ConocoPhillips strengthens US shale assets with $22.5 billion acquisition of Marathon Oil

ConocoPhillips
ConocoPhillips
announced plans to acquire Marathon Oil
Marathon oil
Corporation in an all-stock transaction valued at $22.5 billion, including $5.4 billion of net debt. Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips common stock for each share of Marathon Oil common stock, which will represent a 14.7% premium over Marathon’s closing share price on May 28, 2024 and a 16.0% premium over 10 -day volume-weighted average price.

The transaction, subject to Marathon Oil shareholder approval, regulatory approval and customary closing conditions, is expected to close in the fourth quarter of 2024.

“This acquisition expands our portfolio by adding high-quality, low-cost inventory adjacent to our leadership in unconventional products in the U.S.,” said Ryan Lance, president and CEO of ConocoPhillips. “We share similar values ​​and operating philosophies, and this move will be immediately beneficial to our earnings, cash flow and shareholder payouts. Significant synergies are expected.”

Lee Tillman, chairman, president and CEO of Marathon Oil, expressed pride in Marathon’s achievements and confidence in ConocoPhillips’ ability to build on its legacy. “With its solid asset base, financial strength and operational excellence, ConocoPhillips is an ideal partner to enhance our assets and deliver significant long-term shareholder value.”

Benefits of the transaction

The acquisition is expected to be immediately accretive to ConocoPhillips’ earnings, cash flow and return of capital per share. ConocoPhillips anticipates at least $500 million in annual cost and capital savings in the first year after closing, achieved through reduced administrative costs, lower operating expenses and increased capital efficiency.

The acquisition will add to ConocoPhillips’ Lower 48 portfolio, adding more than 2 billion barrels of resources at a future supply cost estimated at less than $30 per barrel of WTI.

Shareholder distribution update

Separate from the acquisition, ConocoPhillips will increase its underlying dividend by 34% to 78 cents per share beginning in the fourth quarter of 2024. After the transaction closes and assuming current commodity prices, ConocoPhillips expects to repurchase more than $7 billion of stock in the first year and more than $20 billion within three years.

Ryan Lance added: “We remain committed to returning more than 30% of cash from operations to shareholders and will continue to pursue top-quartile dividend growth.”

Criticism

Critics of the agreement immediately emerged. The Make Polluters Pay campaign issued a press release warning that the deal could further consolidate the power of the oil industry and a delay in the transition to clean energy is urgently needed.

“As oil and gas companies continue to merge and take over, serious questions are being raised about the industry’s commitment to reducing emissions and transitioning to cleaner forms of energy,” said Cassidy DiPaola, communications director of the Make Polluters Pay campaign. “These deals, worth tens of billions of dollars, suggest that major players are still betting heavily on a future dominated by fossil fuels.”

The agreement will probably also be criticized by some politicians who will cite antitrust issues. The Federal Trade Commission (FTC) is intensifying antitrust inspections of energy companies. For example, the FTC has requested additional information from Exxon and Pioneer about their proposed transaction, a standard step in assessing whether a merger may be anticompetitive under U.S. law. It’s safe to assume this will also be the case with the ConocoPhillips acquisition.

Disclaimer: I worked for ConocoPhillips from 2002 to 2008.