ConocoPhillips’ $22.5 billion deal for Marathon Oil highlights energy sector’s wave of mergers and acquisitions

ConocoPhillips (COP) plans to acquire independent oil and gas producer Marathon Oil (MRO) in an all-stock transaction for $22.5 billion, including debt, continuing a recent series transactions in the energy sector.

Shares of Marathon Oil jumped about 8% in Wednesday trading, while ConocoPhillips fell more than 3%.

The merger follows a wave of consolidation over the past year, as oil giants flush with cash look for ways to use it. ExxonMobil (XOM) recently completed its $59.5 billion acquisition of Pioneer Natural Resources, expanding its access to the lucrative Permian Basin region. And on Tuesday, Hess (HES) shareholders voted in favor of a $53 billion takeover by Chevron (CVX). The deal includes Hess’ valuable stake in Guyana.

Other deals announced over the past year include Occidental Petroleum’s (OXY) $12 billion buyout of private oil and gas producer CrownRock and Diamondback Energy’s (FANG) $26 billion acquisition from Endeavor Energy.

“It’s all the same fundamentals. It’s buying acreage, buying inventory,” Matt Willer, managing director of capital markets and partner at Phoenix Capital, told Yahoo Finance.

Willer says massive consolidation in the energy sector comes after more than a decade of underinvestment by companies amid political and regulatory uncertainty surrounding the oil and gas landscape.

“Now, recognizing that oil and gas are probably not going anywhere in our lifetime, they need to make up for lost time,” Willer said.

Citi analysts noted differences between the ConocoPhillips-Marathon deal and other major mergers between oil and gas companies.

“While others have targeted inventory and growth, this transaction appears largely based on cost and approach optimization,” Alastair Syme and his team wrote on Wednesday.

ConocoPhillips said it expects to realize $500 million in cost and capital savings in the first full year after the merger closes.

The deal would allow ConocoPhillips to diversify its domestic assets, with Marathon production largely centered in Texas and North Dakota.

“The deal, expected to close in the fourth quarter, would increase COP production by 31% (based on first quarter 2024 levels),” wrote Stewart Glickman, equity research analyst at CFRA, immediately after the announcement. The analyst maintains a Hold rating on ConocoPhillips, with a $125 price target on the stock.

The deal is unlikely to face antitrust concerns, said Ed Hirs, a senior research fellow at the University of Houston.

“Together, the two companies are even smaller than the majors,” he noted. “They are two independent oil companies, with no downstream assets for refining, distribution and retail.”

The story continues

ConocoPhillips, which spun off its downstream businesses in 2012, has a market capitalization of $134 billion, compared with Chevron’s $291 billion and ExxonMobil’s $511 billion.

While recent deals are expected to close from a regulatory perspective, Chevron’s Hess transaction has an additional hurdle to clear.

Earlier this year, ExxonMobil filed for arbitration regarding the merger, claiming it had a right of first refusal over Hess’ assets in Guyana, pursuant to a joint operating agreement.

“The deal will likely fall through if Chevron cannot acquire the Guyana stake as well as Hess’ other assets,” Carin Dehne-Kiley, director of S&P Global Ratings, said in a recent note.

She added: “Guyana is the crown jewel of Hess’ portfolio, with current gross production of approximately 580,000 barrels per day and set to nearly double by 2026.”

Ines Ferre is a senior economics reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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