Pioneer Natural Resources merger deal could see father-son conflict challenge

By David Wethe and Kevin Crowley on 10/20/2020

(Bloomberg) --The latest merger talks between two Permian shale producers will have to deal with an unusual family dynamic that has raised concerns about a potential conflict of interest.

Pioneer Natural Resources Co. is in discussions to buy rival Parsley Energy Inc. in an all-stock deal that could be finalized by the end of the month, according to a person familiar with the matter. Pioneer is run by Scott Sheffield while his son Bryan is Parsley’s founder and chairman.

The possible deal comes amid a growing wave of consolidation in the U.S. shale industry, which is struggling with low energy prices and pressure from investors to realize cost savings and a more stable financial footing. One such combination was confirmed Monday when ConocoPhillips announced its acquisition of Concho Resources Inc.

The Sheffields’ history as Texan wildcatters spans several generations and multiple cycles of boom and bust. Pioneer’s origins go back to the business run by Scott’s father-in-law, Joe Parsley. Scott, 68, is a veteran oil executive who first took the top job at Pioneer predecessor Parker & Parsley in 1985. Bryan, 42, became a billionaire at the time of Parsley Energy’s 2014 initial public offering, months before the oil price crashed from $100-a-barrel levels.

The Sheffields have more of their wealth tied up in Parsley than they do in Pioneer, data compiled by Bloomberg show. Bryan is Parsley’s 11th largest shareholder, with a 2.7% stake valued at about $105 million. Scott’s stake in Pioneer is worth about $51 million. A spokesperson for Pioneer declined to comment on the merger while Parsley didn’t respond to messages seeking comment.

The family connection probably means that “any potential transaction would need to clear an incremental layer of scrutiny from each company’s [board of directors] before reaching the finish line,” JPMorgan Chase & Co. analyst Arun Jayaram wrote in a note.

The U.S. shale industry has been a lightning rod for accusations of poor corporate governance over the past few years. Executives have raked in millions of dollars in pay, bonuses and stock awards while stock performance languished, and in some cases their companies went bankrupt.

“There are some investors who worry this could be an outrageous conflict of interest and there are others who really believe if the deal’s in everyone’s interest then it’s fine,” said Paul Sankey, a New York-based analyst at Sankey Research.

Parsley executives would share $13.8 million in stock payments for a change of control, filings show, with CEO Matt Gallagher -- a former Pioneer employee -- receiving $5.6 million. Gallagher would also be entitled to $7.8 million if he was ousted from the merged entity.

Bryan Sheffield, who retired last year as CEO, was removed from the list of Parsley executives entitled to payouts resulting from a merger or acquisition earlier this year.

Scott Gruber, an analyst at Citigroup Inc., said the family connections between the companies may help them decide on one of the toughest aspects of deal negotiations -- who ends up with the most senior roles. “We think the social elements of a potential tie-up may be more straightforward to navigate,” he wrote in a note.

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