Pioneer sells Delaware Permian assets to Continental for US$3.3 billion

Continental Resources US$3.25 billion acquisition of Pioneer Natural Resources Delaware Basin assets provides entry into the Permian Basin. The purchase price represents a discount to our base case NPV10 valuation, but the initial market reaction was poor. While expansion into two new oil basins this year convolutes Continental's strategy, there are clear benefits and upside to this transaction. Flowing production is additive to Continental's already strong free cash flow profile, and current prices and exploration potential provide clear upsides. The deal is not without risk though. Financing the deal with debt while remaining unhedged on oil elevates commodity price risk. The rationale for Pioneer is more straightforward. The Delaware Basin was non-core to its Midland Basin centric focus. Directing disposal proceeds to the balance sheet further facilitates already strong compliance with investor demands.