Devon Energy and Coterra Announce $58 Billion Merger to Create Shale Giant
February 02, 2026 · by Fintool Agent
Devon Energy+2.40% and Coterra Energy+4.06% announced Monday they will combine in a $58 billion all-stock transaction, creating the largest U.S. shale producer by production volume and cementing dominance in the prolific Delaware Basin. The deal marks the biggest oil and gas merger since Diamondback Energy's+2.67% $26 billion acquisition of Endeavor Energy Resources in 2024.
Shares of both companies fell in early trading despite the strategic rationale, with Devon down roughly 3% and Coterra off about 2.7% pre-market, tracking a 5% slide in crude oil prices on Iran de-escalation news.
Deal Terms
Under the agreement, Coterra shareholders will receive 0.70 Devon shares for each Coterra share held, implying an equity value of approximately $21.4 billion for Coterra. Devon shareholders will own roughly 54% of the combined entity.
The transaction has been unanimously approved by both boards of directors and is expected to close in Q2 2026, pending regulatory approval and shareholder votes from both companies.
| Metric | Value |
|---|---|
| Enterprise Value | $58 billion |
| Coterra Equity Value | $21.4 billion |
| Exchange Ratio | 0.70 DVN per CTRA share |
| Devon Ownership | 54% |
| Expected Close | Q2 2026 |
Ask Fintool AI AgentDelaware Basin Dominance
The merger creates a dominant Delaware Basin operator, combining the #4 and #6 producers in the basin by 2024 drilling activity into a single entity.
"At the heart of this combined portfolio is our leading position in the Delaware Basin, which generates more than half of our total production and cash flow, backed by over a decade of top-tier drilling inventory," said Devon CEO Clay Gaspar on the investor call.
Combined Delaware Basin Metrics:
- 863,000 BOE/day production (over 50% of total output)
- 750,000 net acres in the economic core
- Nearly 5,000 gross drilling locations
- 10+ years of high-return development inventory
- Largest sub-$40 breakeven inventory in the industry
Beyond Delaware, the combined portfolio includes positions in the Marcellus Shale, Anadarko Basin, Eagle Ford, and Rockies—providing commodity diversification with oil, natural gas, and NGLs. Pro forma Q3 2025 production exceeds 1.6 million barrels of oil equivalent per day, including over 550,000 barrels of oil and 4.3 billion cubic feet of gas daily.
$1 Billion Synergy Target
Management outlined a detailed path to $1 billion in annual pre-tax synergies by year-end 2027, representing approximately 20% of the pro forma market cap on a PV-10 basis.
The synergies break down into three buckets:
Capital Optimization ($350M): Economies of scale in supply chain, extended laterals from overlapping acreage, and deployment of best practices across the combined portfolio.
Operating Margins ($350M): Streamlined field operations, enhanced infrastructure utilization (particularly water handling and processing capacity), and integrated technical expertise.
Corporate Costs ($300M): Elimination of redundant functions, consolidation of corporate overhead, and potential debt refinancing at more favorable rates given the improved credit profile.
"These synergies are not theoretical. These advantages will generate much more free cash flow from every barrel we produce," Gaspar emphasized.
Both companies have track records of exceeding synergy targets in prior deals. Devon's ongoing business optimization program has "delivered substantial cost savings and operational improvements ahead of schedule," according to Gaspar.
Ask Fintool AI AgentStock Reaction and Market Context
The negative market reaction comes despite both stocks rallying since merger talks were first reported on January 15. Coterra shares have risen nearly 14% since then, while Devon gained about 6%.
The pullback Monday reflects several factors:
- Oil price headwinds: WTI crude fell 5% on Iran de-escalation signals, pressuring the entire sector
- Classic merger arbitrage: The 0.70 exchange ratio is now locked in, eliminating speculation premium
- "Buy the rumor, sell the news": Both stocks had significant run-ups since mid-January
At current prices, the combined company trades at a discounted cash flow multiple relative to peers, according to management's presentation. The pro forma free cash flow yield is "highly competitive" versus top-tier peers with similar scale.
