Devon Energy Expands Delaware Basin Footprint

Devon Energy Expands Delaware Basin Footprint

Devon Energy, a U.S. shale producer, announced on Thursday its acquisition of 16,300 net undeveloped acres in the core of New Mexico's Delaware Basin for approximately $2.6 billion. This transaction, conducted through a federal lease, significantly strengthens Devon's position in the Permian Basin, a prominent U.S. shale play. The acquisition follows weeks after the company finalized its $58 billion merger with Coterra Energy.

The newly acquired acreage adds approximately 400 net drilling locations, normalized to two-mile laterals. This implies a cost of about $6.5 million per net drilling location.

Analysts from TPH & Co and RBC Capital Markets expressed concerns regarding the high price, noting it was substantial compared to historical mergers and acquisitions in the Permian Basin. Despite these concerns, the leases offer favorable terms, including an 87.5% net revenue interest and 10-year terms across all depths, which are more advantageous than typical state or private leases in the region.

The acquired land is strategically located adjacent to Devon's existing operations, enabling the company to leverage established infrastructure and drill longer laterals. The area, situated in New Mexico's Potash Area, is known for high-quality rock formations and strong economic potential, despite general restrictions on oil and gas drilling to protect potash mining interests.

Devon Energy plans to fund the acquisition using its cash on hand, which totaled $1.8 billion at the end of the first quarter.