.9 billion in debt and liabilities
• forward:
• the deal "will lead to an increase in the expected per share variable dividend beginning in 2022" -- raise your hand if you think you will see an increased dividend in 2022.
  

At almost $70K/net acre, social media is having a field day with this one. Lots of talk that "we're" back to lack of fiscal discipline in the shale sector. 

Link here.

Link here.

 

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"PXD Gets It"

From twitter:

Pioneer's market cap is $36 billion. Pioneer's total value is contained within its Permian footprint. 

Does the Double Point Energy footprint look like a sixth of that $36-billion market cap? 

Possibly. I don't know. I find it interesting how the analyst who wrote the note in the graphic above simply "ignored" 2/3rds of $6.4 billion, or $4.3 billion. This is like saying Double Point Energy was paid $6.4 billion for the deal, but it only cost Pioneer $2.1 billion. Somehow the books don't balance. Whatever. Value it anyway you want. 

What others think:

Monday:

• watch share price of PDX; should be fascinating; and,
• article over at SeekingAlpha on this deal.

Idle Rambling Regarding The Pioneer - Double Point Eagle Deal -- April 2, 2021

In a sidebar discussion, a reader and I were discussing the Pioneer - Double Point Energy deal. See this post. See this twitter thread.

The reader mentioned the "vertical feet of play" in the Permian.

My not-ready-for-prime-time reply:

Yes, the "vertical feet of play" is often mentioned.

For me that's another questionable metric with regard to horizontal / unconventional / tight oil drilling. I've discussed it before on the blog. I might have to talk about it again.

Except I get so much pushback, it's not worth it to bring it up again. LOL.

It all goes back to original oil in place -- OOIP -- (with all else being equal: porosity, permeability; quality of oil; percent recoverable through primary production).

"Vertical feet of play" is a conventional drilling metric. It's not a metric I find useful in shale.

A second concept: how much money can one person make in one lifetime? Sheffield (CEO of Pioneer) appears to be putting together an "empire" that will outlive him. Harold Hamm, however, has decided to drill the heck out of the empire he already owns. Harold Hamm is focused on free cash flow. Sheffield seems to be focused on something else. Maybe he thinks he is the Elon Musk of the Permian.

A year ago or so, Sheffield said there was no reason for more acquisitions; he said he already had so many locations, he would never drill them all before he died. Or something to that effect. And now, a year later, he pays an unbelievable amount of money for an acquisition. Doesn't make sense.

Harold Hamm may yet make another acquisition if the price is right, but it seems to me he is simply going to drill out the Bakken to the extent possible and see what happens. He is getting to be an old man; he proved he could do it. Nothing else to prove now except to see how many wells he can drill with three or four rigs. Meanwhile Sheffield has seven (?) rigs in the Permian. Lots of CAPEX with lots of debt.

This should be quite fascinating to watch: comparing XOM, COP (BR), PXD, and CLR. Same with Bud Brigham and MNRL -- I think he's thinking like Harold Hamm.

Approaching Four Million COVID Vaccinations Being Given Daily In The US -- April 2, 2021

Link here. 

		Doses of vaccine distributed to health facilities	Change from day before	Vaccinations given	Change from day before	Percent of distributed vaccine that is actually administered	Doses received in past week, current Monday from previous Tuesday	Average number of doses given / day in past seven days
Friday	April 2, 2021	204,719,335	4,222,700	157,606,463	3,975,059	76.99%
Thursday	April 1, 2021	200,496,635	4,914,910	153,631,404	3,358,112	76.63%
Wednesday	March 31, 2021	195,581,725	6,130,440	150,273,292	2,670,947	76.83%
Tuesday	March 30, 2021	189,451,285	8,804,720	147,602,345	1,789,510	77.91%
Monday	March 29, 2021	180,646,565	100	145,812,835	2,350,144	80.72%	23,912,010	3,416,001
Sunday	March 28, 2021	180,646,465	2,340	143,462,691	3,281,956	79.42%
Saturday	March 27, 2021	180,644,125	3,142,350	140,180,735	3,496,047	77.60%
Friday	March 26, 2021	177,501,775	3,976,440	136,684,688	3,379,393	77.00%

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High School Girls Soccer
Texas Championship Playoffs

The Texas high school girls soccer championship season, "March Madness," is in full swing.

Our middle granddaughter is a freshman on the Grapevine High School varsity team. Her team made the playoffs, and in the round of 64, they defeated Manfield, TX, nationally ranked at #122. They defeated Mansfield by a score of 7 - 2, and went up in the national rankings from 61 to 39.  When they qualified for the Texas championship playoffs they went from #69 to #61.

Today, in a very difficult game our granddaughter's team defeated Wichita Falls, TX, by a score of 2 - 1 in overtime. Wichita Falls, TX, going in this game was ranked #129 -- that's why it's called March Madness.

