Devon Energy's $5B buyback and AI-driven growth fuel Coterra merger ambitions
Devon Energy (DVN) has announced a major all-stock merger with Coterra Energy (CTRA), set to finalise in the second quarter of 2026. The deal will leave Devon shareholders with roughly 54% ownership of the combined company. Meanwhile, the firm's financial strength has grown, with free cash flow hitting $3.1 billion in 2025—far above previous levels.
On another front, Constellation Energy (CEG) remains a high-profile bet on AI-driven energy demand. Despite a 18% drop in its stock price since January, Wall Street still views the nuclear power provider as key to fuelling data centre expansion. Yet questions linger over whether its steep valuation matches current performance.
Devon's merger with Coterra follows a year of strong operational gains. Since launching an AI-powered drilling partnership in early 2025, the company's oil output has climbed 12%, from 670,000 to 750,000 barrels per day by year-end. This boost, driven by AI-optimised processes, has improved profitability and cost efficiency—outpacing rivals like ExxonMobil, which saw growth of just 5-8% over the same period.
The deal's closure will trigger immediate financial benefits. Devon's quarterly dividend will rise 31% to $0.315 per share, while a new $5 billion share buyback programme begins. The combined entity also secured two major long-term contracts: a 10-year deal to export 50 million cubic feet (MMcf) of liquefied natural gas (LNG) daily from 2028, and a 7-year agreement to supply 65 MMcf per day to a 1,350 MW power plant tied to AI electricity demand.
Constellation Energy, meanwhile, reported a 13% year-over-year revenue increase in its last quarter. But its full-year net income fell 38% to $2.3 billion, raising doubts about its premium valuation. The stock now trades at 41 times trailing earnings, with a market capitalisation near $109 billion—priced heavily on expectations of AI-driven growth rather than current results.
Analysts have taken a closer look at Devon's contrasting fundamentals, even as the company remains under the radar in broader market discussions. Its market cap sits at around $28.7 billion, backed by rising production and locked-in contracts. Constellation, despite its narrative strength, faces pressure to justify its lofty price tag amid falling profits and a declining share price since January.
The Devon-Coterra merger will create a larger, more cash-rich energy producer with guaranteed long-term demand for its gas. Higher dividends and a $5 billion buyback plan signal confidence in future earnings. For Constellation, the challenge remains balancing its AI growth story with weaker financials, as investors weigh whether its nuclear-powered data centre bets will deliver expected returns.
