Pioneer Closes CIS Acquisition

Pioneer Natural Resources Company ( PXD - Analyst Report ) wrapped up the acquisition pact with Belgium-based Carmeuse Holding SA to acquire the latter’s U.S. industrial sands business — Carmeuse Industrial Sands (“CIS”) — for approximately $297 million. The agreement was announced earlier last month.

The CIS unit — now known as Premier Silica LLC (“Premier Silica”) — is considered to be the leading producer of Hickory frac sand, known as Brady Brown, which is being applied as proppant for fracture stimulating oil and gas wells in the U.S. Hence, this move will ultimately aid Pioneer in accelerating its drilling program around three of its four core Texas growth assets — the Spraberry vertical, horizontal Wolfcamp Shale and Barnett Shale Combo plays —by securing premium, low-cost and logistically privileged brown sand supply. The sand mine of the unit in Brady, Texas has a proven brown sand reserve life of 30 years.

Other significant assets of the Premier Silica include two channels (Bakersfield, California and Colorado Springs, Colorado) for other grades of sand, two sand mines in Ohio (Glass Rock and Millwood) that manufacture oilfield and industrial sands, one sand mine in California, Orange County that generates construction and recreational sand, and an oilfield cement material processing plant in Riverside, California.

Headquartered in Dallas, Texas, Pioneer has set a target to increase production at a compounded annual growth rate of more than 20% through 2014. This is mainly based on the pick up of activity at its three core liquids-rich growth assets in Texas — namely, Spraberry field, Eagle Ford Shale and the Barnett Shale Combo — along with significant cost control initiatives. Again, on the basis of the drilling plans, the company expects to deliver production growth of 23% to 27% this year.

However, we think that these factors are adequately reflected in the present valuation, leaving little room for meaningful upside from current levels. We expect Pioneer, which competes with EOG Resources, Inc. ( EOG - Analyst Report ) and Newfield Exploration Company Co. ( NFX - Analyst Report ) , to perform in line with the broader market, as corroborated by our Neutral recommendation.