By Avi Salzman and Mackenzie Tatananni
Oil and gas producers Devon Energy and Coterra Energy are joining forces to become a dominant $58 billion shale-drilling company that will rank among the top players in U.S.-based production.
The problem is that investors seem to think the shale age has peaked. U.S. drilling isn't tapped out, but the rewards are starting to plateau. The remaining acreage may end up being costlier to access and have diminishing returns.
As a result, Wall Street has been favoring companies like Exxon Mobil and Chevron that can grow more overseas, in places like South America and the Middle East. That is a reason some firms are even considering drilling in politically volatile countries such as Venezuela.
Analysts seem to like the deal, but shares of both Devon and Coterra were down 0.5% and 3%, respectively, early on Monday. Part of the problem was that oil prices were falling Monday. West Texas Intermediate futures were down 4.5% to $62.27 a barrel after President Donald Trump indicated Iran was "seriously talking" with the U.S. in a bid to tamp down geopolitical tensions.
Under the terms of the deal, Coterra shareholders will receive 0.7 Devon shares for each Coterra share they hold. The combined enterprise value of $58 billion, which includes debt, is based on Devon's closing price of $40.21 on Friday. It's the fourth-largest deal among oil and gas producers since 2020, according to Andrew Dittmar, principal analyst at Enverus Intelligence Research.
Devon shareholders will own around 54% of the combined company while Coterra shareholders will own the remaining 46%. The enterprise will operate under the name Devon Energy and operate out of Houston, where Coterra's headquarters are located.
The combined company will be able to produce more than 1.6 million barrels of oil and equivalents a day. That puts it in the top three oil and gas producers in terms of U.S. land-based production, based on statistics for the first half of 2025 compiled by Enverus.
The company will be a dominant player in the Permian Basin of Texas and New Mexico, and have significant stakes in Oklahoma and Appalachia. Oil makes up about one-third of its production, with natural gas accounting for most of the rest.
That kind of scale is crucial in shale drilling, because companies with large ownership blocks can use advanced techniques to extract even more oil from underground. Coterra and Devon own nearby sites in the Permian Basin, considered some of the most promising acreage in the country.
Owners of wide swaths of acreage can drill several miles horizontally through shale rock, recovering more oil and gas for each dollar they spend. They can also reduce equipment and debt costs.
The companies expect to cut about $1 billion in annual costs after the deal closes. They anticipate paying a quarterly dividend of 31.5 cents a share.
The union will result in a "premiere shale operator," Devon CEO Clay Gaspar said.
The problem is that being the best shale driller has less allure than it did five years ago. The U.S. oil market appears to be running out of room for production growth, at least at current prices. U.S. production is expected to remain flat this year and decline next year, according to the Energy Information Administration, the research arm of the Energy Department.
Shale drillers in Texas and nearby states have told the Dallas Fed they need oil to remain above $61 a barrel to drill profitably. While oil futures trade around $62 now, the EIA sees spot prices averaging $52 this year.
That said, if prices turn higher or the Iran negotiations stall, this deal could start to look better. William Blair analyst Neal Dingmann thinks the acquisition price represents a "compelling valuation for a big league company."
"The pro forma market cap, inventory, balance sheet, reinvestment rate, trading multiple, and a host of other metrics all are among the best in the peer group," he wrote.
He recommends that investors buy Devon stock.
Write to Avi Salzman at avi.salzman@barrons.com and Mackenzie Tatananni at mackenzie.tatananni@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 02, 2026 11:36 ET (16:36 GMT)
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