- Five months after buying Coterra Energy to create a $55 billion Permian powerhouse, Devon Energy faces activist pressure to shed key assets or sell itself. Kimmeridge says Devon should sell another $10 billion of non-core assets, while TOMS Capital has called for an outright sale.
- Devon agreed this month to sell its Eagle Ford drilling portfolio to Crescent Energy for about $4.2 billion, which Kimmeridge called a positive but insufficient step. The shares are up more than 30% this year, propelled by high oil prices.
- Analysts and investors name Diamondback Energy, ConocoPhillips, Chevron, EOG Resources and ExxonMobil as potential buyers. Truist’s Gabe Daoud said a Diamondback-Devon combination would produce roughly 2 million barrels of oil equivalent a day, rivaling Exxon’s output from the basin.
- Analyst Timm Schneider says Chevron has the best financial capacity to pay a 20% premium and still earn annual returns above 8%, while Exxon has the biggest cost-saving opportunity. Every suitor carries drawbacks, from Diamondback’s financial stretch to Chevron’s recent decision to plateau its Permian growth.
What Happened?
Bloomberg laid out five possible acquirers for Devon after activist investors stepped up calls for the shale producer to break up or sell. CEO Clay Gaspar closed the Coterra deal in May and pledged to streamline the company’s holdings. Kimmeridge managing partner Mark Viviano said the Eagle Ford sale was “insufficient to unlock value” in Devon’s Permian position and that, absent more sales, Devon should sell itself. Devon did not respond to requests for comment and has not publicly addressed the calls for a sale.
Why It Matters?
The pressure reflects a broader shift in shale, where slowing US output growth is pushing operators to merge to lock down the best remaining drilling spots while investors demand cost control and higher returns. Devon, like several peers, is selling assets to pay down debt taken on during the consolidation wave of the past three years. The suitors’ capacity varies widely, with Exxon at a $737 billion market value and $10.6 billion of cash, against Diamondback at $55 billion and $462 million of cash. That gap gives the majors more room to act, though Exxon, for one, would have to sell assets in four basins to make a deal work, Schneider said.
What’s Next?
Watch whether Devon responds publicly to the activists or announces divestitures beyond the Eagle Ford sale. Diamondback recently guaranteed key shareholders board seats if their stake were diluted, raising expectations it could issue stock for a big deal. ConocoPhillips’ new CEO Andy O’Brien has pledged capital discipline, which could limit his appetite for a purchase this large. For Diamondback, a deal would likely mean selling assets such as Devon’s Marcellus natural gas business.
Affected Tickers and Coins: DVN, FANG, COP, CVX, EOG, XOM, CRGY
Source: Bloomberg
