Devon to Buy WPX After Permian Investors Push for More M&A
Monday, September 28, 2020

Devon Energy Corp. agreed to acquire WPX Energy Inc. in a $2.56 billion all-stock deal, creating one of the largest independent U.S. shale producers and answering investor calls for consolidation at a time of crisis for the sector. 

The transaction, which includes a deal premium of about 2.6%, will see Devon shareholders own approximately 57 percent of the combined entity, the companies said Monday in a statement. Shares of Devon and WPX surged, indicating investor enthusiasm for the deal.

The plunge in oil prices this year, which has left much of the shale industry unprofitable, has added to the impetus for mergers and acquisitions, particularly in the Permian, where scores of producers operate in close physical proximity.

U.S. Shale investors are frustrated after years of poor returns and missed targets. Many have called for the sector to consolidate in order to slash costs, and some have advocated for low-to no-premium deals to get them across the finish line. Stock prices have been hammered, and companies with market values of less than $5 billion are losing relevance with public investors, according to analysts at Tudor, Pickering, Holt & Co. 

"The bar for investment is rising daily -- with most long-only clients we speak with now leaning towards a $10 billion minimum market cap for investment," the analysts wrote in a note Monday. "We believe the public markets would like to see the U.S. upstream sector drop down to 10-15 companies, most of which will likely consolidate through low premium stock-for-stock merger of equals."

Cimarex Energy Co., PDC Energy Inc. and Parsley Energy Inc. could be targets in the future, according to both Johnson Rice & Co. analyst Charles Meade and the analysts from Tudor. ConocoPhillips, EOG Resources Inc. and Marathon Oil Corp. are potential buyers, they said.

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