Devon Energy Corp (NYSE:DVN) and WPX Energy Inc. (NYSE:WPX) are in talks over a potential merger as the two companies look to weather an industry-wide slump triggered by oil prices slump in the aftermath of the COVID-19 pandemic. The companies are considering an all-stock deal that will result in a combined company worth more than $6 billion in market value.
Energy Sector Woes
A slump in oil demand in the aftermath of COVID-19 has taken a significant toll on the overall energy industry. A number of shale drillers are struggling to stay afloat even on others filing for bankruptcy protection. Devon and WPX Energy have been hit hard on prospects in the industry, turning sour.
Likewise, the two companies have struggled to deliver consistent profits and cash flow, fuelling push for a merger hoping that it will help reinvigorate their dwindling long-term prospects. Devon market value has slumped to $3.75 billion after peaking to more than $50 billion in 2008. WPX Energy has also suffered the same fate, its market value having slumped to $2.9 billion from $8 billion two years ago.
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M&A Slump
A merger of the two companies will result in a combined company with vast holdings in the oil-rich Permian basin spanning Texas and New Mexico. However, the merger comes when such deals appear to have slowed down in the broader energy industry. Companies are staying clear of such deals given that buyers are offering modest or no premiums. Sellers are also refraining from inking such deals, given their battered share prices.
The last major deal in the energy industry occurred in July as Chevron Corporation (NYSE: CVX) inked a deal to acquire Noble Energy for $5 billion. The merger and acquisition activity has dried up as companies resort to conserving capital, having already trimmed drilling budgets. With oil prices struggling to find support above the $40 barrel level, companies have switched attention to conserving capital to weather down the pandemic storm.
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