(Reuters) – The pace of mergers and acquisitions in the U.S. oil and gas sector during the third quarter tied with the first quarter for the worst in a decade, according to data released on Monday, as most shale producers remain reluctant to spend after an oil price crash this year.

U.S. crude prices are lower by about a third from the start of the year, as the COVID-19 pandemic has hammered fuel demand and forced oil companies to focus on preserving cash to survive the downturn instead of boosting production.

Energy consultancy Enverus said just 28 deals with a disclosed value were signed during July-September.

However, the total value of these deals, at about $21 billion, was 19.4% higher than a year earlier, helped by oil major Chevron Corp’s

purchase of Noble Energy Inc

and Devon Energy Corp’s

merger with WPX Energy Inc


Enverus valued those two mergers at $18.63 billion, almost 90% of the total deal value.

“There is a broad consensus that consolidation is a net positive for the industry… but it can be a challenge to find the right asset and balance sheet fits for accretive deals,” said Andrew Dittmar, senior M&A analyst at Enverus.

“It may take several more years for consolidation to play out.”

While there is potential for more deals this year, a pickup in activity would need higher commodity prices and new capital inflows, according to Enverus, but traditional sources of funding like private equity firms have become reluctant to participate.

Companies with manageable debt loads are likely to be the focus of mergers while heavily indebted companies are “being left to find their own way, resulting in a spate of Chapter 11 filings,” Dittmar added.

Among the largest shale producers to walk down the bankruptcy path during the third quarter

Devon Energy (DVN) was already well-placed to withstand weak oil prices and now, after merging with WPX Energy (WPX), the shale oil producer will likely emerge even stronger from the downturn. The merger will allow Devon Energy to maintain its financial health while delivering more than $500 million in cost savings and pushing its cash flow breakeven price to just $33 per barrel. The new company, which will be one of the biggest shale oil producers, will be able to generate strong levels of free cash flows in a low oil price environment. Moreover, Devon Energy will also reward shareholders along the way as it adopts a fixed-plus-variable dividend model.

Image courtesy of Pixabay

Devon Energy and WPX Energy have recently announced a merger through a $12 billion all-stock deal, expected to close in the first quarter of 2021. Under the terms of the deal, WPX Energy shareholders will receive 0.5165 shares of Devon stock against each WPX Energy stock. Following the completion of the merger, the existing Devon Energy shareholders will own 57% of the new Devon Energy while WPX Energy will own the remaining 43%. The transaction has already been unanimously approved by the boards of directors of both companies. This deal will give birth to one of the largest shale oil producers in the US, pumping well over 500,000 boe per day, making it substantially bigger than other major E&Ps like Pioneer Natural Resources (PXD), Apache Corp. (APA), and Diamondback Energy (FANG) in terms of output.

Image: DVN Investor Presentation, September 28, 2020

I think the deal has improved Devon Energy’s outlook. In my previous article which was written before the merger announcement, I wrote that Devon Energy can withstand the downturn and post robust earnings and cash flow growth when oil prices eventually recover. After

(Reuters) – U.S. oil and gas producer Devon Energy Corp DVN.N said on Monday it will buy shale-oil rival WPX Energy Inc WPX.N for $2.56 billion as it looks to boost its presence in the top U.S. oilfield.

FILE PHOTO: A WPX Energy natural gas drilling rig in Parachute, Colorado, December 10, 2014. REUTERS/Jim Urquhart

The all-stock deal comes as U.S. shale companies have posted big losses on weak crude prices amid the COVID-19 pandemic and have struggled to raise new capital to restructure debt.

But as producers seek out combinations to survive the coronavirus-induced slump in demand, deals at little or no premium are becoming the norm.

“This cycle was driven by COVID, but you never know when the next cycle will happen, so we’re building a combined company that has the capabilities to withstand all the headwinds but can really prosper in better times,” Rick Muncrief, chief executive of WPX, told Reuters.

Investors cheered the deal: WPX shares closed up 16.4% at $5.17, while Devon rose 11.1% to $9.80.

WPX’s largest shareholder, EnCap Investments, will back the combination and vote its 27.3% stake against any alternative proposal that WPX might receive, according to a filing.

Devon’s deal is the second big merger after a price shock in April. In July, Chevron Corp CVX.N agreed to buy Noble Energy Inc NBL.O for $5 billion in stock and the assumption of debt.

Devon said the deal, expected to close in early 2021, will help cut costs and increase annual cash flow by $575 million by the end of next year.

The combined company, in which Devon will own 57% stake, will hold 400,000 net acres in the Delaware Basin of West Texas and southern New Mexico, and can produce 277,000 barrels of oil per day.