“On the ground level, out in the field it makes an incredible amount of sense,” says Cody Campbell, co-CEO of DoublePoint. The acreage, in the Midland Basin portion of the greater Permian basin, is contiguous with much of Pioneer’s existing holdings — enabling Pioneer to now engineer longer horizontal wells from fewer drilling pads, utilizing the same pipeline and water systems in which Pioneer has already invested. Campbell, 39, says he will be holding on to the several hundred million dollars in Pioneer stock that he’ll receive in the deal. “We had talked to a lot of companies, it was well known that we had a high quality asset.”
Pioneer, which says it intend to extract $175 million a year in synergies, paid a premium for the right fit. The deal terms reflect a rough valuation of $30,000 per flowing barrel of current production, plus about $40,000 per acre for undeveloped land — pricey compared with recent deals.
It’s the second big acquisition that Pioneer’s CEO Scott Sheffield has made in recent months. Back in November Pioneer acquired Parsley Energy, another Permian pure-play, for $7.6 billion. Parsley, incidently, was founded in 2008 by Sheffield’s son Bryan.
In the DoublePoint deal, co-CEO’s Campbell and John Sellers will divvy up $1 billion in cash and 27.2 million shares of Pioneer (an 11% stake) among themselves and their private equity partners at Apollo, Quantum, GSO and Magnetar.
Ironically, Campbell and Sellers in 2017 sold their previous iteration, Double Eagle Energy, with 70,000 acres, to Parsley Energy, for $2.8 billion, half cash, half stock.
The duo likely made $400 million on the sale to Parsley, and perhaps twice that from Pioneer, which closed yesterday at $164.60, with a market cap of $36 billion.
It’s been an unlikely success story for Campbell and Sellers, also 39. Now based in Fort Worth, they met in junior high, then played football at Canyon High School and at Texas Tech. Cody was good enough to get signed to the Indianapolis Colts, but that dream ended after a torn pectoral. With the real estate boom peaking around 2006, the young men got into the real estate business. Starting with nothing, for their first venture they bought up some pasture outside of Lubbock, invested in sewers and electric and sold it as lots to homebuilders. When real estate tumbled in 2009 they got into oil and gas, and found the business of acquiring and flipping shale acreage to be a lot like real estate. They acquired some fields in the Haynesville shale play in Louisiana, then in Oklahoma, where they sold a $225 million package to Aubrey McClendon, the wildcatting billionaire (d. 2016) who founded Chesapeake Energy
Campbell says they have excelled in the oil game thanks to hard work, “divine providence,” and because they haven’t been afraid to pay more than other guys to acquire the best aceage available. “You have to be in the core of the core,” says Campbell. “You don’t want to do an extension or fringe, you have to be in the areas with truly low breakevens.” He says that the Double Eagle acreage is generating solid cashflow at current prices, with low debt.
Gone are the early days of the shale boom, when companies were drilling far more than their cash flow could support. “The industry has matured. Everybody is disciplined,” says Campbell, who likes Pioneer’s low leverage, variable dividend policy. Someday he and Sellers will likely launch a new iteration of their Double Eagle holding company. For now though, they feel incentivized to stick around and work with Pioneer’s engineers on squeezing as much oil out of the fields as possible. “We know the assets on a granular level.”