Pioneer to Buy Carmeuse's Sands Biz - Analyst Blog
March 06 2012 - 8:45AM
Zacks
Pioneer Natural Resources
Company (PXD) has reached an agreement with Belgium-based
Carmeuse Holding SA to acquire the latter’s U.S. industrial sands
business—Carmeuse Industrial Sands (“CIS”)—for approximately $297
million.
The deal, which will likely close
late in the first quarter or early in the second quarter of 2012,
is expected to be funded from the available cash and signifies a
strategic move for the company to support its fracturing
requirements while reducing execution risk and controlling
costs.
CIS is considered to be the leading
producer of Hickory frac sand, known as Brady Brown, which is being
applied as proppant for fracture stimulating oil and gas wells in
the U.S. Hence, this move will eventually aid Pioneer in
accelerating its drilling program around three of its four core
Texas growth assets—the Spraberry vertical, horizontal Wolfcamp
Shale and Barnett Shale Combo plays—through securing premium,
low-cost and logistically privileged brown sand supply. The sand
mine of CIS unit in Brady, Texas has a proven brown sand reserve
life of 30 years.
Irving, Texas-based Pioneer
estimated that its annual demand for proppant will boost to 1.6
million tons in 2015 from 1.2 million tons in 2012 with the
continuous ramp up of drilling operations. The company said 70% to
80% of its forecast proppant demand is brown sand and will save $65
million to $70 million a year through the latest acquisition.
Other relevant assets of the CIS
unit include two channels (Bakersfield, California and Colorado
Springs, Colorado) for other grades of sand, two sand mines in Ohio
(Glass Rock and Millwood) that manufacture oilfield and industrial
sands, one sand mine in California, Orange County, which generates
construction and recreational sand, and an oilfield cement material
processing plant in Riverside, California.
Recently, Pioneer reported
better-than-expected fourth quarter 2011 results, aided by about
28% production growth, mainly attributable to production growth in
liquid-rich assets in Texas, Spraberry field, Eagle Ford Shale and
the Barnett Shale Combo.
With a ramp-up in activity at its
three core liquids-rich growth assets in Texas with significant
cost control initiatives, Pioneer has set a goal to increase
production at a compounded annual growth rate of more than 20%
through 2014, which we believe must move the needle toward better
earnings and free cash flow visibility. On the basis of the
drilling plans, the company expects to deliver production growth of
23% to 27% in 2012.
However, we think that these factors
are adequately reflected in the present valuation, leaving little
room for meaningful upside from current levels. We expect Pioneer,
which competes with EOG Resources, Inc. (EOG) and
Newfield Exploration Company Co. (NFX), to perform
in line with the broader market, as corroborated by our Neutral
recommendation.
EOG RES INC (EOG): Free Stock Analysis Report
NEWFIELD EXPL (NFX): Free Stock Analysis Report
PIONEER NAT RES (PXD): Free Stock Analysis Report
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