April 26, 2019 / 9:32 PM / 3 months ago

Exclusive: Pioneer Natural Resources in advanced talks to sell Eagle Ford JV - sources

HOUSTON/NEW YORK (Reuters) - Pioneer Natural Resources is in advanced talks to sell its Eagle Ford acreage in South Texas to privately owned energy producer Ensign Natural Resources, five sources familiar with the matter said on Friday.

FILE PHOTO: Scott Sheffield, Chairman and Chief Executive Officer of Pioneer Natural Resources Company, speaks to guests and investors during the OGIS conference for mid- and small-tier oil and gas companies in New York, April 8, 2014. REUTERS/Eduardo Munoz

If successful, the sale would achieve Pioneer’s long-stated aim of becoming an energy producer focused solely on the Permian basin of West Texas and Eastern New Mexico, the heart of the U.S. shale revolution.

Pioneer has faced investor criticism in recent years due to weak returns, and it has sold a number of assets outside of the Permian while cutting spending. In late February, company founder Scott Sheffield returned as chief executive in a management shakeup that saw then-CEO Tim Dove abruptly leave the company.

Investors have favoured pure-play Permian names in the last few years due to lower production costs, but it could also make Pioneer more attractive as an acquisition target given an erupting war between Chevron Corp and Occidental Petroleum Corp to buy Anadarko Petroleum Corp.

Ensign, which is backed by private equity firm Warburg Pincus, is expected to initially pay less than $1 billion for the position, which is operated as a joint venture with Reliance Industries, which also is selling its stake.

This price is below the $2 billion valuation analysts had estimated for the position back in February 2018, when Pioneer first announced it wanted to divest.

However, the purchase price will be supplemented by a number of earnout clauses based on future production, three of the sources said, meaning Ensign could make subsequent payments.

Negotiations are described as advanced, although there is no certainty a transaction will be consummated, and talks could still fall apart. Ensign was close to striking an agreement with Pioneer last summer for the Eagle Ford position, but no deal was finalised, according to two of the sources.

Pioneer and Warburg did not immediately respond to requests for comment. Reliance’s Houston office declined to comment, referring questions to its corporate headquarters in Mumbai, which could not immediately be reached.

Pioneer shares have posted a total return of negative 7.2 percent in the last two years, according to Refinitiv Eikon data. In recent years, the company has sold all its overseas and offshore positions and U.S. acreage in the Raton, West Panhandle and Barnett basins.

However, it has struggled to offload the Eagle Ford position due to a contractual obligation it has with its midstream partner, according to the sources.

The contract committed Pioneer to supply a certain amount of hydrocarbons into the pipelines or to pay cash to make up any shortfall - a common agreement with pipeline companies.

While this type of contract was popular several years ago as shale production surged, they have fallen out of favour as companies have found themselves hamstrung by expensive commitments if prices fall. Supply from Pioneer’s joint venture was well short of expectations, according to a separate source.

The deal being negotiated with Ensign aims to take this into account by having a smaller payment at the beginning supplemented by future payments as the midstream contract wanes, two of the sources said.

Reporting by Collin Eaton in Houston and David French and Jessica Resnick-Ault in New York; Additional reporting by Jennifer Hiller in Houston; Editing by James Dalgleish

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