Fueled by a $5 billion buy, this oil stock expects 2025 to be ‘exceptionally strong’

Devon Energy (DVN -1.52%) has hit on several potential acquisition opportunities in the past year. However, the company finally found a deal to its liking in Julyagreeing to buy Grayson Mill Energy for $5 billion. The highly attractive transaction is a strong strategic fit for the oil company.

The oil producer is working to close the deal by the end of the third quarter. Given this time, you should provide oil stock with a lot of momentum towards 2025. Here’s why the deal is expected to pay big dividends for investors in 2025 and beyond.

A perfect strategic fit

Devon Energy recently reported its second quarter results and held a conference call with investors. Of the company Acquisition of Grayson Mill Energy was a key topic of conversation on that call. CEO Rick Muncrief said, “We have also taken important steps to strengthen the quality and depth of our asset portfolio with the incremental acquisition of Grayson Mill.”

The CEO emphasized that,

These assets are an excellent addition to our portfolio, fitting perfectly within the broader strategic framework to be accumulated resource and increase oil-weighted production in the best parts of major US shale plays. Upon completion of the transaction, Devon will be one of the largest oil producers in the US with average daily rates estimated at approximately 375,000 barrels of oil per day. This transaction nearly triples our production and expands our inventory in the Williston Basin. At the current rate of development, we have approx 10 years of Bakken project inventory.

The transaction significantly increases the size of the company. It will add more than 300,000 acres and 100,000 barrels per day of high-margin production to the company’s Williston Basin operations. This improved scale will enable the company to capture $50 million in cash flow savings from operational efficiencies and marketing synergies. Grayson Mill also has an expanded midstream operation that will help further improve its margins.

All fueled for a strong 2025

“We see significant financial value created from this acquisition,” CEO Devon said on the call. The CEO noted, “We expect sustainable growth in earnings and free cash flow.” With the company purchase assets at a good value, paying less than four times earnings and an estimated free cash flow yield of 15% at $80 oil, the acquisition will increase its earnings, cash flow and free cash flow. Muncrief noted on the call that “with the acquisition of Grayson, we are now positioned to deliver healthy double-digit growth in both oil and free cash flow next year”.

Devon, accordingly, expects to do so return even more money to shareholders. The deal will allow the oil producer to boost its share buyback program by 67% to $5 billion. This will give it ample ability to capitalize on opportunities to buy back its shares and generate healthy per-share growth in its key financial and operational metrics.

The CEO also stated that “we expect the free cash flow from this acquisition to be accretive to our dividend payment in 2025 and beyond.” Devon has increased its fixed base dividend at a healthy pace since its merger with WPX Energy in 2020. It has also paid significant variable dividends. He paid a total of $0.44 per share of dividends in the second quarter, split equally between basic and variable DIVIDENDS.

With increased production, earnings and cash returns expected from the transaction, Devon is excited about what lies ahead. Muncrief commented: “That Looking ahead, the outlook for Devon in 2025 is shaping up to be exceptionally strong.” While the company is still in the early stages of putting together his budget for next year, the CEO is “confident that Devon will have one of the most advantageous prospects in 2025 of any E&P company out there.”

About to stop for gas

The Devon Energy deal for Grayson Mills should indeed move the needle next year. The company expects to deliver double-digit oil production and free cash flow growth, which it should give him the fuel to increase its dividend and buy more shares. These growth catalysts could give Devon the fuel it needs to produce high-octane total returns next year, making it a potentially compelling oil stock to buy. right now.