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Devon Energy Corporation, an independent energy company, said it will acquire Permian basin peer WPX Energy Inc for $2.56 billion, creating a leading unconventional oil producer in the U.S., with an asset base underpinned by a premium acreage position in the economic core of the Delaware Basin.

The deal values WPX at $4.56 per share, just 2.7% higher than the stock’s closing price on Friday. Under the terms of the agreement, WPX shareholders will receive a fixed exchange ratio of 0.5165 shares of Devon common stock for each share of WPX common stock owned.

The transaction creates one of the largest unconventional oil producers in the U.S. with production of 277,000 barrels per day. The combined company will benefit from a premier multi-basin portfolio, headlined by the world-class acreage position in the Delaware Basin that is 400,000 net acres and accounts for nearly 60% of the combined company’s total oil production, the company said.

The deal is expected to close in the first quarter of 2021.

Devon Energy surged more 10% in premarket market trading on Monday. However, the stock is still down over 60% so far this year.

Devon Energy stock forecast

Fifteen analysts forecast the average price in 12 months at $15.79 with a high forecast of $21.00 and a low forecast of $13.00. The average price target represents a 79.02% increase from the last price of $8.82. From those 15 equity analysts, 12 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $13 with a high of $19 under a bull scenario and $5 under the worst-case scenario. Scotiabank lowered the price target to $14 from $16; Cowen and Company lowered the target price to $10 from $11 and Wells Fargo raised the price target to $18 from $17.

A few other equities research analysts have also recently issued reports on the stock. Siebert Williams Shank reissued a “buy” rating and set a $16 target price. ValuEngine raised shares of Devon Energy from a “sell” rating to a “hold” rating. Zacks Investment Research downgraded Devon Energy from a “buy” rating to a “hold” rating and set a $11.00 price objective.


Analyst views

“Execution in focus as “New Devon” transformation complete. DVN has completed a multi-year program streamlining its portfolio as it now will focus on four US oil plays: the Delaware, Powder River Basin (PRB), Stack, and Eagle Ford. Cost reductions underpin lower breakeven. DVN plans to reduce G&A and other cash costs by $300 MM annually and use surplus cash to repurchase up to $1.5 billion of debt,” said Devin McDermott, equity analyst and commodities strategist at Morgan Stanley.

“Altogether, DVN now estimates a 2021 maintenance capex of $950 MM (excludes DUCs), down from $1.1 billion, which results in a breakeven of $35/bbl WTI (before dividends). Appears fully valued. DVN appears fully valued as it is trading near our intrinsic net asset value ($13/sh).”

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