The Great Permian Parlay: PXD | DoublePoint
“You don’t want to do an extension or fringe, you have to be in the areas with truly low break-evens” - Cody Campbell (DoubleEagle | DoublePoint)
Editor’s Note: **If you enjoy this newsletter - do us a favor, forward it to a colleague** -
Pioneer | DoublePoint Presentation
A $6.4BN PARLAY.
The long Easter weekend provided cover for one of the larger recent Permian deals - the Pioneer acquisition of DoublePoint.
DoublePoint will receive:
~11% of Pioneer’s equity
$1BN in cash
Pioneer will receive:
~100,000 boepd (at close)
~1,200 core locations
Relative to recent Permian transactions, the deal looks expensive.
However, those transactions were executed at a lower strip; with higher prices, we could understand a valuation that’s ~double.
That said, this deal was expensive, even on that basis:
HUSTLE & GAMBLE.
There’s a couple noteworthy pieces to this story.
The Campbell & Sellers / DoubleEagle acreage acquisition machine has been incredibly effective at scale (in ‘17, they sold ~71k acres to Parsley for $2.8BN).
It appears that the duo’s operation has been better - at acquiring top Midland basin acreage - than anyone else.
This time around, they had to do more (drilling) to prove out the acreage.
In 2020 of all years…
Scaling production in ‘20 was a gamble that - in the simplest terms - bet on oil prices mean-reverting.
DoublePoint increased rig-count at a time when almost all of their competitors cut rig-counts by half or more.
Doing so, DP committed to drilling wells at a negative NPV.
That’s a leveraged bet on WTI - like buying out-of-the-money calls on oil futures.
On top of that bet, the wells had to work.
And they did:
And - somehow - DoublePoint financed this bet with debt.
They drew-down on commitments to drill these wells, and then they re-fi’d those commitments with a private placement.
An acreage bet
A drilling bet
And a financing bet
All three paid out - for a $6.4BN parlay -
On Iran oil exports
India’s energy minister on net-zero targets
An interesting take on Netflix & Europe
Even the sell-side thinks the PXD/DP deal is expensive
That’s it for this week - congrats to Baylor - catch y’all next Tuesday -