US shale player Pioneer Natural Resources has agreed to purchase Permian basin pure-play DoublePoint Energy for a total of $6.4 billion.

The deal includes 27.2 million shares of Pioneer common stock, $1 billion in cash and the assumption of $900 million in debt.

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"This deal is the largest acquisition of a private US E&P since 2011 and one of the largest private E&P acquisitions of the last 20 years," said Andrew Dittmar, senior M&A analyst for Enverus, in a research note shared with Upstream.

"Combined with Pioneer’s $7.6 billion purchase of Parsley Energy in October 2020, the $6.4 billion deal for DoublePoint means Pioneer has spent $14 billion adding Permian assets in about six months and been the most active acquirer in the upstream space since the Covid-19 downturn," he said.

The transaction adds 97,000 net acres directly offsetting and overlapping Pioneer’s existing footprint and production of about 100,000 barrels of oil equivalent per day near the end of the second quarter 2021.

The acquired acreage is primarily undrilled and augments Pioneer’s premium asset base, increasing the company’s acreage position to greater than 1 million net acres with no exposure to federal lands.

"Pioneer has leapt from holding an already industry-leading position in the Midland basin to controlling an impressively high portion of the core of the play," Dittmar said.

Scott Sheffield, Pioneer’s CEO stated, “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.”

In addition, the agreement is expected to generate annual synergies of about $175 million through operational efficiencies and reductions in general and administrative and interest expenses. The expected present value of the cost savings totals about $1 billion over a ten-year period.

The agreement also is consistent with the leading Permian basin operator's priority of returning capital to shareholders in that the accretive nature of this transaction to free cash flow leads to an increase in the expected per share variable dividend beginning in 2022 and beyond, Pioneer said in a news release.

"It is somewhat surprising to see Pioneer announce another major acquisition so soon after the Parsley deal, but the company may have felt the assets are simply too close a fit with their existing position to pass up," said Dittmar.

"Helping offset the high headline price, Pioneer is primarily handing over equity that has doubled in value since announcing the Parsley deal in October 2020."

Dittmar noted that there have been concerns about the rate that private companies are increasing drilling and its potential to lead to an oversupplied market.

"Roll-ups of these high-growth private companies by public E&Ps focused on fiscal discipline is certainly one way to address that concern," he said, adding that Pioneer expects to moderate growth by reducing the number of rigs on the DoublePoint acreage from 7 currently to 5 by the end of 2021.

"As a challenge though, Pioneer will likely face relatively steep decline rates from the DoublePoint assets, which are currently generating production growth of >30% implying significant new and therefor high-decline wells," he said.