Energy Prospectus

MERGER UPDATE
As previously announced on Sept. 28, WPX Energy (NYSE:WPX) and Devon Energy (NYSE:DVN) have entered into an agreement to combine in an all-stock merger of equals, making the combined entity the fifth largest independent oil producer in the country.

The merger offers unique benefits to WPX shareholders, including enhanced free cash flow growth potential, the opportunity for multiple expansion given pro forma metrics, large synergies as a percentage of market cap, significant ownership in the pro forma company and the acceleration of WPX’s five-year vision targets.

Integration plans are underway, led by a transition team comprised of senior leaders from each company. Additionally, the team is tasked with capitalizing on the synergies and operational efficiencies that contribute to the significant upside of the combined company.

The combination of WPX and Devon will benefit from a premier multi-basin portfolio, headlined by a premium acreage position in the economic core of the Delaware Basin.

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. Devon shareholders will own approximately 57 percent of the combined company and WPX shareholders will own approximately 43 percent of the combined company on a fully diluted basis.

The transaction is expected to close in the first quarter of 2021 and has been unanimously approved by the boards of directors of both companies. The closing of the transaction is subject to customary closing conditions, including approvals by Devon and WPX shareholders.

I took a hard look at WPX Energy this morning and next I will update the Devon forecast/valuation model and profile.

My forecast/valuation model for WPX has been posted to the EPG website.

Just looking at WPX as a stand alone company, my valuation would be $9.00/share. It is currently trading for $7.61.

DVN + WPX is an all-stock merger of near equals. The merger will significantly lower per BOE expenses and G&A, so 1+1= 2.2 in my opinion. The Wall Street Gang seems to always discount the value of a merger or large acquisition, assuming that the Buyer (Devon in this case) had to pay a premium to get the deal done.

OKLAHOMA CITY, Dec. 02, 2020 (GLOBE NEWSWIRE) -- Devon Energy Corp. (NYSE: DVN) announced today that its board of directors has declared a quarterly cash dividend on Devon’s common stock for the first quarter of 2021. The dividend is payable on March 31, 2021, at a rate of $0.11 per share based on a record date of March 15, 2021.

I expect Devon to raise their dividends after the merger with WPX.

11/19/2020: Devon Energy price target raised to $20 from $14 at Scotiabank Scotiabank
Analyst Paul Cheng raised the firm's price target on Devon Energy to $20 from $14 and keeps an Outperform rating on the shares.
Major oil stocks have more room to run as oil prices recover, Cheng tells investors in a research note. The analyst maintains a Positive view on the major oil companies.

Stifel's price target for DVN was $31.00 on November 13

My updated profile for Devon and my updated forecast/valuation based on the merger with WPX Energy closing early in 2021 will be posted to the EPG website this afternoon. They can be found on the home page or under the Sweet 16 tab.