American shale producer Devon Energy Corp. is in talks with its rival WPX Energy, Inc. for a possible merger. According to sources familiar with the discussions, the Oklahoma-based exploration company is seeking to complete the proposed all-stock deal, which would create a combined entity worth more than $6 billion.
The talks are the latest in the further consolidation in the international oil and gas industry which has been affected by disruptions caused by the coronavirus pandemic. Since the start of the year, demand for oil and gas has been at an all-time low.
Producers are looking to reduce costs and supply to help world prices. Meanwhile, some companies are looking to leverage scale through mergers and acquisitions. The latest large merger happened in July after Chevron Corp. acquired Noble Energy for $5 billion in an all-stock deal.
Based on the reported details of the proposed merger, WPX Energy will be valued at a slight premium over its current share price. The same sources said if both sides reach an agreement on terms both companies might make an announcement as soon as next week. The same sources said no concrete agreement had yet been made and there was a possibility the merger might be canceled.
As of the end of last year Devon's market valuation was around $3.4 billion. Meanwhile, WPX's shares closed at around $4.44 per share Friday giving it a market capitalization of around $2.5 billion. Both companies mostly operate in the Delaware portion of the Permian Basin.
According to industry experts a merger would allow both to save money by removing duplication and creating synergies. The economies of scale would allow the merged companies to retain as much liquidity as possible to increase their chances of surviving the current crisis. Earlier in the year, U.S. crude prices dropped into negative territory for the first time leading to a number of companies seeking financing and bailouts to continue operating.
