Top U.S. independent oil and gas producer ConocoPhillips Co. COP-N on Wednesday agreed to buy Marathon Oil Corp. MRO-N for US$22.5-billion, the latest in a series of megadeals in the energy industry.
The U.S. oil and gas industry has been riding a consolidation wave over the past two years as companies look to bolster reserves and create economies of scale. Last year was one of the most active, with some US$250-billion in deals struck. The momentum has carried over into this year as the stock market continues to boom and as U.S. shale oil production scales new records.
“We’re heading into a period of kind of Shale 2.0, which is more about using technology and efficiencies, data analytics and some of the refrack potential that allows us to extend some Tier 1 inventory,” said ConocoPhillips chief executive officer Ryan Lance.
The all-stock offer equates to US$30.33 per Marathon share, a premium of nearly 15 per cent to the stock’s 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.
Shares of Marathon Oil rose 9 per cent to US$28.85, while ConocoPhillips fell 3.8 per cent to US$115.10 in morning trading.
“The deal makes sense operationally given the asset overlap most meaningfully in the Eagle Ford and Bakken in L48,” said Tudor, Pickering and Holt analyst Jeoffrey Lambujon. Marathon Oil’s international gas assets fit well with Conoco’s global gas footprint, he added.
ConocoPhillips expects cost savings of US$500-million within the first full year after the closing of the transaction. The acquisition adds more than two billion barrels of reserves to its portfolio.
Marathon Oil has operations in the Bakken basin in North Dakota, the Permian basin in West Texas and South Texas’s Eagle Ford basin – regions that are prime targets for producers looking to increase their inventory.
ConocoPhillips last quarter was the third-largest oil and gas producer by volume in the Permian, the top U.S. shale oil field.
The deal follows Exxon Mobil Corp.’s US$60-billion acquisition of Pioneer Natural Resources Co. that was announced in October, and Chevron Corp.’s proposed US$53-billion merger with Hess Corp. that was approved by the latter’s shareholders on Tuesday.
The consolidation activity in the industry has, however, attracted increased antitrust scrutiny.
The Federal Trade Commission (FTC), however, recognizes that oil is a global market and the deal represents a “very, very small percentage of that global market,” Mr. Lance said.
The company’s estimate of a closing late this year is conservative, he said. The FTC has “already kind of gotten over that Rubicon with some of the deals that have come over the last couple of years.”
ConocoPhillips also added that it would dispose of nearly US$2-billion worth of assets.
The company also signalled it would ramp up share buybacks to US$7-billion next year from this year’s projected US$5-billion and commit to buying US$20-billion of its shares over the three years that follow the deal’s closing.