Pioneer Natural Resources agreed to snap up Texas-based oil and gas company, DoublePoint Energy, for a total value of $6.4 billion on April 1. Shares of the independent oil and gas exploration and production company lost around 2% in Monday’s pre-market session.
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Pioneer (PXD) CEO Scott D. Sheffield said, “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.”
The deal value reflects 27.2 million shares of Pioneer common stock and cash worth $1 billion, along with the assumption of debt and liabilities worth $0.9 billion. The company intends to finance the cash portion of the purchase through a combination of existing cash balance and borrowing capacity under its revolving credit facility.
The deal is expected to be accretive to Pioneer’s key financial metrics, including cash flow and free cash flow per share, earnings per share, and corporate returns during 2021 and thereafter. Also, annual cost synergies of $175 million through operational efficiencies and reductions in general and administrative (G&A) and interest expenses are estimated.
Furthermore, in line with Pioneer’s priority of returning capital to shareholders, the accretion of the deal to free cash flow is likely to increase the expected per share variable dividend beginning in 2022. (See Pioneer stock analysis on TipRanks)
The transaction, which awaits regulatory approvals, is likely to close in the second quarter of this year. Upon completion of the transaction, existing Pioneer shareholders will own 89% of the combined entity, while existing DoublePoint shareholders will own the remaining 11%.
Following the deal announcement, Siebert Williams Shank & Co analyst Gabriele Sorbara increased the stock’s price target to $200 (21.5% upside potential) from $184 and maintained a Buy rating.
Sorbara believes “PXD deserves to trade at a wide premium to other large caps and Permian players considering its tremendous running room, low leverage, strong free cash flow and potential cash return to shareholders.”
Pioneer shares have exploded 115.9% over the past year, while the stock still scores a Strong Buy consensus rating, based on 17 Buys and 3 Holds. That’s alongside an average analyst price target of $180.40, which implies 9.6% upside potential to current levels.
On top of this, Pioneer scores a 9 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
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