This $58 Billion Merger Is Creating a New U.S. Oil and Gas Giant

Devon Energy (DVN +2.12%) shareholders will end up owning 54% of the overall company after its merger with Coterra Energy (CTRA +1.93%) is completed. While this is being billed as a merger, it is really more of an acquisition, with Coterra shareholders receiving 0.7 Devon shares for every Coterra share they own. That said, this pairing looks like a very attractive growth opportunity for Devon.

The quickest way to grow

Devon Energy doesn’t actually need to buy another company to grow its business. The U.S. onshore energy company can simply drill more wells. That, however, is a slow and tedious process, and it has to be juxtaposed against depletion. Every barrel of oil Devon pulls from the ground is one less barrel it has to produce in the future. A quicker way to grow is to buy another company, which also adds more developable land to support future growth.

Image source: Getty Images.

As a stand-alone business, Devon expects to produce around 850 million barrels of oil a day in 2026. The merger with Coterra will bump that figure up to around 1.6 million, effectively doubling the company’s production capacity. This is clearly a very big deal for Devon Energy.

It’s about more than just production

In addition, bringing Devon and Coterra together will strengthen Devon’s business in two regions, enabling material cost synergies. In total, Devon believes it has $1 billion in synergies to realize. But Coterra also brings with it exposure to the Marcellus shale region, which will expand Devon’s reach from five key operating markets to six. So Devon is growing its scale in other ways, too.

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NYSE: DVN

Devon Energy

Today’s Change

(2.12%) $0.91

Current Price

$43.56

Key Data Points

Market Cap

$27B

Day’s Range

$42.70 - $43.79

52wk Range

$25.89 - $46.15

Volume

339K

Avg Vol

9.7M

Gross Margin

23.24%

Dividend Yield

2.21%

The tie-up also keeps Devon humming along. Following the merger, it will have over a decade of inventory to develop as it continues to grow its oil production the slow and steady way. Basically, buying Coterra is a quick way for Devon to get both bigger and better.

Keep your expectations in check

Devon has a strong history of acquiring other energy companies, so this is likely to be a solid deal that proceeds quickly and efficiently. What it doesn’t change is the nature of the company’s oil and natural gas business. Volatile commodity prices will still play the biggest role in the company’s performance. So while the merger is exciting and positive news, Devon is still appropriate only for more aggressive investors willing to take on the stock swings that usually accompany fast-changing oil and natural gas prices.