Devon Energy Corp. has made a significant move in the energy sector by agreeing to acquire Coterra Energy Inc. in a deal valued at around $21.4 billion. This acquisition will create one of the largest shale companies globally, as companies in the industry seek to consolidate amidst dwindling drilling opportunities.
Under the terms of the deal, Coterra stockholders will receive 0.7 Devon shares for each share they own. This represents a premium of approximately 12% for Coterra investors based on the stock value in mid-January, before news of the acquisition talks emerged. However, it is a slight discount to Friday’s closing price, according to data from energy platform Enverus.
Following the announcement, Coterra’s shares experienced a decline of up to 4.6%, while Devon saw a decrease of up to 2.6%. The deal is expected to close in the second quarter and will bolster the companies’ positions in the Delaware Basin, a key area within the Permian Basin. This consolidation will enhance their competitiveness against industry giants like Exxon Mobil Corp. and Diamondback Energy Inc.
After the merger, the combined entity will operate under the Devon name, with Clay Gaspar continuing as the CEO. Gaspar emphasized the strategic importance of the deal, highlighting the company’s enhanced free cash flow potential and leadership position in the Delaware Basin.
Devon shareholders will hold a majority stake of 54% in the merged company, with Coterra shareholders owning the remaining 46%. With a pro-forma third quarter output exceeding 1.6 million barrels per day of oil equivalent, the combined company will rank among the top producers in US shale.
The acquisition will consolidate Devon’s existing Permian assets with Coterra’s acreage in the region, totaling approximately 346,000 acres. This alignment will enable the companies to leverage their combined resources for more efficient drilling operations.
Gaspar revealed that Devon and Coterra had explored merger opportunities in the past, but only recently reached an agreement. The combined entity will also have a significant presence in the Marcellus Shale, US Rockies, Oklahoma, and South Texas.
The deal, with an enterprise value of around $58 billion, is expected to generate approximately $1 billion in pre-tax savings. Industry experts view the Delaware Basin as a key asset for Devon, further solidifying the company’s position in the market.
Kimmeridge Energy Management Co., a major investor in both Devon and Coterra, expressed support for the acquisition. Mark Viviano, managing partner at Kimmeridge, emphasized the potential of the combined company’s Delaware Basin assets.
As part of the deal, Tom Jorden, CEO of Coterra, will assume the role of non-executive chairman at Devon. The company’s headquarters will be relocated to Houston, while maintaining a presence in Oklahoma City.
Financial advisory services for the transaction are being provided by Evercore for Devon, and Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC for Coterra. Legal advisory services are being handled by Skadden, Arps, Slate, Meagher & Flom LLP for Devon, and Gibson, Dunn & Crutcher LLP for Coterra.
In conclusion, the Devon-Coterra acquisition marks a significant development in the energy sector, positioning the combined entity as a major player in the US shale industry. The deal underscores the ongoing trend of consolidation among energy companies seeking to optimize resource utilization and enhance competitiveness in a challenging market landscape.
