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Pioneer (PXD) in Talks to Buy Parsley: What You Should Know

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Pioneer Natural Resources Company (PXD - Free Report) is considering the acquisition of smaller rival Parsley Energy, Inc. , per the Wall Street Journal. The current market volatility might trigger some more acquisitions in the oil and gas space.

The all-stock acquisition deal is expected to be completed by month end, as reported by the people familiar with the matter to the Wall Street Journal. A big $14.8-billion upstream company, Pioneer’s acquisition of Parsley Energy — a $4.3-billion company — will likely lead to the creation of one of the biggest producers in the famous Permian Basin. Earlier this year, Parsley Energy acquired smaller rival Jagged Peak Energy in an all-stock deal worth $1.8 billion.

The latest move is expected to boost Pioneer’s oil-rich Permian Basin acreages. The acquiree currently owns roughly 248,000 net acres in the Permian Basin - 137,000 acres in the Midland Basin and 111,000 acres in the Delaware Basin. As of year-end 2019, Parsley Energy’s proved reserves totaled 592.3 million barrels of oil equivalent (MMBoe), of which 55% was oil, 20% was natural gas and 25% was natural gas liquids.

Now, a question may arise whether Pioneer’s balance sheet can support such an acquisition. At the end of second-quarter 2020, the cash balance totaled $180 million. Long-term debt summed $2,054 million, reflecting a debt to capitalization of 15.7%. The upstream energy player’s debt to capitalization has been persistently lower than the industry over the past few years, reflecting considerably lower debt exposure. Despite an unfavorable business scenario owing to coronavirus-induced dented energy demand, the company is capable of clearing long-term debt with the cash balance and $1.5 billion of credit facilities.

What about Parsley Energy's balance sheet position?

Parsley Energy’s total debt is currently around $3.4 billion, with only $159 million in cash & cash equivalents. Importantly, the company's debt to capitalization as of the end of the second quarter was 44.9%, deteriorating from 42.3% three months ago.

Trend of Acquisitions

The present market situation might allow Pioneer to acquire rich shale assets at beaten-down prices. In fact, we have witnessed some other merger and acquisition (M&A) deals in this turbulent period. Recently, ConocoPhillips (COP - Free Report) agreed to acquire Concho Resources Inc. in an all-stock deal. Chevron Corporation (CVX - Free Report) proposed a more than $5 billion merger deal with Noble Energy for the latter’s Eastern Mediterranean assets. In another deal, Canadian Natural Resources Limited recently agreed to acquire all issued and outstanding common shares of its smaller rival, Painted Pony Energy.

Price Performance

Pioneer’s shares have increased 18.5% in the past six months compared with 13.2% rise of the industry it belongs to. The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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