Devon’s $5B deal may not move the needle as peers bulk up – Bloomberg

Devon Energy’s (NYSE:DVN) $5B acquisition of Williston Basin assets from Grayson Mill may boost the company’s production and some of its financial metrics, but it probably will not help it keep up with leaders in the industry, Bloomberg Intelligence said Tuesday.

As peers bulk up in the lower-cost, more-prolific Permian Basin, BI analyst Vincent Piazza said he believes buying in a secondary, more mature area may push Devon (DVN) to follow up with more purchases.

The deal may enhance Devon’s (DVN) margins by capturing higher pricing through access points across multiple end markets, but Piazza thinks the company’s guidance for free cash flow yield of 15% seems “aggressive,” even with elevated oil and gas prices.

Devon Energy (DVN) may have felt some pressure to strike a deal to keep pace with its peers amid a frenzy of oil and gas sector consolidation and M&A, Enverus analyst Andrew Dittmar said.

The Grayson acquisition continues a trend of buyers looking beyond the popular Permian Basin to find assets with scale in an increasingly consolidated market, Dittmar noted.

The deal makes Devon (DVN) the fourth largest producer in the Williston Basin based on gross operated production, behind Chord Energy (CHRD), Continental Energy and ConocoPhillips (COP), including the recent acquisition of Marathon Oil.

Grayson actually would have been a natural acquisition target for Chord (CHRD), which may now find itself as an acquisition target as M&A in energy production heats up, although it also could pursue smaller opportunities in the Williston itself, Dittmar said.