In a strategic move to bolster reserves and improve operational efficiency, ConocoPhillips, the largest independent US oil and gas producer, has announced a deal to acquire Marathon Oil for $22.5 billion. This deal is the latest in a series of substantial mergers within the energy sector.
Over the past two years, the US oil and gas industry has witnessed a major wave of consolidation, with companies scrambling to increase their reserves and achieve economies of scale. About $250 billion worth of deals took place last year alone. That trend continues into the current year, driven by a booming stock market and record U.S. shale oil production.
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“We are heading into a Shale 2.0 period, which is focused on leveraging technology, efficiency, data analytics and the potential of refracking to maximize top-tier inventory,” said Ryan Lance, CEO of ConocoPhillips.
The all-stock transaction values Marathon Oil at $30.33 per share, reflecting a premium of nearly 15% over the stock's closing price on Tuesday. The deal, which includes $5.4 billion of Marathon's debt, is expected to close in the fourth quarter of 2024.
After the announcement, Marathon Oil shares rose 9% to $28.85, while ConocoPhillips fell 3.8% to $115.10 in morning trading.
Jeoffrey Lambujon, analyst at Tudor, Pickering and Holt pointed out“The deal makes operational sense given the asset overlap, particularly in the Eagle Ford and Bakken regions. Marathon Oil's international gas assets also complement ConocoPhillips' global gas footprint.
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Marathon Oil has major operations in the Bakken Basin in North Dakota, the Permian Basin in West Texas and the Eagle Ford Basin in South Texas, regions that are prime targets for producers looking to increase their inventory. ConocoPhillips was the third-largest oil and gas producer by volume in the Permian, the main U.S. shale oil field, last quarter.
This acquisition follows Exxon Mobil's $60 billion acquisition of Pioneer Natural Resources announced in October and Chevron's proposed $53 billion merger with Hess, which was recently approved by Hess shareholders. The industry's consolidation activity, however, has attracted antitrust scrutiny.
Despite this, Lance mentioned that the Federal Trade Commission (FTC) recognizes that oil is a global market and that the deal represents a “very, very small percentage of that global market.” He added that the company's estimate of a shutdown later this year is conservative, noting that the FTC has “already crossed that Rubicon with some of the settlements that have been reached over the last couple of years.”
ConocoPhillips also plans to dispose of nearly $2 billion worth of assets and has signaled an increase in share buybacks to $7 billion next year from $5 billion projected for this year. The company commits to buy back $20 billion of its stock over the three years after the deal closes.
ConocoPhillips expects to realize cost savings of $500 million in the first year after the transaction closes. In addition, the acquisition will add more than 2 billion barrels of reserves to ConocoPhillips' portfolio.
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