ConocoPhillips (NYSE:COP) has agreed to purchase Marathon Oil (NYSE:MRO) for $22.5 billion, marking another significant merger in the oil and gas industry as companies strive to enhance their reserves.
Over the past two years, the U.S. oil and gas sector has seen a surge in consolidation. Last year, merger and acquisition (M&A) deals totaled $250 billion, a trend that continues as the stock market thrives and U.S. oil production reaches new heights. ConocoPhillips’ all-stock offer values Marathon Oil at $30.33 per share, nearly 15% above Marathon’s closing price on Tuesday. The deal, which includes $5.4 billion of Marathon’s debt, is expected to finalize in the fourth quarter of 2024.
The acquisition is projected to yield $500 million in cost savings within the first year post-closure and will add over 2 billion barrels of reserves to ConocoPhillips’ portfolio.
Marathon Oil operates in key regions such as the Bakken basin in North Dakota, the Permian basin in West Texas, and South Texas’ Eagle Ford basin—areas that are prime targets for increasing inventory.
Following the announcement, Marathon Oil’s shares rose by 10.8%, while ConocoPhillips’ shares fell by approximately 1.4% in premarket trading.
“This acquisition strengthens our portfolio and fits within our financial framework, adding high-quality, low-cost supply inventory adjacent to our leading U.S. unconventional position,” said Ryan Lance, CEO of ConocoPhillips.
This merger follows other significant deals in the industry, including Exxon Mobil’s (NYSE:XOM) acquisition of Pioneer Natural Resources announced in October and Chevron’s (NYSE:CVX) proposed $53 billion merger with Hess (NYSE:HES), which received shareholder approval on Tuesday.
The increase in consolidation has drawn antitrust scrutiny, with the FTC reviewing multi-billion dollar deals involving Chevron, Diamondback Energy (NASDAQ:FANG), Occidental Petroleum (NYSE:OXY), and Chesapeake Energy (NASDAQ:CHK).
“Conoco’s production from Eagle Ford is poised to surpass its legacy assets in the Delaware basin post-merger,” stated Viktor Katona, head of oil analysis at Kpler.
ConocoPhillips also announced plans to divest nearly $2 billion worth of assets and intends to increase share buybacks to $7 billion next year from this year’s projected $5
billion. The company commits to repurchasing $20 billion of its shares over the three years following the deal’s closure.
“We view this transaction as a positive indicator for the E&P sector, especially for diversified, underappreciated mid-caps trading at discount valuations with strong capital returns,” commented Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co.
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