Two years ago, Grapevine, our team, was knocked out of the playoffs in this range. Last year there was no tournament due to Covid-19. So, for the first time in quite awhile our team will advance to the elite sixteen. 

Win or go home.

As many as four more games; as few as one more. 

Whoo-hoo!

Good News, Bad News, Whatever -- It Depends Where You Stand -- April 2, 2021

This is a great example of "it depends on which side of the issue you stand," whether this is great news or not such great news. Being a long-time admirer of Sempra Energy, I find this story delightful. 

Harry Weber, over at S&P Global, says shrinking North American LNG field raises fears of "oligopolistic" supplier futures among panelists.

They should have put me on the panel. LOL. 

Link here. 

There is a mismatch between the amount of available financing and the number of quality liquefaction projects, making it difficult to add new supplies to a tight global market, infrastructure investment experts said March 25 during S&P Global Platts' LNG Virtual Conference. 

The dearth of newly sanctioned export projects in 2020 and so far in 2021 — especially in North America, which has been responsible for the majority of new LNG supply globally over the last five years — is a worrisome sign that could lead to more price volatility in the future, the officials said.

In North America, there was only one new liquefaction project sanctioned last year — Sempra Energy's Energia Costa Azul project on Mexico's Pacific Coast. More than a dozen other developers in the US, Canada, and Mexico are actively pursuing projects of their own, although the field is dwindling amid ongoing contracting and financing challenges. Exelon-backed Annova LNG recently scrapped its LNG export project in Texas. Analysts expect more US greenfield projects to drop off the board.

Whoo-hoo! 

Biden's Amtrak Package -- April 2, 2021

Most interesting new route: Pueblo, Colorado, north to Cheyenne, Wyoming.

• someone in DC must live out there; that I-25 corridor is "hell" from Colorado Springs to Fort Collins;
• for someone to have caught that route, someone was paying attention;
  

Three suggestions.

First suggestion:

• add a route from Minneapolis to Omaha to Kansas City;
• if they can put in a new route from Pueblo, Colorado, to Cheyenne, Wyoming, they can put in a Minneapolis-Sioux Falls-Omaha-Kansas City route

Second suggestion:

• add a more direct route between DFW-Permian-El Paso;
• this is a no-brainer; this will move the migrants coming up from the southern border to points east and west;
• El Paso would welcome this; I have no idea how Amtrak missed this one;
  

Third suggestion:

• fund the ambitious 30+ new route / modification plan at 80% of estimate for total project;
• then award money on a state-by-state basis once the permits are all completed and the dirt is ready to be moved;
• but if there's any home to moving this project along, there has to be competition for those dollars;
• most of the additional routes are short routes, each new route inside one or two states

Pioneer; XOM; Saudi; Tesla; And All That Jazz -- April 2, 2021

Pioneer to acquire DoublePoint Energy assets, press release here:

• bolt-on acquisition
• Midland Basin
• $6.4 billion
  
• 97,000 high quality (tier 1) net acres
• back of the envelope: $6.4 billion / 97,000 net acres = $66,000 / acre
• 27.2 million shares of Pioneer common stock
• $1 billion in cash
• $0.9 billion in debt and liabilities
• forward:
• the deal "will lead to an increase in the expected per share variable dividend beginning in 2022"

At almost $70K/net acre, social media is having a field day with this one. Lots of talk that "we're" back to lack of fiscal discipline in the shale sector. 

Link here.

Link here.

 

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XOM vs BP
Reality vs Renewables

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Saudi Aramco

Aramco may slash dividend -- not "cut," but "slash" dividend -- to boost Saudi economic growth plan. 

Link here. 

 

Saudi Arabia's de facto leader Crown Prince Mohammed bin Salman said on March 30, 2021, that 24 Saudi listed companies, including Aramco and Saudi Basic Industries Corp, or SABIC, and National Shipping Co. will reduce their dividend payouts to the government and redirect the money into the local economy. The plan targets the contribution of $1.33 trillion of domestic capital from the companies over the next ten years.

Government: code for "rich princes."

It was not clear when this decision was made. However, in Aramco's 2020 financial results presentation on March 20, CEO Amin Nasser stated the company intends to pay $75 billion in 2021.

The Saudi economy is floundering, with woes further compounded by the demand destruction caused by the pandemic, seeing its budget deficit widen to about $79 billion in 2020.

Some 40% of the Kingdom's GDP is derived from oil revenues generated by Aramco, according to data from the country's finance ministry.

As part of its pitch to investors during the 2019 IPO, Aramco pledged to issue a $75 billion dividend annually for five years. The Saudi government, which owns 98.5% of the company, is the primary benefactor of this payment. Therefore, the new scheme will see Aramco funds diverted away from the government's budget.

