June 15, 2024

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ConocoPhillips acquires Marathon Oil in an all-stock deal valued at $22.5 billion

ConocoPhillips acquires Marathon Oil in an all-stock deal valued at $22.5 billion

ConocoPhillips agreed on Wednesday to acquire its smaller rival, Marathon Oil, in the latest deal in a wave of mergers sweeping the oil industry. The wave of mergers and acquisitions has been following a strong rebound in commodity prices, with major players emboldened by record profits and rising stock prices.

Conoco All stock deal Marathon is valued at $22.5 billion, including debt. “Marathon has a high-quality asset base with an affinity for our own assets that will result in direct complementarities and beneficial synergies,” Conoco CEO Ryan Lance said on a call with analysts.

Marathon’s operations are located in some of the most sought-after oil fields in New Mexico, North Dakota and Texas. It is also drilling off the coast of Equatorial Guinea. Many of those sites are located near Conoco.

Marathon’s roots go back 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 producer of crude oil, consists of many small and medium-sized oil companies, ranging from family operations with a few wells in one state to global giants such as 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 executed some of the largest acquisitions last year despite regulatory scrutiny from the Biden administration and volatility in the oil market. Giant American companies were harnessing record profits, giving them the leverage to acquire smaller companies operating in oil-rich regions such as the Permian Basin in New Mexico and Texas and in the Gulf of Mexico.

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Among the drivers of the merger is the fact that the companies have acquired several U.S. oil and gas fields thought to be most attractive for horizontal drilling and hydraulic fracturing, technologies that have opened up vast shale fields in places like Texas and New Mexico for exploitation. holes. Now, they are joining forces in an effort to cut costs and increase profits.

There was $250 billion in deal-making activity in the oil and gas industry last year. According to Reutersincluding ExxonMobil’s $60 billion acquisition of Pioneer Natural Resources, and Chevron’s $53 billion deal with Hess, which Hess shareholders approved on Tuesday.

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

The price of US crude oil is now trading at around $80 per barrel. While prices are about a third lower than the peak that prevailed in 2022 after Russia’s invasion of Ukraine, they are high enough to allow Western oil companies to make strong profits and buy up other producers.

Conoco’s stock price has nearly tripled in value over the past four years. The company’s stock fell about 4 percent Wednesday afternoon. Marathon rose about 8 percent.

The company said the purchase of Marathon would add more than 2 billion barrels to its portfolio, at an average cost of less than $30 per barrel.

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

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A merger with Marathon would make Conoco the largest producer in the South Texas oil and gas field known as the Eagle Ford, according to Enverus Intelligence Research. The agreement is subject to regulatory approval and shareholder votes. The companies said they expect the deal to be completed in the fourth quarter.

Conoco said it expects to reduce the combined company’s costs by at least $500 million in the year following the completion of the deal. Conoco also said it plans to increase its dividend by 34 percent at the end of this year and buy back more than $20 billion of its stock in the three years following the deal, which would mean buying back all of the shares used to acquire Marathon.