ConocoPhillips has unveiled plans to purchase Marathon Oil in an all-stock transaction for $22. 5 billion, including debt. This major development was announced on Wednesday and falls in line with the current trends of mergers and acquisitions in the oil sector.
Benefits of the acquisition have been pointed out by ConocoPhillips’ CEO, Ryan Lance. He said that it would be good for their portfolio and would fit their financial planning well. The deal seeks to obtain low-cost, high-quality inventory on their balance sheet.
It has business operations in some of the richest hydrocarbon bearing basins in the United States of America. These fields are found in New Mexico, North Dakota, and Texas. Equally, Marathon has offshore drilling activities in Equatorial Guinea.
Marathon Oil has a long history that can be traced back to the 19th century. Both Marathon and ConocoPhillips have histories that can be traced back to the breakup of John D. Rockefeller’s Standard Oil empire. The company’s refining segment was spun off in 2011 and is currently known as Marathon Petroleum.
The United States of America is the largest producer of crude oil globally, and it boasts of numerous oil companies. They extend from household businesses to big organizations such as Exxon Mobil. ConocoPhillips has a market capitalization of about $140 billion, $100 billion more than Marathon Oil, but only a fourth of Exxon’s size.
Nonetheless, the Biden administration’s regulatory pressure and volatility of the oil market have not hindered oil companies from achieving substantial mergers and acquisitions within the last year. They have been able to make high profits and acquire smaller firms in areas with a lot of oil such as the Permian Basin and the Gulf of Mexico.
Global M&A deals of the oil and gas industry reached $250 billion in 2023. This was in Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources and Chevron’s $53 billion acquisition of Hess which was recently approved by the Hess’s shareholders.
Higher oil deals are mainly attributed to the revival of commodity prices as it witnessed a significant low back in the initial stage of the pandemic outbreak. Today US benchmark crude oil costs approximately $80 per barrel. While this price is some 1/3 lower from the 2022 maxima after Russia invasion of Ukraine, it is still high enough to guarantee healthy profit for the western oil companies and invest in acquisitions.
To that end, ConocoPhillips anticipates that the Marathon acquisition will bring over two billion barrels of resources on its books. Providing this additional oil is expected to cost an average of less than $30 per barrel. In January this year, ConocoPhillips endeavored to acquire Endeavor Energy Resources but lost to Diamondback Energy that clinched an agreement to purchase Endeavor for $26b in February.
Currently, the deal that ConocoPhillips enters with Marathon is still awaiting approvals from the regulating authorities and marathon shareholders. The companies expect the transaction to be concluded by fourth quarter of this year.
Following the merger, ConocoPhillips aims to reduce its expenditures by at least $500 million in the initial year of its operation. Furthermore, the firm plans to raise its dividend guidance by 34% by the end of the year and to repurchase more than $20 billion of the firm’s shares in three years upon the acquisition.
This acquisition is considered advantageous for ConocoPhillips to enhance its business value and competitive standings within the oil industry, particularly by harnessing Marathon Oil’s assets and activities.