Devon Energy, a leading U.S. oil and gas producer, has missed out on several major acquisition opportunities in the last 12 months, according to sources familiar with the negotiations. The company has lost bids to acquire at least three of its peers, including the $22 billion deal for Marathon Oil by ConocoPhillips, the $12 billion acquisition of CrownRock by Occidental Petroleum, and the $3.8 billion sale of Enerplus to Chord Energy.
The main reason behind Devon’s inability to clinch these deals was the perceived weakness of its stock as acquisition currency. Devon’s shares have underperformed the S&P 500 Energy index by 16 percentage points over the past year, making its offers less attractive to potential targets. The company’s recent production issues and higher drilling costs have undermined investor confidence, leading acquisition targets to be skeptical about the value of Devon’s stock.
The recent mega-deals in the sector, such as Exxon Mobil’s $59.5 billion acquisition of Pioneer Natural Resources and Chevron’s $53 billion agreement for Hess, have been all-stock transactions. This structure helps reconcile price disagreements with acquisition targets, as their shareholders are reluctant to cash out for fear of a sharp rebound in energy prices but are willing to roll their stakes into the combined company.
However, Devon’s weaker stock position put the company at a disadvantage compared to its rivals, limiting its ability to offer attractive premiums and bid up asking prices without potentially diluting the deal’s financial benefit to itself.
Despite Devon’s strategy of running a tight ship and returning cash to shareholders, the company’s recent production problems and higher costs have eroded investor confidence in its stock. This, in turn, has made it more challenging for Devon to capitalize on the ongoing merger and acquisition wave in the U.S. oil and gas industry.