ConocoPhillips Acquires Marathon Oil for $22.5 Billion Amid Industry Consolidation

ConocoPhillips agreed to buy Marathon Oil, its smaller rival, in the latest consolidation agreement in the oil industry. With record earnings and high share prices boosting the confidence of the main players, the surge in mergers and acquisitions has coincided with a strong rebound in commodities prices.
ConocoPhillips Acquires Marathon Oil for $22.5 Billion Amid Industry Consolidation

With debt included, Marathon is valued at $22.5 billion in Conoco’s all-stock transaction. Conoco CEO Ryan Lance stated in a conference call with investors, “Marathon has a high-quality asset base with adjacencies to our own assets that will lead to a straightforward integration and meaningful synergies.”

Marathon drills offshore of Equatorial Guinea in addition to operating in some of the most sought-after oil reserves in Texas, North Dakota, and New Mexico. Conoco’s is close to several of those spots.

Like ConocoPhillips, Marathon has its origins in the 19th century and was formerly a member of the Standard Oil empire owned by John D. Rockefeller. Refinery operations were split out by Marathon Oil in 2011, and the company is currently known as Marathon Petroleum.

Surge in U.S. Oil Mergers: ConocoPhillips and Marathon Oil Lead the Charge

The United States, being the greatest producer of crude oil in the world, has a diverse range of small and medium-sized oil companies. These include family-run businesses with a few wells in a single state as well as multinational conglomerates like Exxon Mobil. ConocoPhillips is valued by Wall Street at around $140 billion, which makes it roughly a fifth the size of Exxon but ten times larger than Marathon Oil.

Surge in U.S. Oil Mergers: ConocoPhillips and Marathon Oil Lead the Charge

Despite the Biden administration’s regulatory vigilance and market instability, oil corporations have managed to carry off some of the largest purchases of the previous year. The unprecedented profits that the American conglomerates have been generating have given them the leverage to buy out smaller businesses that operate in oil-rich areas such as the Permian Basin in Texas, New Mexico, and the Gulf of Mexico.

One of the main forces for consolidation is the fact that businesses have secured a large number of the US oil and gas fields that are deemed most favorable for horizontal drilling and hydraulic fracturing—techniques that have allowed for the drilling of enormous shale reserves in states like Texas and New Mexico. They are now working together to try and reduce expenses and increase revenue.

According to Reuters, the oil and gas sector made $250 billion in deals last year. These deals included Exxon Mobil’s $60 billion purchase of Pioneer Natural Resources and Chevron’s $53 billion acquisition of Hess, which was approved by Hess’s shareholders on Tuesday.

Since oil prices fell in the early stages of the epidemic, they have recovered strongly, which is largely responsible for the surge in oil deals.

The price of a barrel of benchmark crude oil in the United States is now approximately $80. Although prices have dropped by over one-third from their peak in 2022 following Russia’s invasion of Ukraine, they are still high enough for Western oil firms to profit handsomely and acquire additional producers.

Over the previous four years, the value of Conoco’s share price has almost quadrupled. The company’s shares decreased by almost 4% on Wednesday afternoon. Marathon had increased by around 8%.

According to the company the acquisition of Marathon would increase its portfolio by over two billion barrels, with an average supply cost of less than $30 a barrel.

Earlier this year, Conoco had a chance to acquire Endeavor Energy Resources, but it was defeated by Diamondback Energy, which declared in February that it would acquire the company for $26 billion. Mr. Lance informed analysts on Wednesday that Conoco became aware of the possibility of acquiring Marathon a few weeks ago.

According to Enverus Intelligence Research, the combination with Marathon would place Conoco as the leading producer in the Eagle Ford oil and gas sector in southern Texas. The approval of regulators and a shareholder vote are prerequisites for the arrangement. In the fourth quarter, the firms stated that they planned to conclude the acquisition.

Conoco stated that it anticipates the combined firm to have cost savings of at least $500 million in the year after the closing of the merger. Conoco further stated that it intended to repurchase all of the shares used to acquire Marathon, essentially repurchasing them, and to increase its dividend by 34% at the end of this year and within three years of the transaction.

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