The burden of the $75 billion dividend plus the weak oil price environment due to the pandemic weighs heavy on the company's operations. This has meant it has had to delay payments to its contractors by several months, Platts reported in January.

Additionally, the company was forced to slash its 2020 capex budget in half, to around $25 billion. For 2021, its capex will be an estimated $35 billion, below previous guidance of $40 billion to $45 billion, Aramco said in March.

Meme: cost to lift Saudi oil is less than $5/bbl compared to $50 / bbl for US shale. US shale will cut CAPEX and maintain production (maybe increase production); and, here we have Saudi Arabia having to raise CAPEX to meet demand, much of it domestic, for air conditioning. 

Salman's announcement drew skepticism from analysts on whether it will provide an economic boost to the country.

"While this may drive diversification efforts, there is a risk that it leads to a misallocation of resources and damages economic growth in the long run," said Capital Economics, a UK-based consultancy.

Inshallah. 

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Luxury Used Car Worth $20,000;
Needs $22,000 Battery Replacement

Link here. 

The good news: the new battery will be even better.

And "no" maintenance according to the seller.

Predicted years ago on the blog. 

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Tesla (Almost) Meets Delivery Goal
Two Years Late, But I Don't Think Anyone Cares

Link here.

Tesla announced today, April 1, 2021, April Fool's Day, that it finally almost reached 500,000 deliveries in a calendar year, with its 499,550 vehicles delivered globally in 2020, and that it finally hit its target of producing 500,000 vehicles a year – two years behind its promises. 

Back in May 2016, it had promised in its quarterly report that it would produce 500,000 vehicles in 2018. But it didn’t happen in 2018, far from it, and it didn’t happen in 2019 either. It finally happened in 2020.

That promise in May 2016, like so many of Tesla’s and CEO Elon Musk’s promises, had caused its shares to surge.

Tesla will report 1Q21 deliveries sometime next week, previously posted. The linked article provides projections of a few analysts. The number to watch: 150,000 units.

US Economy -- March, 2021 -- Holy Mackerel! 916,000

March jobs: added an unheard-of 916,000 jobs. The consensus was around 620,000.

Unemployment rate: 6%.

• revisions could put March, 2021, over one million jobs;
• expect one-million-jobs in the coming months;
  
• WSJ, 24 hours earlier, link here.
• construction: added 110,000 jobs; "have never seen numbers" like this before
• February, 2021, numbers revised upward, toward 500,000
• January, 2021, numbers revised upward, also,
  

US economy on a tear:

• Red-hot US economy a mixed blessing for rest of world, WSJ: link here. 
• Auto makers start 2021 strongly, WSJ: link here.
• Markets, futures after numbers announced:
• Dow: up 0.5%; up 172 points; 33,153;
• S&P 500: up 1.18%; up 47 points; at 4,020;
• NASDAQ: up 1.76%; up 233 points; at 13,480;
• US markets closed on Easter Friday.
  

CNBC talking heads:

• "have never seen anything like this";
• "people not staying home to get benefits; eager to get back to work";
• think: gasoline demand;
• "construction numbers unbelievable";
• "this job growth should continue for the next eight to ten months";
• think: gasoline demand;
• "airlines re-hiring";
• "can't get motel rooms in the Permian";
• think: gasoline demand;
• Becky Quick trying to talk the market down -- but then her panelists shut her down;
• is Becky Quick the "most unwoke" person in business news?
• Rick Santelli is so bullish he's starting to sound like me
• did I mention gasoline demand?

Semiconductors: huge US demand as US economy surges. What to do? The Taiwanese know! Link here. The big question: might TSMC look back twenty years from now and wish they had put new factories in a safe country like the US? Lots of talk about the Chinese and Taiwan relationship. Just saying. From the linked article:

Taiwan Semiconductor Manufacturing Co. , a major chip supplier to Apple Inc., said it would invest $100 billion over the next three years to increase production capacity as demand surges. The planned investment is a record for the world’s largest contract chip maker as well as the broader industry, analysts said, at a time when chips are in short supply around the world. 

In a statement, the company said it expects strong demand over the next several years, a trend driven by growth in 5G and high computing capabilities and accelerated by the Covid-19 pandemic.

The pandemic accelerated 2020 - 2035 to 2020 - 2025, and fortunately the US has just the man in the White House to guide us through this high-velocity wind tunnel. Back to TSMC: $100 billion sounds like a lot of money but what's the denominator? What are they spending now? Here's the answer:

The $100 billion allocation for the next three years would be more than double what the company spent in the previous three years, according to New Street Research analyst Pierre Ferragu.

In January, TSMC announced a record capital-expenditure budget for 2021 of $25 billion to $28 billion to develop advanced chips and building plant capacity. 

Now, who are the biggest customers? Automakers and Apple? I don't know. That's my first guess.