ConocoPhillips to acquire Marathon Oil in $22.5 billion all-stock deal

ConocoPhillips agreed Wednesday to acquire its smaller rival, Marathon Oil, the latest deal in a wave of consolidation sweeping the oil industry. The explosion in mergers and acquisitions followed a strong rally in commodity prices, with major players emboldened by record profits and high stock prices.

Conoco’s all-stock deal values ​​Marathon at $22.5 billion, including debt. “Marathon has a high-quality asset base with adjacencies to our own assets that will lead to simple integration and significant synergies,” said Ryan Lance, Conoco’s chief executive, on a call with analysts.

Marathon’s operations are located in some of the most desirable oil fields in New Mexico, North Dakota and Texas; it also drills off the coast of Equatorial Guinea. Many of these positions are close to those of Conoco.

Marathon traces its roots to the 19th century, and like ConocoPhillips, its predecessors were once part of John D. Rockefeller’s Standard Oil empire. In 2011, Marathon Oil spun off its refining business, which now operates under the name Marathon Petroleum.

The oil industry in the United States, the world’s largest crude producer, is made up of many small and medium-sized oil companies, ranging from family-owned businesses with a few wells in one state to global giants like Exxon Mobil. Wall Street values ​​ConocoPhillips at about $140 billion, making it about 10 times larger than Marathon Oil but about a quarter the size of Exxon.

Oil companies have made some of the biggest acquisitions of the past year despite regulatory scrutiny from the Biden administration and oil market volatility. U.S. giants have reaped record profits, giving them the firepower to acquire smaller companies operating in oil-rich regions like the Permian Basin in New Mexico, Texas and the Gulf of Mexico.

Among the consolidating factors is the fact that companies have staked many U.S. oil and gas deposits considered most attractive for horizontal drilling and hydraulic fracturing, techniques that have opened up vast deposits of shale in places like Texas and New Mexico. drilling. Now they are joining forces to reduce costs and increase profits.

According to Reuters, last year, trading activity in the oil and gas sector totaled $250 billion, including Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources and the deal of $53 billion between Chevron and Hess, which Hess shareholders approved Tuesday.

The boom in oil deals is largely due to the strong recovery in energy prices since the early days of the pandemic, when oil prices fell.

The benchmark price of US crude oil is now trading around $80 per barrel. Although prices are about a third lower than the highs reached in 2022 after Russia’s invasion of Ukraine, they are high enough to allow Western oil companies to make healthy profits and buy other producers.

Conoco’s stock price has nearly tripled over the past four years. The company’s shares were down about 4 percent Wednesday afternoon. Marathon was up about 8 percent.

The company said the Marathon purchase would add more than two billion barrels to its portfolio, with an average supply cost of less than $30 per barrel.

Conoco was in the running to buy Endeavor Energy Resources earlier this year, but lost to Diamondback Energy, which in February announced a deal to buy the company for $26 billion. The opportunity to acquire Marathon was brought to Conoco’s attention a few weeks ago, Mr. Lance told analysts Wednesday.

The combination with Marathon would make Conoco the top producer in a South Texas oil and gas field known as Eagle Ford, according to Enverus Intelligence Research. The deal is subject to regulatory approval and a shareholder vote. The companies said they expect to finalize the deal in the fourth quarter.

In the year after the deal closes, Conoco said it expects to reduce the combined company’s costs by at least $500 million. Conoco also said it plans to increase its dividend by 34% at the end of this year and repurchase more than $20 billion of its shares within three years of the transaction, effectively repurchasing all of the shares used to acquire Marathon.