Devon Energy (DVN) wrapped up a volatile week, with shares closing at $47.22 on Friday, up a marginal 0.23% for the session but down roughly 4.6% from the prior week. The decline came after the company announced a $2.6 billion acquisition of drilling rights in the Delaware Basin, a move that has drawn sharp questions from analysts about the price tag.
The deal adds 16,300 net undeveloped acres in Lea and Eddy counties, New Mexico, giving Devon drilling rights on land that currently has no wells. According to the company, the acreage represents approximately 400 net drilling locations based on two-mile horizontal laterals, with an 87.5% net revenue interest after royalties. CEO Clay Gaspar described the opportunity as “rare and compelling.”
However, the market reaction was swift. Devon shares slipped about 2.5% following the announcement, as analysts raised concerns over valuation. Matt Portillo at TPH & Co. noted that investors would likely be “surprised by the sticker price,” while Scott Hanold at RBC Capital Markets called the cost “eye watering” compared to earlier Permian transactions.
The timing of the deal adds another layer of complexity. U.S. markets were closed over the Memorial Day weekend, with the New York Stock Exchange set to reopen Tuesday. That will be the first full session for investors to digest the news and react. The deal comes just months after Devon agreed to merge with Coterra Energy in an all-stock transaction that will create a combined company with an enterprise value of $58 billion. The merger is expected to deliver $1 billion in annual pre-tax savings by 2027.
Competition for top-tier Permian assets remains fierce. Matador Resources (MTDR) announced Thursday that it had acquired 5,154 net undeveloped acres in the core of the Delaware Basin for roughly $1.1 billion. While smaller in scale, the deal underscores the continued appetite for New Mexico shale assets after years of consolidation.
Chris Atherton, CEO of Efficient Markets, which helped run the Bureau of Land Management auction, described the bidding process as “a knife fight,” highlighting the intense competition for what he called “virgin rock.” The auction results reflect the tightening supply of prime acreage in the region.
Oil prices provided some support for energy stocks, though not enough to offset deal-related headwinds. Brent crude finished Friday at $103.54 a barrel, while U.S. West Texas Intermediate closed at $96.60. Traders remained focused on the slow pace of U.S.-Iran nuclear negotiations and ongoing disruptions in the Strait of Hormuz. “We have so many headlines back and forth, it’s hard to keep up,” said Phil Flynn, senior analyst at Price Futures Group.
The broader energy sector held steady, with the Energy Select Sector SPDR Fund (XLE) rising 0.6% to $59.49. Devon’s performance during the week was more tied to deal activity than to oil price movements, a departure from its usual correlation.
Looking ahead, Devon faces a delicate balancing act. The company has authorized an $8 billion share buyback program and increased its fixed quarterly dividend to $0.32. Free cash flow—cash left after capital spending—remains a key metric for investors to watch. If oil prices decline or if integration costs from the Coterra merger, federal land regulations, or drilling expenses exceed expectations, Devon could face pressure to defend its balance sheet while maintaining its buyback and dividend commitments.
Devon plans to update its guidance for the merged business in mid-June. For now, the company has added more Permian rock to its portfolio. The question for investors is whether the price paid was a sign of disciplined growth or an overpayment in a hot market.
