Devon Energy Strikes Out on Another Acquisition Target. Where Does the Oil Stock Go From Here?

Devon Energy Strikes Out on Another Acquisition Target. Where Does the Oil Stock Go From Here?

The oil sector is undergoing a major wave of consolidation. Several oil companies are acquiring smaller competitors in deals that will increase their size, reduce costs and increase their free cash flow. Most of the industry the biggest the players have NOW agreements concluded after ConocoPhillips agreed to buy Marathon Oil for $22.5 billion.

Devon Energy (NYSE:DVN) was reportedly interested in purchasing Marathon before striking a deal with ConocoPhillips. This is the latest in a series of acquisition attempts in which Devon has emerged as a losing bidder.

With another potential acquisition target off the table, Devon it will be necessary Look elsewhere. Here’s a look at his recent failures and a few potential alternatives that fuel company could target next.

Once again falling short

Devon Energy has been studying acquisition opportunities for several months. In October, Bloomberg announced it was considering buying CrownRock, what was reportedly seeking a sale price of more than $10 billion.

CrownRock ultimately agreed to a $12 billion cash and stock deal with Western oil in December. That agreement will strengthen the oil giant’s position in the Permian Basin (where Devon has world-class operations) and increase its free cash flow by approximately $1 billion in the first year, based on oil at $70 per barrel (crude is now closer to $80).

Meanwhile, Reuters reported earlier this year that Devon had approached Enerplus with an acquisition offer of more than $3 billion. But Enerplus chose to partner with Tuning energy in a cash and stock deal that valued it at about $3.6 billion. The merger will create a larger scale producer in the Williston Basin (a central region of Devon) and significantly improve Chord’s free cash flow.

Devon also held again, once again discussions with Marathon Oil over the past few months, before agreed to a $22.5 billion all-stock deal with ConocoPhillips. This transaction will strengthen Conoco’s position in three major US shale plays (Permian, Williston and Eagle Ford). This will also increase its free cash flow, allowing the company to return more cash to shareholders. As a multi-basin producer, Marathon would have been an excellent strategic choice for Devon.

The game of musical chairs keep on going

The wave of consolidation in the oil industry has left fewer players remaining. Most of the biggest producers have already expanded. Besides Devon Energy, the only large-scale producer that has yet to make a major acquisition is EOG Resources.

But EOG has always avoided corporate mergers and acquisitions, preferring to grow organically through exploration and development. For this reason, the $70 billion oil giant enterprise value is probably not a competitor to Devon Energy on a future acquisition target.

With an enterprise value of $36 billion, Devon is large enough to acquire any of the remaining small independent oil and gas producers that I don’t agree yet to a merger agreement with a bigger producer. Among the potential targets he could consider are:

  • Ovintiv (NYSE: OVV): The $19.3 billion company produces oil and gas in the United States (Permian, Uinta and Anadarko) and Canada (Montney). A deal for Ovintiv would strengthen Devon’s position in the Permian and Anadarko basins while diversifying its operations. Ovintiv is not it A Perfect match since Devon left Canada a few years ago. However, a transaction could still make sense as Devon could sell the Canadian assets to strengthen its balance sheet.

  • Permian Resources (NYSE:PR): As its name suggests, the $15.7 billion oil company focuses on the Permian Basin. She participated in the sector’s wave of consolidation: Permian Resources bought Earthstone Resources for $4.5 billion last year, then made targeted acquisitions in the Permian for $175 million earlier this year. A deal for Permian Resources would significantly strengthen Devon’s already world-class position in the Permian.

  • State resources (NYSE:CIVI): The $11.7 billion oil and gas producer operates in Colorado’s DJ Basin and Permian Basin. It recently strengthened its position in the Permian Midland Basin by acquiring Vencer Energy for $2.1 billion. A Civitas deal would strengthen Devon’s position in the Permian and expand its operations in the DJ Basin.

Lots of solid options stay

Devon Energy continues to falter and miss its acquisition targets. While many of the The best options are now off the table, but some solid alternatives remain. If the company can find the right deal at the right price, it could join its competitors in the market. manufacturing an acquisition that improves its scale, reduces its costs and increases its cash flow.

If anything, Devon’s discipline means he’s not willing to overpay for a deal. just to keep up with its rivals. This patience could eventually pay off since it NOW face much less competition for remaining acquisition targets.

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Matt DiLallo holds positions at ConocoPhillips. The Motley Fool holds positions and recommends EOG Resources and Enerplus. The Motley Fool recommends Occidental Petroleum. The Mad Motley has a disclosure policy.

Devon Energy is embarking on another acquisition target. Where does the oil stock go from here? was originally published by The Motley Fool

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