Devon Energy (NYSE:DVN) is on the move Monday after announcing it would acquire peer WPX Energy (NYSE:WPX). It has been a tough year for the oil patch, so investors are rewarding DVN stock for charting a strategic path. In short, this deal should help cut costs, boost scale and even avoid a pending political downside catalyst.
This has by no means been a good year for oil and gas companies. The novel coronavirus pandemic has driven down demand, and a price war between Saudi Arabia and Russia introduced some powerful volatility to the market. Now, depressed prices, political headwinds and an electrified future continue to weigh on the space. Devon Energy appears to recognize that reality, and its acquisition of WPX is an appealing remedy.
So what exactly is the plan? Devon Energy has agreed to purchase WPX Energy for $2.56 billion in an all-stock deal. Importantly, this will create one of the largest independent U.S. shale producers. Together, the two companies will have an impressive presence in one of the hottest parts of the Permian Basin — West Texas and southeastern New Mexico.
There are a lot of things for investors to like about the deal. It offers industry consolidation and includes a deal premium, at a time when shale producers are in desperate straits. Plus, Devon Energy says it will see free cash flow improvements of $575 million and significant cost savings.
But investors should also like DVN stock as it preps itself for the November presidential election.
DVN Stock Now Looks Hot Ahead of November
One of the key takeaways from the deal is that Devon Energy and WPX are two companies with a strong presence in the Permian Basin. Together, they will form a larger and even more powerful player. However, acreage in Delaware is also important ahead of Election Day.
According to one analyst this morning, DVN stock is now much safer ahead of the election. Why? Much of Delaware is federally owned land. While both Devon and WPX have significant operations in Delaware, less of WPX’s acreage is on federal property. This matters as former Vice President Joe Biden has promised to ban fracking on federal land if he ends up in the White House.
As we have previously reported, a Biden presidency is not necessarily a death sentence for shale producers. He has not promised to outright ban fracking, and other factors like the nomination and potential confirmation of Judge Amy Coney Barrett to the Supreme Court will weigh on his ability to implement more progressive energy policies. However, any move by companies to protect themselves ahead of volatility deserves praise.
In short, DVN stock now delivers a consolidated player with a bit more political protection.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer for InvestorPlace.com.