There's a big new oil-and-gas merger, but shareholders aren't happy

By Tomi Kilgore

Devon plans to buy Coterra in an all-stock deal, as the companies look to increase scale so they can compete with larger rivals in the Permian Basin

Devon plans to acquire Coterra in an all-stock deal, as consolidation within the oil and gas sector continues.

Devon Energy is buying Coterra Energy to create a new U.S. shale giant, but shares of Coterra fell on Monday, as the implied purchase price is below where the stock last closed.

The exploration and production companies said the all-stock merger implies a combined enterprise value of $58 billion, with Devon (DVN) shareholders set to own 54% of the combined company and Coterra (CTRA) shareholders owning 46%. The deal aims to give the combined company the necessary scale to compete with larger rivals.

Analysts at Siebert Williams Shank said they viewed the transaction as a "merger of equals" that would create "scaled, high-quality E&P with one of the largest positions" in the Delaware Basin, which is in the westernmost part of the Permian Basin, straddling Texas and New Mexico.

The combination also improves inventory depth and capital flexibility and provides a free-cash-flow cushion across commodity price cycles, they said.

And it brings together "two high-quality companies to create a larger entity that should garner greater investor interest in today's volatile energy tape," the analysts said.

The merger comes as a part of a wave of consolidation in the energy industry, including Chevron's $53 billion deal to purchase Hess, which closed last year, and Exxon Mobil's $60 billion deal to buy Pioneer Natural Resources, which closed in 2024. There was also Devon's $5 billion deal to buy Grayson Mill Energy, which closed in 2024.

Under the terms of the deal, Coterra shareholders will receive 0.70 Devon shares for each Coterra share they own. Based on Friday's $40.21 closing price for Devon shares, the deal values Coterra shares at $28.15, which is 2.4% below Friday's close of $28.85.

At Friday's close, Oklahoma-based Devon's market capitalization was $25.22 billion and Texas-based Coterra's was $21.97 billion.

Coterra's stock slumped 2%, while Devon shares inched higher after earlier losses.

Investors in the acquiring companies don't usually like stock deals, because issuing new shares to fund the purchase dilutes their holdings, meaning they now own a smaller percentage of the company.

The pricing, which is at a discount, comes after both stocks saw sharp increases in January, as the bitter cold that swept through most of the U.S. sent natural-gas prices soaring. Both stocks jumped 10% in January. Coterra's stock also got a bit of a boost last week after the Financial Times reported that a deal was close.

Devon's stock has rallied 18% over the past 12 months, while Coterra shares have gained 4% through Friday, while continuous natural-gas futures (NG00) have climbed about 17% and the S&P 500 index SPX has advanced more than 15%.

The companies said they expect synergies, or merger-related savings, of $1 billion per year. "This will drive higher free cash flow and greater shareholder returns beyond what either company could achieve alone," Devon Chief Executive Clay Gaspar said.

Before the merger announcement and after the Financial Times report, Wedbush analyst Michael Piccolo wrote in a note to clients that the deal would strengthen both companies' positions in Delaware basin.

Piccolo wrote that the deal would give the companies the scale they need to compete with rivals, such as Exxon Mobil (XOM) and Diamondback Energy (FANG).

Claudia Assis contributed.

-Tomi Kilgore

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02-02-26 1139ET