Devon Energy (NYSE:DVN) and WPX Energy (NYSE:WPX) have agreed to combine in an all-stock merger of equals transaction. The deal will create a leading U.S. unconventional oil producer with a dominant position in the Delaware Basin with a 400,000 net acre position. The combined company will also operate in the Anadarko Basin, Williston Basin, Eagle Ford Shale, and Powder River Basin. 

Under the terms of the deal, WPX Energy shareholders will receive 0.5165 shares of Devon Energy's common stock for each WPX share they currently own. Upon completion, current Devon shareholders will own 57% of the combined company with WXP shareholders owning the other 43%. The merger of equals will create an oil company with an enterprise value of $12 billion based on their stocks' closing prices last week.

The silutet of two people shaking hands with oil pumps in the background.

Image source: Getty Images.

The companies believe that the merger will be accretive on a per-share basis in the first year and maintain their current financial strength. They also expect that cost savings will drive $575 million of annual cash flow improvements by the end of next year. Further, they anticipate that the commodity price breakeven level needed to maintain their current production rate will improve to $33 for oil and $2.75 for natural gas.

The combined company plans to implement an industry-first fixed plus variable dividend strategy. The plan would see the company pay a fixed quarterly dividend of $0.11 per share with that target payout approximately 10% of its operating cash flow. On top of that, it expects to pay up to 50% of its remaining free cash flow every quarter through a variable distribution, which it plans to enact immediately upon closing the transaction.