Devon Energy pursues another acquisition target. Where do oil supplies come from?

The oil patch passes a main wave of consolidation. Several oil companies are acquiring smaller rivals in deals that will expand their scale, reduce costs and boost free cash flow. Most of the industry The biggest players have Now secured offers after ConocoPhillips agreed to buy Marathon oil for $22.5 billion.

Devon energy (DVN 3.13%) was reportedly interested in buying Marathon before agreeing to the deal with ConocoPhillips. This is the latest in a series of takeover attempts that have resulted in Devon being the losing bidder.

There is no other potential takeover target left, Devon it will be necessary look elsewhere. Here’s a look at the latest misses and Some potential alternatives that oil company can choose next.

Missing again

Devon Energy has been exploring acquisition options for the past few months. In October, Bloomberg reported that it was considering buying CrownRock, which was is reportedly seeking a sale price of more than $10 billion.

CrownRock ultimately agreed to a deal worth $12 billion in cash and stock Western crude oil in December. This transaction will strengthen the oil giant’s position in the Permian Basin (where Devon has world-class operations) and increase its free cash flow by approximately $1 billion in the first year based on crude oil worth $70 per barrel (oil is currently closer to $80). .

Meanwhile, earlier this year, Reuters reported that Devon had contacted him Enerplus with a takeover offer valued at over $3 billion. But Enerplus decided to merge with Chord energy in a cash and stock transaction that valued it at approximately $3.6 billion. The merger will create a larger scale producer in the Williston Basin (Devon’s core region) and will significantly improve Chord’s free cash flow.

Devon held it too again, turned off again he had been talking to Marathon Oil in the last few months before it agreed to a $22.5 billion all-stock deal in ConocoPhillips. This transaction will strengthen Conoco’s position in three major US shale plays (Permian, Williston and Eagle Ford). It will also increase free cash flow, allowing the company to return more cash to shareholders. As a multi-basin producer, Marathon would be an excellent strategic fit for Devon.

A game of musical chairs lasts

The wave of consolidation in the oil industry has left fewer players in the market. Most of the largest producers have already expanded. Apart from Devon Energy, the only large-scale producer that has not yet made a major acquisition is EEA Resources.

However, EOG has historically avoided corporate mergers and acquisitions, preferring to grow organically through exploration and development. Because of this, the $70 billion oil giant enterprise value probably not a competitor to Devon Energy for future acquisitions.

With an enterprise value of $36 billion, Devon is large enough to take on any of the remaining smaller independent oil and gas producers I haven’t agreed yet to the merger agreement with A greater producer. Potential targets he could consider include:

• Ovintiv (OVV 2.68%): The $19.3 billion company produces oil and gas in the US (Permian, Uinta and Anadarko) and Canada (Montney). A deal for Ovintiv would strengthen Devon’s position in the Permian and Anadarko basins while diversifying its business. Ovintiv is not AND perfect game since Devon left Canada a few years ago. However, a deal could still make sense as Devon could sell Canadian assets to strengthen its balance sheet.
• Permian resources (PR 1.11%): As its name suggests, the $15.7 billion oil company is focused on the Permian Basin. It is part of a wave of industry consolidation: Permian Resources bought Earthstone Resources for $4.5 billion last year and then made additional acquisitions in the Permian region earlier this year for $175 million. The Permian Resources transaction would significantly enhance Devon’s already world-class position in the Permian.
• Civitas Resources (CIVI 1.34%): The $11.7 billion oil and gas producer operates in Colorado’s DJ Basin and Permian Basin. It recently strengthened its position in the Permian Midland Basin with its $2.1 billion acquisition of Vencer Energy. The Civitas deal would strengthen Devon’s position in the Permian and expand its operations into the DJ Basin.

Lots of solid options stay

Devon Energy continues to fluctuate and fall short of acquisition targets. Although many With the best options are no longer considered, some solid alternatives remain. If the company manages to find the right deal at the right price, it could join its rivals making acquisition that increases scale, reduces costs and increases cash flow.

In any case, Devon’s discipline means he doesn’t want to overpay for the deal Just to keep up with rivals. This patience may pay off in the end, because it will Now facing much less competition for remaining acquisition targets.

Matt DiLallo holds positions at ConocoPhillips. The Motley Fool holds positions in and recommends EOG Resources and Enerplus. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.