Oil and gas giants ConocoPhillips and Chevron announce major acquisitions as industry consolidation continues

ConocoPhillips, one of the leading oil and gas companies in the United States, announced Wednesday that it will buy Marathon Oil for $22.5 billion. The deal includes an all-stock offer at a price of $30.33 per share, a 15 percent premium to the company’s stock price at the time of the deal, and Marathon’s debt will cover $5.4 billion. The acquisition is expected to close in late 2024.

This is a Marathon gas station in Bradenton, Florida, on February 7, 2024. ConocoPhillips is buying Marathon Oil in an all-stock deal worth approximately $17.1 billion. (AP Photo/Gene J. Puska)

As part of the deal, ConocoPhillips announced it would sell $2 billion in assets and increase share repurchases from $5 billion this year to $7 billion next year. It also committed to repurchasing shares worth a total of $20 billion from investors within three years of closing the transaction.

The deal could attract scrutiny from the Federal Trade Commission (FTC), but federal regulators believe the merger represents a small portion of the global market and is smaller than other mergers approved in recent years.

Marathon Oil has large holdings in the Bakken Basin in North Dakota and the Permian Basin in Texas and New Mexico. ConocoPhillips is currently the third largest oil and gas producer in the Permian, with the largest shale oil deposit in the United States. By purchasing Marathon, ConocoPhillips will increase its production in the Permian by 48,000 bpd to a total of 701,000 bpd and in the Bakken Basin by 105,000 bpd to a total of 200,000 bpd.

Over the past few years, there has been a surge in mergers and acquisitions in the oil and gas industry. According to the U.S. Energy Information Administration (EIA), mergers and acquisitions totaled $234 billion in 2023 alone, the highest amount since 2012.

Other notable mergers include Chevron’s proposed $53 billion purchase of Hess, also announced this week, and ExxonMobil’s approved $60 billion purchase of Pioneer Natural Resources earlier this month.

Hess owns a 30 percent interest in the Stabroek Block, which has rights to oil and gas deposits in Guyana. By acquiring Hess, Chevron will gain a significant share of these energy reserves. Even with stiff resistance from Exxon (45 percent in Stabroek Block) and China National Offshore Oil Corporation (25 percent), FTC approval could come as soon as next month.

Exxon’s purchase of Pioneer will increase the company’s current production by 700,000 barrels per day by 2027 and create a total land ownership of 1.4 million acres. Both companies have large holdings in the Permian Basin, and a merger would connect their adjacent deposits, creating combined reserves of 16 billion barrels in the Permian alone. According to EIA, the Permian is the main source of increased production in the US.

The acquisitions could increase Chevron’s share of U.S. production from 5 percent to 6 percent of the U.S. market and increase Exxon’s share to 7 percent to overtake Chevron as the country’s largest oil and gas producer.

Other notable acquisitions include Diamondback Energy’s $26 billion purchase of Endeavor Energy, potentially making it the third-largest producer in the Permian. Chesapeake Energy plans to merge with Southwestern Energy for $11.5 billion and could become the largest natural gas producer in the US. In 2023, Chevron and Exxon made additional purchases of PDC Energy for $7.6 billion and Denbury Inc for $4.9 billion.

The sharp increase in consolidation is due to two main factors. First, the outbreak of war in Ukraine in 2022 caused a huge increase in energy prices around the world. This brought windfall profits to oil and gas companies and set off a race to increase production and fill the gap caused by the war’s disruption of global oil and gas markets.

Second, newer drilling technologies are opening up large oil and gas fields like the Permian to cheaper production. Many of the smaller companies acquired had land on large deposits, where production costs dropped. Giants such as Chevron and ExxonMobil see an opportunity to take advantage of the increase in oil prices in 2022 and acquire new reserves to strengthen their market position.

A 2018 U.S. Geologic Survey found that the Permian Delaware Basin holds 46.4 billion barrels of undiscovered and recoverable oil, twice the previous estimate. One of the oldest oil fields in the U.S., the Permian has been producing crude oil for over a century. However, in the later decades of the 20th century, production began to decline.

Thanks to new hydraulic fracturing technologies in the Permian, production has increased again and costs have decreased. Before the purchase, Pioneer developed drilling technologies that allowed it to reduce production costs to as low as $19 a barrel in some areas, according to Pheasant Energy. Exxon expects the average cost per barrel for the Pioneer assets to be just under $35, which is significantly lower than the national average for U.S. shale plays of $54 per barrel.

A similar situation concerns reserves in Guyana, where Americas Market Intelligence estimates production costs in some areas as low as $25 per barrel.

The consolidation of the oil and gas industry also takes place in the face of the escalation of NATO’s war with Russia in Ukraine. As NATO prepares to send combat troops to Ukraine and the Biden administration lifts restrictions on the use of U.S. weapons against targets in Russia, disruptions to global energy supplies could be just around the corner.

Russia is the world’s third largest oil producer, with 12 percent of global production. Since the beginning of the war in Ukraine, the share of European natural gas imports from Russia has fallen from over 40 percent in 2021 to just 8 percent in 2023, with the United States replacing most of the supply.

Whether or not U.S. energy companies factor the war into their acquisitions, they will certainly benefit from greater market share in the wartime economy. Since the war began, the world’s five largest energy companies – Shell, BP, Chevron, ExxonMobil and TotalEnergys – have earned $281 billion and paid out $200 billion to investors, according to a recent Global Witness report. In a further cost-cutting move for oil companies, the United Steelworkers have imposed a below-inflation sales agreement covering 30,000 U.S. refinery workers in parallel with the start of a U.S.-NATO proxy war in 2022.

These companies stand to gain even more from an expanding global imperialist war.