Devon Energy Corp.
WPX Energy Inc.
are in talks to combine, according to people familiar with the matter, in a move that could help the energy companies weather a prolonged industry slump.
The companies are discussing an all-stock deal that would create an entity with a combined current market value of about $6 billion. The deal could be completed as soon as this week, assuming the talks don’t fall apart, the people said. Devon has a market value of roughly $3.4 billion, while WPX’s is about $2.5 billion.
Small and midsize oil-and-gas companies like Devon and WPX have performed poorly in recent years and faced pressure from investors to deliver more consistent profits and cash flow. That has fed expectations of a potential wave of mergers as companies seek to combine forces to fortify themselves and create opportunities to cut overlapping costs.
But merger activity in the industry has been slow this year, partly because buyers are offering modest or no premiums and sellers are hesitant to strike deals while their share prices are low. But in July,
Noble Energy Inc.
for about $5 billion in what was the largest oil tie-up since the coronavirus pandemic jolted the industry beginning in mid-March, and analysts anticipate more deals in the coming months.
American shale drillers, which had helped make the U.S. the world’s top oil producer, have been hammered by the drop in demand caused by the pandemic. Companies have dramatically cut drilling budgets and pulled back on growth as they seek to conserve cash during the downturn. Still, many weaker companies are threatened with bankruptcy if the slump persists. U.S. benchmark oil prices are hovering around $40, levels at which most producers cannot produce profitably.
In a sign of the devastation, Devon’s market value is a shadow of what it once was. At its peak in 2008, the company was worth more than $50 billion. WPX was worth more than $8 billion at its peak just two years ago.
Both Devon and WPX have holdings in the oil-rich Permian Basin, which spans West Texas and New Mexico and is coveted partly because its geology makes it one of the least expensive places in the U.S. to produce oil via fracking.
Tulsa, Okla.-based WPX also has holdings in North Dakota’s Williston Basin. Devon, which is based in Oklahoma City, has other holdings in Texas, New Mexico and Oklahoma.
Write to Cara Lombardo at [email protected]
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