ConocoPhillips to buy Marathon Oil in $22.5 billion deal as energy mergers roll on

By Seher Dareen

(Reuters) -ConocoPhillips on Wednesday agreed to buy Marathon Oil (NYSE:) in a $22.5 billion deal, the latest in a series of mega-mergers in the oil and gas industry as companies look to bolster reserves.

The U.S. oil and gas industry has been riding a consolidation wave over the last two years. Last year was one of the most active, where M&A deals worth $250 billion were struck. The momentum has carried over into this year as the stock market continues to boom and as U.S. oil production scales new records.

Conoco’s all-stock offer equates to $30.33 per Marathon share, representing a premium of nearly 15% as of the stock’s Tuesday close, according to Reuters calculations. The transaction, which includes $5.4 billion of Marathon’s debt, is expected to close in the fourth quarter of 2024.

Shares of Marathon Oil rose 8.7%, while those of Conoco fell 3% in early trading.

It expects cost savings of $500 million within the first full year after the closing of the transaction. The acquisition adds over 2 billion barrels of reserves to ConocoPhillips (NYSE:)’ portfolio.

Marathon Oil has operations in the Bakken basin in North Dakota, the Permian basin in West Texas and South Texas’ Eagle Ford (NYSE:) basin – regions that are prime targets for producers looking to increase their inventory.

“This acquisition of Marathon Oil further deepens our portfolio and fits within our financial framework, adding high-quality, low cost of supply inventory adjacent to our leading U.S. unconventional position,” ConocoPhillips CEO Ryan Lance said.

ConocoPhillips was the third largest oil and gas producer by volume in the Permian in the first quarter of 2024 after U.S. majors Exxon Mobil (NYSE:) and Chevron (NYSE:).

The deal follows Exxon’s acquisition of Pioneer Natural Resources (NYSE:) that was announced in October, and Chevron’s proposed $53 billion merger with Hess (NYSE:) that was approved by the latter’s shareholders on Tuesday.

The consolidation activity in the industry has, however, attracted increased antitrust scrutiny, with the FTC reviewing multi-billion dollar deals, including those involving Chevron, Diamondback (NASDAQ:) Energy, Occidental Petroleum (NYSE:) and Chesapeake Energy (NYSE:).

“Following the merger, Conoco’s production out of Eagle Ford is set to surpass the company’s legacy assets in the Delaware basin,” said Viktor Katona, head of oil analysis at Kpler.

ConocoPhillips also added that it would dispose of nearly $2 billion worth of assets.

The company also signaled it would ramp up share buybacks to $7 billion next year from this year’s projected $5 billion and commit to buying $20 billion of its shares over the three years following the deal’s closing.