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Consolidation Among Drillers

30 September 2020 by jbchevrel

Among drilling companies, the 1st step was cutting costs and capex, and the 2nd step (now) is consolidation. Shale drillers Devon Energy Corp. (DVN) and WPX Energy Inc. have agreed to combine in an all-stock merger of equals, to weather this crisis better with synergies. The deal would create an entity with a combined market value of about $6 billion. Devon currently has a market value of about $3.5 billion, and WPX’s is about $2.5 billion. The enterprise value for the combined entity would be about $12 billion. DVN CDS is in all CDX IGs, the curve wasn’t much impacted by the merger news. Today oil prices are hovering around $40, a level at which most cannot produce in a profitable manner. In this challenging environment, the key for DVN will be about achieving the cost cuts they are aiming at. They said the cost savings under way in H2 plus those resulting from the merger are expected to improve annual cash flow generation by +$575 million by the end of next year.