U.S. shale producer Devon Energy will acquire Coterra Energy for nearly $26 billion in a combination that creates a domestic oil and gas juggernaut trailing only household names Exxon Mobil, Chevron, and ConocoPhillips in sheer production volumes, the companies announced Feb. 2.
After a couple of years of rapid consolidation in the energy sector, dealmaking slowed down dramatically last year as oil prices fell when OPEC ramped up its output and the Trump administration implemented a series of tariffs worldwide. Now, with crude oil prices stabilizing—albeit at lower levels—M&A is making a comeback, analysts said.
The all-stock merger of near equals creates the largest oil and gas producer in the western lobe of the booming Permian Basin—the Delaware Basin in west Texas and southeastern New Mexico. It is the biggest oil and gas merger in two years since Diamondback Energy bought Endeavor Energy Resources to make a Goliath in the Permian’s eastern lobe, the Midland Basin.
The combined Devon would carry an enterprise value of $58 billion, including debt. The deal does not include a premium, valuing Coterra at about $21.5 billion, not counting roughly $5 billion in assumed debt.
The Delaware Basin would account for just more than half of the expanded Devon’s 1.6 million barrels of oil equivalent produced daily, but the company also would have sizable footprints in Oklahoma, Pennsylvania, North Dakota, Wyoming, and south Texas’s Eagle Ford Shale.
“The Delaware was Coterra’s crown jewel asset, as well as Devon’s crown jewel asset,” Devon CEO Clay Gaspar told Fortune in a phone interview. “When you combine those two together, it is the premier Delaware position.”
Strategically, the deal makes a lot of sense, said Andrew Dittmar, principal analyst at Enverus Intelligence Research. “It’s gotten harder and harder to put together these big combinations with the amount of consolidation we saw in 2023 and 2024. There’s not a lot of very logical consolidation targets left. Investors have been skeptical of these deals that seem like scale for scale’s sake. They really want to see those operational overlaps.”
The stars aligning
Gaspar will remain CEO of Devon while Coterra CEO Tom Jorden will become the nonexecutive chairman. Devon will move its headquarters from Oklahoma City to Coterra’s Houston home, while pledging to maintain a strong Oklahoma presence.
“With these deals, you do them when the stars align,” Gaspar said.
In early 2021, Devon greatly expanded by acquiring WPX Energy, and Coterra was created later that same year through the combination of Cimarex Energy and Cabot Oil & Gas. About five years later, the timing was right for the next step change, Gaspar said. And Coterra was ready to explore its options.
“Those stars started to align and then, over the last few months, Tom and I have done the hard work to figure out how do we build something together that really is a true merger, and it will embrace the best from both sides,” Gaspar said.
While adding scale and more drilling is critical, Gaspar said, “This is not just to get bigger.” The operational synergies created in the Delaware Basin and Oklahoma’s Anadarko Basin are immense, he said. He and Jorden identified $1 billion in synergies by the end of 2027: $350 million from reduced capital spending, $350 in annual operational efficiencies, and $300 million from job cuts and reduced corporate costs.
The deal is expected to close by the end of June, giving Devon shareholders 54% of the combined company. Devon would control six of the 11 board seats.
One wild-card element is activist energy investor Kimmeridge, which owns modest stakes in both Devon and Coterra, pushing for greater consolidation within the industry.
Kimmeridge was critical of Coterra’s performance late last year, urging leadership changes and divestments from its Oklahoma and Pennsylvania assets so it could focus on the Delaware Basin. Kimmeridge Managing Partner Mark Viviano on Feb. 2 said the firm will continue to push for non-Delaware asset sales under the combined Devon and will closely monitor the companies’ proposed board nominees.
“As a significant shareholder in both companies, we are supportive of a combination that can unlock meaningful shareholder value,” Viviano said. “We continue to believe that will require portfolio rationalization and a renewed focus on the Delaware Basin.”
Drilling down the Delaware
After the deal closes, Gaspar said the management will determine whether to “double down” on or sell any of its geographic assets. “We will be ruthless capital allocators. These individual assets need to compete.”
But the Delaware Basin will certainly remain the focal point.
“It’s really going to be a powerhouse in the Delaware, which is absolutely the Permian play you want to have as the centerpiece of your company if you can,” Dittmar said. “It’s the highest quality rock in the Lower 48.”
While the Midland Basin is the most mature part of the Permian with the most infrastructure and low-hanging fruit, the Delaware arguably has the most long-term potential.
The Delaware essentially offers five miles underground of varying layers of oil and gas columns, allowing Devon and other to drill multiple depths on the same acres for years to come.
“They always say that the best place to find oil is where you’ve already found oil, and that’s what gives us such confidence in the Delaware Basin,” Gaspar said.
“As opposed to the Midland side, the Delaware typically is a little bit deeper. It’s a little bit higher pressure, can cost a little bit more, but the economics stand up to anything in the U.S.,” he added. “It’s just a really phenomenal winning asset.”
The Midland Basin was sometimes higher valued for having a higher percentage of more valuable crude oil versus natural gas. However, the timing works for Devon on the gassier Delaware with gas prices on the rise from surging gas exports and spiking domestic electricity demand to power the data center and AI boom.
“The gas percentage is actually a virtue these days as we get this incredible insatiable demand,” Gaspar said.
Having the combined acreage gives Devon more supply-chain negotiating power, more land to drill longer well laterals, and more leverage to make land swap deals to really optimize the position going forward, Gaspar said.
Now Gaspar must make the move from Oklahoma to Houston, acknowledging the headquarters change was a negotiation concession, although one that places Devon in the nation’s largest oil and gas city.
“There’s gives and there’s takes. This was fundamentally important to get the deal done,” he said. “When we saw the value creation of this combined company, that was something we were willing to throw on the table.”
