Oil and gas E&P company Pioneer Natural Resources Co. (PXD) announced plans to absorb production and drilling company Pioneer Southwest Energy Partners (PSE) into its operations as a wholly owned subsidiary.
The two parties reached a definitive agreement and plan of merger by exchanging stock for unit. The deal values the oil and gas producer at about $1.46 billion, equivalent to almost half of Pioneer Natural Resource's 2012 revenues.
Per the terms of the deal, which is scheduled to close in the fourth quarter, Pioneer Southwest's public unitholders will get 0.2325 of shares of Pioneer common stock for each of their Pioneer Southwest common units. The deal represents a 1% premium over Southwest's closing price on Friday.
The transaction will lead to the issuance of 3.95 million additional shares by Pioneer. Pioneer Southwest will continue with its regular quarterly distribution on its common units until the merger is wrapped up.
The deal is subject to approval by Pioneer Southwest unitholders. Pioneer has settled to vote its common units in support of the deal. The board of directors of the general partner of Pioneer Southwest has also agreed to the terms of the merger agreement.
Pioneer Natural Resources owns all of the membership interests in Pioneer Southwest's general partner and 52% of Pioneer Southwest's units outstanding.
The consolidation of the properties of Pioneer and Pioneer Southwest in the Midland Basin in West Texas is likely to help Pioneer in fully and optimally developing the area utilizing horizontal drilling. It will also enhance organizational, operational and administrative efficiencies.
Pioneer Natural Resources carries a Zacks Rank #3 (Hold). However, there are other stocks in the oil and gas sector – Cabot Oil & Gas Corp. (COG) and Dril-Quip, Inc. (DRQ) – which hold a Zacks Rank #1 (Strong Buy) and are good investment options.
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