The Iran conflict has certainly changed short term oil prices, amongst a whole lot of other things, in the past two months. Before that, however, oil prices did not send a particularly strong signal heading into 2026. Futures curves suggested relatively flat pricing, and operator expectations remained anchored in the high-$50s to low-$60s range. On the surface, that would not typically support a valuation expansion for oil-focused exploration and production companies.
Yet equity values for independent, oil-weighted E&Ps, especially those focused in the Permian and Eagle Ford, show increases that were not visible at the end of 2025.
Increasingly, valuations are being driven less by near-term commodity prices and more by structural factors: inventory depth, capital discipline, and the growing importance of scale. The recently announced Devon Energy and Coterra Energy merger provides a clear example of that trend.
I noticed this shortly before the merger announcement when stock prices rose subsequent to a November article I wrote. The same group of companies: Diamondback Energy (FANG), Permian Resources (PR), Devon Energy (DVN), and APA Corporation (APA) (minus Vital which merged with Crescent in December) were up significantly since then:
Permian Independents November 25 – April 26
Mercer Capital
Enterprise values have risen around $30 billion for these four companies since early November. After observing this, talking to clients and industry friends, and reading up on some recent developments, the key takeaway was that valuations are not rising because of a particularly bullish commodity price outlook, regardless of what is happening in the Strait of Hormuz. In fact, recent public mergers are being priced on more bearishly conservative commodity price decks that are below NYMEX strip prices and survey expectations. Simply put, valuations are rising because scarcity is becoming more visible.
This is propelled by three straightforward trends. First, high-quality drilling inventory is becoming more finite. Second, capital discipline limits supply growth. Finally, scale is increasingly required to compete effectively. These factors combine to create a more supportive valuation environment for the “haves” of these three things, even amid the absence of recent upticks in near-term commodity price signals.
Public markets have sometimes appeared to be slower to fully reflect this shift, often focusing on near-term price uncertainty, which does have an impact on value. However, strategic transactions and private market activity suggest a perspective that places greater weight on long-term asset quality and durability.
Devon-Coterra Merger: What Matters Now
The Devon-Coterra merger seems to be less about size for its own sake and more about positioning for a maturing shale landscape. Yes, management teams touted synergies, but they were relatively small, $1 billion of synergies on a merger over $50 billion. There also wasn’t a meaningful premium either in the pricing (less than 1%). Instead, the focus of the combination was centered on perceived complementary asset bases across the Permian, Eagle Ford, and even Marcellus as well as creating a deeper and more flexible inventory portfolio in both natural gas and oil.
The valuation implication is straightforward. The market is tilting towards companies that can demonstrate durable inventory and capital allocation flexibility, rather than simply growth potential. The Devon-Coterra transaction reflects that shift.
That flexibility is significant for a larger energy company. As drilling locations become more heterogeneous, operators are placing greater value on optionality, the ability to allocate capital across basins, benches, and development timelines. Scale, in this context, is not just about production. It is also about maintaining a multi-year runway of economically viable drilling locations. This task is not as easy as it used to be. It will be getting harder going forward. The latest Dallas Fed Survey suggests that break even prices for typical undeveloped wells in the Permian need to be around $67 per barrel. Devon’s and Coterra’s merger projections were assuming a lower price than that – closer to $60 per barrel. At first glance, that comparison suggests that undeveloped wells won’t be economical. However, not all undeveloped wells are “typical”. Enverus just released analysis suggesting that there are around 55,000 locations in the Permian with sub-$50 per barrel breakeven prices. This is more than double any other basin in North America. Devon and Coterra’s boards appear to be betting that their acreage has its fair share of those locations in their portfolio so that they can churn out profitable wells for years to come.
Short-Term Price Expectations Are Creating Friction, Not Stopping Deals
While consolidation remains a clear trend, near-term price expectations are influencing how transactions are negotiated. According to the Dallas Fed Energy Survey, large operators (meaning companies with over 10,000 barrels per day of production) continue to plan around conservative oil price assumptions, generally in the $60 range. This is below even longer term 2030 strip prices which are closer to $65 per barrel.
One consequence of this dynamic has widened bid/ask spreads in the M&A market. Buyers are underwriting deals based on disciplined price decks, while sellers are reluctant to transact at what may appear to be cyclical lows.
The result tends towards slower deal execution but not reduced interest. Strategic transactions continue to move forward when asset quality, particularly inventory depth and location, justifies the valuation. In that sense, price volatility is shaping timing, but not direction.
Shale Maturity Is Reshaping Growth Stories
Underlying these valuation aspects is a more fundamental reality: U.S. shale is maturing. The EIA’s Short-Term Energy Outlook indicates that production growth is slowing, even as efficiency gains continue. This reflects the natural progression of a resource base that has been extensively developed over the past decade.
The Permian remains the centerpiece of U.S. oil production, but even there, operators are increasingly developing secondary benches and managing parent-child well interactions. The Eagle Ford, meanwhile, represents a more mature, stable production base, with lower growth but strong cash flow characteristics. These are not signals of abundance, but of scarcity.
I mentioned earlier that there are tens of thousands of valuable locations left, chiefly in the Permian Basin. However, the distribution of that inventory matters. Not all locations are equal, and the highest-quality drilling opportunities are increasingly concentrated among larger operators with contiguous acreage positions which feeds the valuation story toward an inventory quality and sustainability narrative.
“He’s Not Done Yet!” – More Deal Activity To Come?
Taken together, these trends point toward continued consolidation. As shale plays age, the number of high-quality drilling locations per company declines. At the same time, the operational benefits of scale become more pronounced.
The result is an industry that is structurally inclined toward fewer, larger operators. The Devon-Coterra merger is one example, but it is unlikely to be the last. Mid-cap and large-cap independents with overlapping or complementary assets remain logical candidates for further consolidation. The latest Dallas Fed survey agrees. They asked participants regarding consolidation among the thirty or so remaining publicly traded E&P independents. Most respondents thought there was a market appetite for several more mergers and acquisitions amongst this group to take place before 2030.
Speaking of appetites…I am reminded of one of my favorite 80’s movie scenes in The Great Outdoors. When Chet (played by the late great John Candy) believes he finished his Old 96er steak, the chef blurts out “He’s not done yet!” and hilarity ensues. Thank goodness there is more than just fat and gristle left on the upstream market’s plate.