ConocoPhillips (COP.N) announced on Wednesday its agreement to acquire Marathon Oil (MRO.N) in a $22.5 billion deal, marking another significant merger in the oil and gas industry aimed at strengthening reserves.
The U.S. oil and gas sector has seen a surge in consolidation over the past two years, with last year witnessing M&A deals worth $250 billion. This trend continues as the stock market thrives and U.S. oil production reaches new heights.
ConocoPhillips’ all-stock offer values Marathon shares at $30.33 each, representing a nearly 15% premium based on Tuesday’s closing price. Including $5.4 billion of Marathon’s debt, the transaction is expected to finalize in the fourth quarter of 2024. The acquisition is projected to yield $500 million in cost savings within the first year post-closing and adds over 2 billion barrels of reserves to ConocoPhillips’ portfolio.
Marathon Oil operates in the Bakken basin in North Dakota, the Permian basin in West Texas, and the Eagle Ford basin in South Texas—key regions for expanding inventory. Marathon Oil shares rose 10.8%, while ConocoPhillips shares dropped about 1.4% in premarket trading.
“This acquisition deepens our portfolio with high-quality, low-cost supply inventory adjacent to our leading U.S. unconventional position,” said ConocoPhillips CEO Ryan Lance.
This deal follows major mergers like Exxon Mobil’s acquisition of Pioneer Natural Resources and Chevron’s proposed $53 billion merger with Hess, approved by Hess shareholders on Tuesday.
Industry consolidation has drawn increased antitrust scrutiny, with the FTC reviewing multi-billion dollar deals involving Chevron, Diamondback Energy, Occidental Petroleum, and Chesapeake Energy.
“Post-merger, Conoco’s Eagle Ford production will surpass its legacy assets in the Delaware basin,” said Viktor Katona, head of oil analysis at Kpler. ConocoPhillips also plans to divest nearly $2 billion in assets. The acquisition of Marathon Oil Corporation is anticipated to be immediately accretive to earnings, cash flows, and return of capital per share. ConocoPhillips projects achieving at least $500 million in run-rate cost and capital savings within the first full year following the transaction’s close.
Additionally, ConocoPhillips plans to independently increase its ordinary base dividend by 34%, raising it to 78 cents per share starting in the fourth quarter of 2024. Following the transaction’s completion, ConocoPhillips expects share buybacks to exceed $20 billion over the first three years, with more than $7 billion in the first full year, based on recent commodity prices.
On top of this, ConocoPhillips will increase share buybacks to $7 billion next year, up from this year’s projected $5 billion, committing to $20 billion in buybacks over the three years following the deal’s closure.
“This transaction positively impacts the E&P sector, especially the undervalued mid-caps with strong capital returns,” said Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co.
