Devon dominates onshore lease sale in Delaware Basin

Devon Energy spent $2.6bn on leases in the New Mexico portion of the Permian Basin’s Delaware sub-basin in a lease sale held on May 20 by the Bureau of Land Management, part of the US Department of the Interior (DoI).

Devon’s bids accounted for more than half of the more than $4bn in receipts generated by the lease sale for the DoI. This, in turn, represented a new record for an onshore federal oil and gas auction, significantly exceeding the previous record of $972mn, achieved in 2018. This comes amid rising demand for US oil amid ongoing disruption to global energy markets as a result of the conflict in the Middle East.

The BLM leased 74 parcels totalling 33,530 acres (136 square km) during the quarterly lease sale. Total receipts from the auction included combined bonus bids and rental payments, the DoI said. It added that revenue generated through such lease sales was shared between the federal government and the states where the parcels are located. In this instance, the acreage on offer spanned both New Mexico and Texas.

Devon, for its part, said it had acquired 16,300 undeveloped net acres (66 square km) in New Mexico’s Lea and Eddy counties in the auction. The company said this acreage adds 400 net locations “normalised” to 2-mile (3.2-km) laterals, with expected strong well economics and low breakeven prices. The transaction value equates to $161,500 per net acre ($40.4mn per square km), or $6.5mn per location. Devon expects to fund this with cash on hand and noted that it remained “fully committed to a disciplined cash-return framework”.

This comes after Devon completed its merger with Coterra Energy earlier this month, becoming the Delaware Basin’s largest producer in the process.

“This BLM lease sale presented a rare and compelling opportunity to add high-quality, contiguous federal acreage at scale in the core of the Delaware Basin,” stated Devon’s president and CEO, Clay Gaspar. “Each tract was evaluated on rock quality, midstream connectivity, strategic fit and per-share value accretion for our owners. The favourable federal lease terms, including the lower royalty burden, multi-pay potential and the ability to develop with longer laterals on multi-well pads, are immediately accretive to our top-tier inventory.”

After Devon, the second highest bidder in the lease sale was Federal Abstract, a land title abstract firm, with $1.14bn in bids. There has been speculation that this is Matador Resources, which previously used the name Federal Abstract in a New Mexico BLM lease sale in 2018.

The DoI, meanwhile, pointed to the lease sale result as evidence that US President Donald Trump’s agenda of US “energy dominance” was succeeding.

“This over $4bn lease sale is another sign that President Trump’s American Energy Dominance Agenda is delivering results,” stated US Secretary of the Interior Doug Burgum. “By cutting costs and removing barriers to development, we are unleashing American energy, strengthening national security, creating jobs and generating significant revenue for taxpayers and local communities.”

The department noted that the lease sale had been conducted under the Working Families Tax Cuts Act, which lowered the federal royalty rate for new onshore oil and gas production to 12.5%, reversing the 16.67% rate established under the Inflation Reduction Act (IRA). The DoI expects the lower royalty rate to encourage additional investment, leasing and drilling activity on federal land.