Energy company Devon Energy announced Thursday it has purchased 16,300 acres of undeveloped land in New Mexico’s Delaware Basin core area for approximately $2.6 billion through a federal lease agreement, bolstering its presence in America’s leading shale production region.
The acquisition represents another significant move for Devon to expand its Delaware Basin holdings, which is part of the larger Permian Basin stretching across West Texas and New Mexico. This purchase comes just weeks after the company completed its $58 billion merger with Coterra Energy. Devon’s stock price dropped 1.6% during afternoon trading as several analysts raised concerns about the high cost of the federal lease.
According to Devon, the deal brings approximately 400 net drilling sites when calculated using two-mile laterals. This calculation suggests a cost of roughly $6.5 million for each net drilling location, a figure that surprised two industry analysts.
“While we understand the need to continue bolstering inventory… we believe investors will be surprised by the sticker price,” said Matt Portillo, an analyst with TPH & Co, in a research note.
RBC Capital Markets analyst Scott Hanold described the price as “eye watering compared to historical M&A in the Permian” in his analysis.
The newly acquired land borders Devon’s current operations, allowing the company to utilize existing infrastructure and drill extended laterals, according to the company’s statement.
Hanold noted that the leases cover primarily three undeveloped sections of the basin, with one located near Devon’s top-performing asset.
These U.S. Bureau of Land Management leases include an 87.5% net revenue interest and 10-year terms covering all depths. Devon stated these arrangements provide better terms and reduced royalty payments compared to typical state or private leases in the area.
The company plans to finance the purchase using existing cash reserves. Devon reported $1.8 billion in total cash at the conclusion of the first quarter.
