The energy sector is witnessing a renewed wave of consolidation, culminating in Devon Energy’s recent announcement to acquire Coterra Energy for approximately $26 billion. This all-stock transaction represents a significant move, creating an oil and gas entity whose sheer production volumes will rival industry titans like Exxon Mobil, Chevron, and ConocoPhillips. The deal underscores a shift in market dynamics, where strategic mergers are once again gaining traction after a period of relative quiet in dealmaking.
This merger of near-equals is poised to reshape the landscape of the Permian Basin, specifically establishing the combined entity as the dominant producer in the Delaware Basin, which spans west Texas and southeastern New Mexico. The Delaware Basin alone will contribute over half of the expanded Devon’s projected 1.6 million barrels of oil equivalent produced daily. While the Permian remains central, the new Devon will also maintain substantial operations across Oklahoma, Pennsylvania, North Dakota, Wyoming, and the Eagle Ford Shale in south Texas. This strategic geographical spread aims to leverage diverse asset bases and operational efficiencies.
Clay Gaspar, Devon Energy’s CEO, highlighted the central role of the Delaware Basin in this acquisition, describing it as the “crown jewel asset” for both companies independently, and now, for the combined entity. This sentiment is echoed by Andrew Dittmar, a principal analyst at Enverus Intelligence Research, who noted the increasing difficulty of executing large-scale combinations given the extensive consolidation seen in recent years. Dittmar emphasized that investors are now seeking deals driven by operational overlaps and strategic sense, rather than mere scale. The combined company is projected to command an enterprise value of $58 billion, including debt, with Coterra valued at around $21.5 billion, excluding approximately $5 billion in assumed debt.
The leadership structure post-merger will see Gaspar continue as CEO, while Coterra CEO Tom Jorden will assume the role of nonexecutive chairman. A notable change involves Devon’s headquarters relocating from Oklahoma City to Coterra’s Houston base, though the company has committed to maintaining a robust presence in Oklahoma. Gaspar framed the timing as an alignment of favorable conditions, building on Devon’s 2021 acquisition of WPX Energy and Coterra’s formation that same year from the merger of Cimarex Energy and Cabot Oil & Gas. He stressed that the aim extends beyond mere growth, focusing on the substantial operational synergies identified in the Delaware and Oklahoma’s Anadarko Basins.
These synergies are projected to reach $1 billion by the end of 2027, stemming from $350 million in reduced capital spending, an additional $350 million in annual operational efficiencies, and $300 million from workforce reductions and corporate cost savings. The transaction, anticipated to close by the end of June, will grant Devon shareholders 54% ownership of the combined company and six of the 11 board seats. The deal’s closure is also being watched by activist energy investor Kimmeridge, a stakeholder in both Devon and Coterra, which has advocated for further industry consolidation and a focused approach on the Delaware Basin. Kimmeridge’s Managing Partner, Mark Viviano, has indicated continued pressure for non-Delaware asset sales, signaling ongoing scrutiny of the combined company’s portfolio rationalization strategy.
Gaspar affirmed a commitment to “ruthless capital allocators” post-merger, stating that individual assets would need to compete for investment, though the Delaware Basin is expected to remain a primary focus. Dittmar further elaborated on the Delaware’s appeal, noting its “highest quality rock in the Lower 48” and its long-term potential, characterized by multiple layers of oil and gas columns extending five miles underground. This geological advantage allows for sustained drilling in the same acreage for years. While the Midland Basin, another part of the Permian, has historically been valued for its higher percentage of crude oil, the Delaware’s gassier profile is increasingly seen as an advantage, particularly with rising gas prices driven by increased exports and growing domestic electricity demand from data centers and the AI boom. This strategic positioning, combined with enhanced supply-chain negotiating power and increased leverage for land swap deals, aims to optimize the combined entity’s operations in a competitive energy market.
