US Producers Pioneer and Continental Strike $3.25-Billion Permian Deal

For Pioneer, the deal marks its return as a pure-play operator in the Midland Basin side of the Permian region. For, Continental, it represents the first steps into the most productive shale play in the US.

Source: Getty Images.

Continental Resources announced today that it is buying Permian Basin acreage from Pioneer Natural Resources for $3.5 billion in cash. The deal will hand Continental a position covering 92,000 contiguous acres in the Delaware Basin, the western half of the wider Permian region, which will be 98% operated by the Oklahoma City-based independent.

The acquisition represents Continental’s first footsteps into the powerhouse of US oil production. Earlier this month, the Permian approached pre-pandemic production highs of 4.82 million B/D which is more than 40% of the 11.3 million B/D produced across the US.

"Continental's foundation has always been built upon a strong geology-led corporate strategy. This continues today and has directly led us to our new strategic position in the Permian Basin,” Bill Berry, CEO of Continental, said in the announcement.

About 75% of the transaction price is represented by the asset’s proved developed producing oil and gas reserves and current production is around 55,000 BOE/D (about 70% oil), the company said in a release. Further, Continental is projecting the properties will generate $500 million in annual free cash flow next year if current crude prices hold.

In 2004, Continental drilled its first multistage horizontal well in the Bakken Shale as it rose to become the largest leaseholder in that oil-rich play.

It eventually lost that title and pared down its Bakken position while trying to expand its footprint close to home in Oklahoma’s SCOOP/STACK, Woodford, and Springer unconventional plays. In March of this year, the company also bought into Wyoming’s Powder River basin through a $1.4-billion purchase of 130,000 net acres from Samson Resources II.

For Pioneer, the deal marks a hasty exit from the Delaware Basin. It acquired its stake there just 1 year ago with a $4.5 billion all-stock acquisition of smaller rival Parsley Energy.

That deal also netted Pioneer nearly 71,000 acres in the Midland Basin—the other half of the Permian—and made it the largest producer in the region by boosting its production rate past 300,000 B/D at the time of the transaction.

In April, Pioneer made its second major acquisition with a $6.4-billion acquisition of DoublePoint Energy and its 95,000 acres in the Midland. Then in September, Pioneer made a smaller divesture of 20,000 net acres of Midland Basin leases to Laredo Petroleum for a sum of $230 million.

After its latest reshuffling of the portfolio, the Irving, Texas-based Pioneer said it will be content to return to is position as a pure-play Midland Basin operator.

Scott Sheffield, CEO of Pioneer, said of the divestment in a statement that “Pioneer is 100% focused on developing its high-margin, high-return Midland Basin assets where we have decades of operating experience and the size and scale to generate significant free cash flow.”

Both companies announced the transaction along with their most recent quarterly earnings.

For Pioneer, the third-quarter results included an average production rate of 389,000 B/D and a record quarterly free cash flow of $1.1 billion.

Continental also reported a record quarterly free cash flow of $669 million on 331,407 BOE/D from its fields in North Dakota, Wyoming, and Oklahoma. The purchase agreement for its new Permian assets is effective as of 1 October and is expected to formally close in December.