Devon Energy Corp. (DVN): Reinstate at Buy Following Coterra Merger: Shares Trading at 15% Average FCF Yield at $70/bbl WTI in 2027-2028

Research evidence excerpt

Devon Energy Corp. (DVN): Reinstate at Buy Following Coterra Merger: Shares Trading at 15% Average FCF Yield at $70/bbl WTI in 2027-2028

Goldman Sachs Devon Energy Corp. (DVN)

Exhibit 1: DVN’s pro forma framework of returning up to Exhibit 2: DVN trades at a 15% FCF yield on average

70% of FCF to shareholders provides ample upside to base 2027/28 estimates, materially cheaper than peers

shareholder return levels 2027/2028 average FCF yield of GS estimates across large cap

DVN’s est. base shareholder returns and shareholder returns’ E&Ps

ceiling in 2027/2028 based on company guidance

8%

16%

Yield 7% 14%

12%

Returns 6%5% Yield

FCF 10%

4% GSe 8%

3% 6% Shareholder

4% Est. 2% 2027/28

2027 1% 2%

0%

0% DVN FANG OXY COP EOG

DVN Framework FANG EOG DVN OXY

Peer Average

Base Return of Capital Yield Return of Capital Upside

Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research

1. Strategic focus on Delaware Basin position and the portfolio review is well underway, forming a

strong catalyst pathway for DVN

DVN now operates in six major US basins and has identified the Delaware asset as the

strategic priority, and we expect the company to continue pursuing opportunities to

strengthen this asset through potential organic and inorganic opportunities. We note

that this focus on the Delaware Basin is supported by the company’s recent $2.6 bn

acquisition of 16.3k net undeveloped acres in the Delaware Basin through a federal lease

sale. Alongside DVN providing pro forma guidance, management noted that capital

allocation to the Permian Basin is likely to be proportionally higher in 2027. We see the

newly acquired undeveloped acreage as a driver of an increase in Permian capital