Devon snaps up prime Delaware Basin acreage for $2.6 billion after Coterra merger

Shale producer Devon Energy on Thursday said it has acquired 16,300 net undeveloped acres in the core of the Delaware Basin in New Mexico for about $2.6 billion through a federal lease, strengthening its position in the top U.S. shale basin.

The lease is another major step for Devon to deepen its position 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. Shares of Devon were down 1.6% in afternoon trading as some analysts expressed concern that the company overpaid for the federal lease.

The transaction adds about 400 net drilling locations normalized to two-mile laterals, Devon said. That implies a price of about $6.5 million per net drilling location, which two analysts said was surprisingly high.

"While we understand the need to continue bolstering inventory... we believe investors will be surprised by the sticker price," Matt Portillo, an analyst with TPH & Co, said in a research note.

The price is "eye watering compared to historical M&A in the Permian," said RBC Capital Markets analyst Scott Hanold in a note.

The acreage sits next to Devon's existing operations, letting the company leverage established infrastructure and drill longer laterals, it said.

The leases are mainly in three sections of the basin that have no existing development, and one is near Devon's best-performing asset, Hanold said.

The U.S. Bureau of Land Management leases carry an 87.5% net revenue interest and 10-year terms across all depths, which Devon said offers more favorable terms and lower royalty burdens than typical state or private leases in the region.

Devon said it will fund the acquisition using cash on hand. Total cash at the end of the first quarter was $1.8 billion.