U.S. shale producer Devon Energy’s $2.6 billion purchase of new acreage in the Delaware Basin will extend its drilling runway and reinforce its position as the region’s top producer, analysts said on Friday. Devon bought 16,300 net undeveloped acres in a federal lease sale this week in the Delaware part of the broader Permian Basin spanning West Texas and New Mexico, just weeks after closing its $58 billion merger with Coterra Energy. While the price tag raised some concerns, one analyst said the deal was key to sustaining future output.
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* Devon had about 10 to 12 years of drilling inventory in the Permian, below peers such as EOG, which has roughly 15 to 20 years, according to RBC Capital Markets. The new acreage adds about one year of inventory for Devon.
* A wave of mega-mergers in the Permian in recent years means there is less acreage available to buy, and the best drilling locations have already been tapped, putting long-term pressure on producers. “Now there’s a proverbial gun to your head,” said Scott Hanold, managing director of energy research at RBC.
* The lease sale was a rare opportunity to acquire attractive undeveloped land that is near Devon’s best oil assets at favorable terms, Hanold said.
* The company said in a meeting that the new acreage would have good economics even if oil were to fall to $60 a barrel, he added.
* The lease sale also further strengthens Devon’s position in the Delaware portion of the basin. The Coterra deal propelled Devon from the third-largest to the top Delaware producer, said Andrew Dittmar, principal analyst at Enverus.
(Reporting by Sheila Dang in Houston; Editing by Nathan Crooks and Sanjeev Miglani)