ConocoPhillips on Wednesday (May 29) agreed to buy Marathon Oil in a US$22.5 billion 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, where M&A deals worth US$250 billion were struck. The momentum has carried over into this year as the stock market continues to boom and as US oil production scales new records.
Conoco’s all-stock offer equates to US$30.33 per Marathon share, representing a premium of nearly 15 per cent as of the stock’s on Tuesday close, according to Reuters calculations. The transaction, which includes US$5.4 billion of Marathon’s debt, is expected to close in the fourth quarter of 2024.
It expects cost savings of US$500 million within the first full year after the closing of the transaction. The acquisition adds over 2 billion barrels of reserves to ConocoPhillips’ portfolio.
Marathon Oil has operations in the Bakken basin in North Dakota, Permian Basin in North Delaware and South Texas’ Eagle Ford basin – regions that are prime targets for producers looking to increase their inventory.
“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.
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The deal follows US majors ExxonMobil’s acquisition of Pioneer Natural Resources that was announced in October, and Chevron’s proposed US$53 billion 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 multi-billion dollar deals, including those involving Chevron, Diamondback Energy, Occidental Petroleum and Chesapeake Energy.
RBC analysts termed the Marathon deal as a “surprise transaction,” but see the asset mix fitting well and strengthening ConocoPhillips’ onshore assets while building on its global LNG presence.
ConocoPhillips also added that it would dispose of nearly US$2 billion worth of assets.
The company plans to increase its base dividend by 34 per cent from the fourth quarter of 2024 onwards. After the transaction closes, it aims to buy back more than US$7 billion in shares in the first full year. REUTERS
