ConocoPhillips to acquire Marathon Oil for $17 billion amid U.S. oil and gas consolidation wave

Mitchell Ferman, Bloomberg May 29, 2024

(Bloomberg) – ConocoPhillips agreed to acquire Marathon Oil Corp. in an all-stock deal valuing the company at about $17 billion, extending a major buying spree among the largest players in the U.S. oil and gas industry.

The move expands ConocoPhillips’ footprint in domestic shale fields from Texas to North Dakota and hands the company reserves as far afield as Equatorial Guinea. It adds to a wave of recent megadeals as producers seek new drilling sites on a bet that oil and gas demand will remain robust for years to come.

The acquisition agreement represents a 14.7% premium to the last closing share price for Marathon, the companies said in a statement Wednesday. The deal has an enterprise value of $22.5 billion.

ConocoPhillips joins the ranks of major drillers pursuing production growth via recent acquisitions. In October, Exxon Mobil Corp. accelerated the pace of Permian Basin consolidation with a $62 billion deal for Pioneer Natural Resources Co. That was followed later that month by Chevron Corp.’s agreement to buy Hess Corp. for about $53 billion.

ConocoPhillips had already expanded in the Permian in recent years through a $13 billion takeover of Concho Resources Inc. and a $9.5 billion purchase of Shell Plc’s assets in the region.

The ConocoPhillips deal stands out in some ways from other recent takeovers reshaping the U.S. oil patch. While acquisitions by Exxon and others focused largely on lining up future drilling sites, ConocoPhillips’s play for Marathon is more about cutting costs in the aging Eagle Ford and Bakken shale basins, analysts from Citigroup said in a research note.

ConocoPhillips shares declined 2.3% when trading opened in New York. Marathon gained 11%.

Although smaller than the massive deals struck by Exxon and Chevron, ConocoPhillips’s takeover is still apt to face anti-trust scrutiny from the US Federal Trade Commission, which has been taking a more active interest in corporate mergers under Chair Lina Khan. The agency declined to challenge Exxon’s deal but only on the condition that Pioneer co-founder Scott Sheffield be excluded from the supermajor’s board.

Devon Energy Corp. held talks with Marathon last year over a potential combination, people familiar with the matter told Bloomberg News at the time.

ConocoPhillips expects the takeover will add resources totaling 2 Bbbl to its inventory.

The company sees the deal closing in the fourth quarter, pending regulatory approvals. After that point, ConocoPhillips says its share buybacks will top $20 billion for the next three years, with more than $7 billion in the first full year, assuming recent commodity prices.

The company also plans to increase its ordinary base dividend by 34% to 78 cents per share starting in the fourth quarter.

Evercore was ConocoPhillips’ financial adviser on the deal, and Wachtell, Lipton, Rosen & Katz is the company’s legal adviser. Morgan Stanley and Kirkland & Ellis advised Marathon.

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