Parsley grows wild in the Permian

Following last month's acquisition of nearly 18,000 net acres in the Midland basin, Parsley Energy this week purchased Double Eagle Energy's assets, adding 71,000 net acres with 3.6 mboe/d of production. The addition of these assets will nearly double Parsley's Midland basin acreage in 2017. In our latest report and podcast, our analysts discuss the implications of this deal and how it fits into the Permian M&A boom.

The US$2.8 billion acquisition will be completed through share issuance and senior notes, with Parsley paying US$1.4 billion in cash and the remaining in shares. Assuming a flowing production value of US$40,000/boe, the company paid approximately US$37,400 per acre. The acquired acreage is located in the Deep Basin in the Glasscock Nose and Southern Fairway sub-plays of the Midland Basin Wolfcamp, with a large position within the Deep Basin sub-play.  

Parsley is one of the premier operators in the Southern Fairway sub-play, with recent normalized initial production rates 28% higher than the average. This is also higher than the average normalized initial production rate during the same period for operators like Pioneer, Diamondback and RSP Permian in the Deep basin sub-play, which is our highest valued sub-play. When QEP Resources purchased acreage in Martin County last June, the Deep basin saw per acre price spike above US$55,000/acre, considering flowing production. However, isolating 2016 deals with larger than US$900 million considerations, price per acre in the Deep basin sub-play ranged from a low of US$30,000/acre in August to a high of US$42,000/acre in October.

Last month, Parsley paid US$19,800 per acre for additional Midland basin acreage, mostly bolt-on in the Southern Fairway sub-play. Prior to these 2017 acquisitions, we estimate that the company had only six years of inventory remaining — assuming 130 wells drilled per year. These transactions double Parsley's inventory, giving the company significant running room in some of the most sought-after parts of the Midland and Delaware basins. In our latest Energy Alert for our Crude for Thought podcast, host RT Dukes speaks with Senior Research Analyst Jackson Sandeen about this most recent deal and how it fits into the wider M&A picture.