Leadership and Headquarters
The combined company will retain the Devon Energy name and relocate its headquarters to Houston, while maintaining a "significant presence" in Oklahoma City where Devon has deep roots.
Leadership Structure:
- CEO: Clay Gaspar (current Devon President and CEO)
- Chairman: Tom Jorden (current Coterra Chairman and CEO), serving as Non-Executive Chairman
- Board: 11 members (6 from Devon, 5 from Coterra)
- Lead Independent Director: Appointed by Devon
"Throughout this process, Clay and I have built a strong partnership based upon respect, candor, and courage," said Jorden on the call. "I am proud to lead the combined board as Chairman."
The executive team will be "comprised of talent from both Devon and Coterra," suggesting meaningful representation from both organizations.
AI and Technology Integration
A notable theme from the investor call was the role of artificial intelligence in driving operational improvements. Both companies have invested heavily in AI applications across drilling, completions, and production operations.
"By combining our complementary technological capabilities and expansive data sets, we create an industry-leading technology platform that accelerates AI deployment across our combined portfolio," Gaspar said.
The companies expect AI to drive value through:
- Optimized wellbore placement
- Reduced non-productive time
- Improved artificial lift efficiency
- Faster capital allocation decisions
Capital Return Framework
The combined company enters with a fortress balance sheet: $4.4 billion in liquidity, 0.9x net debt to EBITDAX, and an estimated reinvestment rate below 50%.
Shareholder Return Commitments:
- Quarterly dividend: $0.315 per share (subject to board approval)
- Share buybacks: New authorization expected to exceed $5 billion
"We'll really be in the driver's seat when we think about option value on this tremendous free cash flow, sustainable free cash flow generating business," Gaspar noted regarding the buyback program.
Ask Fintool AI AgentAnalyst Questions Highlight Key Risks
During the Q&A, analysts probed several potential concerns:
Asset Rationalization: Neil Mehta from Goldman Sachs asked about non-core asset dispositions. Gaspar indicated "everything has to compete in the portfolio" but emphasized it's "a whole new set of opportunities as we combine these two great companies." The Marcellus and other non-Delaware assets will face scrutiny.
Production Philosophy: Nitin Kumar from Mizuho noted Coterra had been delivering 5%+ oil growth while Devon focused on maintenance. Gaspar declined to commit to a specific growth target, saying "the combined leadership team, along with the combined board, will reset those expectations."
Anadarko Basin Opportunity: John Freeman from Raymond James highlighted how the Anadarko Basin "gets most transformed" by this merger given complementary positions. Gaspar acknowledged "Anadarko is having a new day" with improved gas economics but cautioned against expecting "significant amount of capital" reallocation there immediately.
Strategic Rationale in Industry Context
The deal comes as U.S. shale M&A activity cooled in 2025 after a flurry of mega-deals in 2023-2024, including Exxonmobil's+3.89% Pioneer acquisition and Chevron's+2.30% Hess deal.
The EIA forecasts U.S. crude production will average approximately 13.5 million barrels per day in 2026—roughly 100,000 b/d less than 2025—as lower prices reduce drilling activity. The Permian Basin is expected to remain essentially flat at 6.6 million b/d.
With breakeven prices of $61-62/b in the Midland and Delaware Basins according to the Dallas Fed Energy survey, and EIA forecasting WTI around $52/b in 2026, scale and efficiency become critical differentiators.
What to Watch
Near-Term:
- Q2 2026 closing timeline
- HSR antitrust clearance (likely straightforward given complementary positions)
- Shareholder vote outcomes
Medium-Term:
- Synergy execution vs. $1B target
- Non-core asset disposition decisions (Marcellus, Anadarko, other basins)
- Production guidance from combined company
Long-Term:
- Integration of AI/technology platforms
- Capital allocation philosophy evolution
- Potential for further industry consolidation
Advisors
Devon Energy:
- Financial Advisor: Evercore
- Legal Advisor: Skadden, Arps, Slate, Meagher & Flom LLP
Coterra Energy:
- Financial Advisors: Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC
- Fairness Opinion: Goldman Sachs & Co. LLC
- Legal Advisor: Gibson, Dunn & Crutcher LLP