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ConocoPhillips signage during the LNG 2023 energy trade show in Vancouver, British Columbia, Canada, July 12 2023. Picture: REUTERS/CHRIS HELGREN
ConocoPhillips signage during the LNG 2023 energy trade show in Vancouver, British Columbia, Canada, July 12 2023. Picture: REUTERS/CHRIS HELGREN

ConocoPhillips on Wednesday agreed to buy Marathon Oil in a $22.5bn deal, the latest in a series of mega-mergers in the oil and gas industry as companies look to bolster reserves.

The US oil and gas industry has been riding a consolidation wave over the last two years. Last year was one of the most active, with M&A deals worth $250bn being struck. The momentum has carried over into 2024 as the stock market continues to boom and as US oil production scales new records.

Conoco’s all-stock offer equates to $30.33 per Marathon share, representing a premium of nearly 15% as of the stock’s Tuesday close, according to Reuters calculations. The transaction, which includes $5.4bn of Marathon's debt, is expected to close in the fourth quarter of 2024.

It expects cost savings of $500m within the first full year after the closing of the transaction. The acquisition adds  more than 2-billion barrels of reserves to ConocoPhillips’ portfolio.

Marathon Oil has operations in the Bakken basin in North Dakota, the Permian basin in West Texas and South Texas’ Eagle Ford basin — regions that are prime targets for producers looking to increase their inventory.

Marathon Oil shares were up 10.8%, while Conoco shares were down about 1.4% in premarket trading.

“This acquisition of Marathon Oil further deepens our portfolio and fits within our financial framework, adding high-quality, low cost of supply inventory adjacent to our leading US unconventional position,” ConocoPhillips CEO Ryan Lance said.

The deal follows US majors ExxonMobil’s acquisition of Pioneer Natural Resources that was announced in October, and Chevron’s proposed $53bn merger with Hess that was approved by the latter’s shareholders on Tuesday.

The consolidation activity in the industry has, however, attracted increased antitrust scrutiny, with the FTC reviewing multibillion-dollar deals, including those involving Chevron, Diamondback Energy, Occidental Petroleum and Chesapeake Energy.

“Following the merger, Conoco’s production out of Eagle Ford is set to surpass the company’s legacy assets in the Delaware basin,” said Viktor Katona, head of oil analysis at Kpler.

ConocoPhillips also added that it would dispose of nearly $2bn worth of assets.

The company also signalled it would ramp up share buybacks to $7bn in 2025 from 2024’s projected $5bn and commit to buying $20bn of its shares over the three years following the deal’s closing.

“We believe this transaction is a positive read-through to the E&P [exploration and production] sector overall, particularly the diversified, underappreciated mid caps trading at discount valuations with strong capital returns,” said Gabriele Sorbara, the MD of equity research at Siebert Williams Shank & Co.

Reuters

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