American hydrocarbon exploring company Pioneer Natural Resources has reached a deal to take over oil and gas producer Parsley Energy for $4.5 billion. The deal is the latest consolidation within the struggling fossil fuel industry as companies look to leverage scale to survive the prolonged slump caused by the pandemic and the recent oil price crash.
Pioneer Natural Resources will acquire Parsley Energy through an all-stock deal that values the latter's shares at a 7.9% premium. Through the acquisition, Pioneer Natural Resources will become one of the largest operators in the Permian Basin.
In an interview Tuesday, Pioneer Natural Resources' chief executive officer, Scott Sheffield, said that having the right size and scale will be the key to surviving the crisis. As the world slowly moves away from fossil fuels, major players will have to quickly adapt to the changes, he added.
"The combination of Parsley and Pioneer creates an organization set to thrive as we forge a strong new link at the low end of the global cost curve," Sheffield mentioned in a separate statement.
Share prices of both companies moved in separate directions Tuesday after The Wall Street Journal published a report Monday indicating possible merger talks. Parsley Energy's share prices jumped by about 5% Tuesday, while Pioneer Natural Resources dropped by around 4%. Parsley Energy closed at $10.62 per share, while Pioneer Natural Resources closed at $83.53 per share.
The merger comes just days after ConocoPhillips announced that it would be buying Concho Resources for $9.7 billion. The massive deal was also preceded by the $2.6 billion merger between Devon Energy Corp. and WPX Energy Inc. In July, Chevron Corp announced that it had reached a deal to acquire Noble Energy Inc. for $5 billion.
Industry experts are expecting further consolidations in the coming quarters as companies attempt to cut costs by relying on synergies to continue operating in the United States' top oil fields. Companies with healthier balance sheets are likely to get better deals, while debt-burdened producers may draw fewer offers.
A report published by Deloitte showed that only a quarter of major U.S. share operators were considered as attractive acquisitions based on their financial standings. The rest of the companies were considered "risky investments" and only attractive to private equity investors.
