Devon Energy's bold merger and gas deals reshape its future in oil and gas

Devon Energy (DVN) has made a series of strategic moves, positioning itself strongly in the energy sector. The company announced an all-stock merger with Coterra Energy, slashed capital spending while boosting oil output, and secured long-term gas contracts tied to rising AI-driven demand.

Meanwhile, its valuation contrasts sharply with high-flying peers like Constellation Energy (CEG), which trades at a far higher multiple despite weaker earnings growth.

In February 2026, Devon Energy revealed plans to merge with Coterra Energy in an all-stock deal. Shareholders approved the transaction, which is set to close in the second quarter of 2026. Upon completion, Devon's shareholders will hold roughly 54% of the combined company. The merger is expected to generate $1 billion in annual cost savings.

The company also cut its 2025 capital expenditures to $3.6 billion. Despite this reduction, oil production reached 390,000 barrels per day in the fourth quarter—exceeding earlier guidance. Free cash flow surged to $3.1 billion for the year, a significant increase from prior periods.

Looking ahead, Devon has locked in two major gas supply deals. A seven-year agreement will deliver 65 million cubic feet per day to a proposed 1,350 MW power plant, starting in 2028. Additionally, a 10-year contract will export 50 million cubic feet per day of liquefied natural gas (LNG), also beginning in 2028. These deals provide long-term revenue visibility.

After the merger finalises, Devon's quarterly dividend will rise by 31% to $0.315 per share. The board has also authorised a new share buyback programme worth over $5 billion. Currently, the company trades at 11 times trailing earnings, far below Constellation Energy's 41x multiple. Constellation, valued at around $109 billion, has seen net income drop 38% year-over-year to $2.3 billion, yet remains a Wall Street favourite due to its nuclear-powered AI data centre growth story.

Devon's market capitalisation stands at approximately $28.7 billion. While it receives less mainstream attention than peers, analysts are taking a closer look at its contrasting fundamentals—strong cash flow, disciplined spending, and a focus on shareholder returns.

The merger with Coterra, combined with long-term gas contracts and higher shareholder payouts, sets Devon Energy on a clear path for growth. Its lower valuation compared to peers highlights a different market perception, even as the company delivers rising production and cash flow. The deal's completion in mid-2026 will mark the next phase of its expansion strategy.