Pioneer Natural Resources Co. (NYSE: PXD) will sell 40% of its interest in about 207,000 net acres in the Spraberry Trend to a subsidiary of Sinochem Group for $1.7 billion in cash and carry.

The leased acreage is in a highly prospective horizontal Wolfcamp shale in the southern portion of the Spraberry Trend area field. At closing, Sinochem will pay $500 million in cash and will fund an additional $1.2 billion in future drilling costs. Analysts applauded the price tag for the deal, saying it was above Wall Street expectations for the region.

The transaction is expected to close during the second quarter of 2013, and remains subject to customary governmental approvals. Under the agreement, Sinochem will acquire about 82,800 net acres of leasehold held by Pioneer for all Wolfcamp depths and deeper horizons. Pioneer retains 60% of its interest in the Wolfcamp depths and deeper horizons, with Sinochem receiving 40% of Pioneer’s interest. Pioneer will continue as operator and will conduct all leasing, drilling, completion, operations and marketing activities in the joint-interest area. The joint-interest area covers defined portions of Upton, Reagan, Irion, Crockett and Tom Green counties in Texas. Pioneer retains its current working interests in all horizons shallower than the Wolfcamp horizon.

In addition to funding its own drilling obligations for the horizontal Wolfcamp shale, Sinochem has agreed to fund 75% of Pioneer’s portion of drilling and facilities costs after closing until the $1.2 billion of drilling carry is fully utilized. Pioneer has six years to utilize the drilling carry, subject to extension under certain circumstances. At closing, Sinochem will pay its 40% share of net expenditures in the joint interest area from the Dec. 1, 2012, effective date of the transaction to the closing date. Pioneer and Sinochem have agreed to a development plan that forecasts the drilling of 86 horizontal Wolfcamp shale wells during 2013, increasing to 120 wells in 2014 and 165 wells in 2015.

If Sinochem chooses to participate in any vertical wells that are drilled in the joint-interest area after the effective date, it will receive its share of production and costs from the Wolfcamp and deeper horizons based on the anticipated reserve contribution from the Wolfcamp and deeper intervals relative to anticipated reserves from all completed intervals. Pioneer’s and Sinochem’s participation in vertical wells will be based on each party’s interest without any drilling carry being applied. Pioneer will retain 100% of its existing vertical production in the joint interest area.

Pioneer has successfully drilled and completed 39 horizontal wells in the Wolfcamp shale joint interest area through Dec. 31, 2012. Of these 39 wells, 22 wells were on production and four additional wells were flowing back. Of the 22 wells on production, 20 wells were completed in the B interval and two wells were completed in the A interval. Pioneer’s net horizontal Wolfcamp shale production in the joint interest area averaged approximately 2,000 barrels oil equivalent (BOE) per day in 2012, with a year-end exit rate of approximately 5,000 BOE per day.

“This accelerated development will add significant production and reserves for Pioneer while enhancing shareholder value,” said Pioneer chairman and chief executive Scott Sheffield.

Pioneer also announced that the deal has led it to reshuffle some of its staff. William F. Hannes, formerly executive vice president of South Texas operations, will become executive vice president of the newly formed Southern Wolfcamp Asset Team. This asset team will focus on executing the drilling program in the horizontal Wolfcamp Shale joint-interest area. Danny L. Kellum, executive vice president of Permian Operations, will focus his attention on Pioneer’s remaining Permian activities.

Analysts generally liked the announcement, saying it bodes well for Pioneer and other upstream independents active in the Permian. Wells Fargo Securities Inc. said the $1.7 billion price tag on the deal boils down to about $17,000 per acre after discounting for the time value of the cash flows. This assessment is in excess of the $12,000 per acre that Wells Fargo had used to estimate Pioneer’s assets in the region.

The healthy assessment of Pioneer’s assets in the Permian should also benefit other Permian players, particularly Concho Resources Inc. (NYSE: CXO), Laredo Petroleum Holdings Inc. (NYSE: LPI), Approach Resources Inc. (Nasdaq: AREX) and Diamondback Energy Inc. (Nasdaq: FANG). To a lesser extent, the transaction also benefits EOG Resources Inc. (NYSE: EOG), Devon Energy Corp. (NYSE: DVN) and Apache Corp. (NYSE: APA), Wells Fargo reported.

Jack Aydin, an analyst with KeyBanc Capital Markets, agreed the deal bodes well for the region, although estimated the present value of the price tag was closer to $16,500 assuming the carry is utilized over three years. This assessment for Permian acreage is above market expectation of about $10,000 per acre to $15,000 per acre in that portion of the Permian.

“We believe this confirms the quality of the Wolfcamp shale,” he said.

The deal gives Pioneer substantial financial flexibility and should enable it to further accelerate drilling outside the joint venture area. Pioneer share prices should outperform the broader market based on the deal. Only one week ago, Aydin had raised the forward price target for Pioneer to $140 per share, compared with a current price of about $116.21 per share. A recent report after the sale maintained KeyBanc’s “Buy” rating on Pioneer shares.

Michael Hall, an analyst with Robert W. Baird & Co., said the joint venture was not a surprise to Wall Street, although its price was in excess of the market’s expectations for the region. The deal will enable Pioneer to accelerate its southern Permian horizontal drilling plans and will enable it to accelerate drilling in the more prolific northern Permian acreage.

Baird has revised its model of Pioneer and raised its target price to $141 to reflect the deal.

In addition to the Permian deal with Sinochem, Pioneer announced that it is no longer looking to sell assets in the Barnett shale. Pioneer announced in September 2012 that it plans to sell up to 155,000 gross acres in the Barnett, about two-thirds of which are in a liquids-rich area. The company received several bids for the assets, but decided to hold on to them when the bids came up short of its own assessment for them.

Production from those assets in the fourth quarter of 2012 was about 9,000 BOE per day, of which approximately 55% was liquids (oil and natural gas liquids) and 45% was dry gas. Pioneer is currently operating one rig in the Combo Play and plans to continue to focus its drilling activities in this area.

Pioneer is an upstream independent energy company based in Dallas. Sinochem is a Chinese conglomerate whose core businesses include energy, agriculture, chemicals, real estate and financial services. BofA Merrill Lynch served as financial advisor and Vinson & Elkins LLP served as legal advisor to Pioneer on the transaction.