Monday, Truist Securities maintained a Buy rating on Devon Energy (NYSE:DVN), with a steady price target of $67.00. The firm's stance comes in light of Devon's announcement of a $5 billion private acquisition in the Bakken shale region. The deal, structured with 65% cash and the remainder in stock, is expected to be accretive to the company's 2025 estimates.
The acquisition involves Devon Energy purchasing assets in the Bakken, which is not as centrally located within the industry's core area as the Permian Basin. Despite the acquisition's higher purchase price, which is nearly four times the current production and $50,000 per flowing barrel based on an assumed oil price of $80 per barrel, Truist Securities sees potential for the deal to enhance shareholder returns.
Devon Energy's plan includes operating three rigs in the Bakken area along with associated midstream assets. These operations are anticipated to contribute positively to the company's strategy of increasing shareholder value. The focus is expected to be on stock buybacks as a primary method of delivering incremental shareholder return.
The firm's commentary highlighted the quality of the assets added to Devon's portfolio through this transaction. While acknowledging the purchase price may seem elevated, especially for assets located outside the core Permian region, the firm expressed optimism about the strategic benefits of the acquisition.
The Bakken acquisition's impact on Devon Energy's financials and operations is projected to be significant, with a clear emphasis on the potential for stock buybacks fueled by the added production and midstream capabilities. This move aligns with Devon's overall strategy of growth and shareholder value enhancement.
In other recent news, Devon Energy has been making significant moves in the energy sector. The company recently announced its acquisition of Grayson Mill Energy's Williston basin operations from private equity firm EnCap for a total of $5 billion. This transaction aims to expand Devon's land holdings and is expected to add approximately 500 new wells to its portfolio and contribute an additional 307,000 net acres to the company's Williston Basin holdings. According to Devon Energy, this acquisition is projected to increase its production to 765,000 barrels of oil equivalent per day.
On the personnel front, Devon Energy appointed John Bethancourt as the new independent chair of its board, effective July 1, 2024. Bethancourt, a seasoned professional in the energy sector, will succeed Barbara Baumann, who will continue to serve on the board in different capacities.
Analyst Neal Dingmann from Truist Securities noted that despite the high cost of the Grayson Mill acquisition, the deal should support incremental returns to shareholders, mainly through stock repurchases. In line with this, Devon's board of directors plans to increase the company's share repurchase program by 67%, aiming for a total of $5 billion in buybacks by mid-year 2026.
However, Devon Energy has faced some setbacks in securing other deals. The company was outbid by ConocoPhillips (NYSE:COP) in a $22 billion deal for Marathon Oil (NYSE:MRO) and by Occidental Petroleum (NYSE:OXY) with a $12 billion offer for CrownRock. Despite these challenges, analysts, including Bryce Erickson from Mercer (NASDAQ:MERC) Capital, believe that Devon is likely to secure a deal in the future as it addresses its production issues.
These are among the recent developments for Devon Energy, demonstrating the company's active role in the energy sector.
InvestingPro Insights
As Devon Energy (NYSE:DVN) embarks on its strategic acquisition in the Bakken shale region, real-time data from InvestingPro provides a snapshot of the company's current financial health. With a market capitalization of $29.11 billion and an attractive P/E ratio of 8.7 as of the last twelve months, Devon Energy stands as a robust player in the energy sector. Additionally, the company's revenue for the same period totaled $14.41 billion, despite a decrease in revenue growth of -21.92%. Devon's solid gross profit margin of 53.96% underlines the company's efficiency in managing its operations amidst the complexities of the energy market.
InvestingPro Tips highlight the company's ability to maintain dividend payments for 32 consecutive years, which may appeal to income-focused investors. Moreover, Devon's stock price movements are noted to be quite volatile, a factor that traders might consider when looking at the short-term price dynamics post-acquisition. For those looking to delve deeper into Devon Energy's financial metrics and gain additional insights, there are 6 more InvestingPro Tips available, which can be accessed with the use of the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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