ConocoPhillips Acquires Marathon Oil for $22.5B in Oil & Gas Mega Merger

On Wednesday, ConocoPhillips announced that it has entered into a definitive agreement to acquire Marathon Oil in an all-stock transaction valued at $22.5 billion, including debt. Earlier on Wednesday, media reports indicated that the two companies were in advanced negotiations, which were subsequently confirmed.

The acquisition agreement stipulates that Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips common stock for each share of Marathon common stock they own. Based on Marathon Oil's closing price on Tuesday, this equates to a 14.7% premium, and based on Marathon Oil's 10-day volume-weighted average price, it equates to a 16% premium.

Key points of this transaction are as follows:

ConocoPhillips' acquisition of Marathon Oil is expected to immediately enhance its earnings per share, cash flow, and capital returns.

ConocoPhillips anticipates achieving at least $500 million in operational cost and capital savings in the first full year following the completion of the transaction.

Independent of this transaction, ConocoPhillips expects to increase its common basic dividend by 34% to 78 cents per share starting from the fourth quarter of 2024.

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Post-transaction, based on recent commodity price estimates, ConocoPhillips anticipates repurchasing over $20 billion in shares within the first three years, with more than $7 billion in the first full year.

In a statement, Ryan Lance, Chairman and CEO of ConocoPhillips, said:

The acquisition of Marathon Oil further strengthens our asset portfolio in line with our financial framework, adding high-quality, low-cost supply inventory to our leading unconventional oil and gas position in the United States.

Importantly, we share similar values and a culture focused on safe and responsible operations to create long-term value for our shareholders. This transaction immediately enhances earnings per share, cash flow, and dividends, and we see significant potential for synergies.In response to the latest acquisition news, ConocoPhillips' stock price fell by about 4% during trading, while Marathon Oil's stock price once surged nearly 11%, later narrowing the increase to over 7%.

ConocoPhillips is a major drilling company in the United States that has rapidly expanded its production through acquisitions. A few years ago, ConocoPhillips acquired Concho Resources for $13 billion and Shell's assets for $9.5 billion.

Current U.S. crude oil production has soared to a record high, while acquisition activities in the Permian shale basin continue. The U.S. energy industry is experiencing a historic major consolidation. ConocoPhillips' acquisition of Marathon Oil continues the recent merger and acquisition boom in the U.S. oil and gas industry.

At the end of last year, ExxonMobil completed the largest deal ever in the shale oil and gas sector, acquiring Pioneer Natural Resources for over $60 billion. Around the same time, Chevron announced the acquisition of Hess for about $53 billion, paving the way for it to become the second-largest oil company in the United States. Berkshire Hathaway, heavily invested by Warren Buffett, Western Oil Company, agreed in December last year to acquire U.S. shale oil producer CrownRock for $12 billion in cash and stock transactions.

Danilo Onorino, portfolio manager of the Swiss-based Dogma Renovatio equity fund, has been predicting oil and gas mergers and acquisitions since 2020, when the industry was impacted by the pandemic. He believes that ConocoPhillips' acquisition of Marathon Oil may mark the end of this round of large enterprise integration in the oil and gas sector.

Onorino pointed out that the large-scale mergers and acquisitions in the oil and gas industry occurred after the COVID-19 pandemic, which was the final trigger point for energy transition. He expects that future mergers and acquisitions will focus on second-tier players, such as Diamondback, Devon Energy, Western Oil, Targa Resources, Williams Co., and other companies.

In Onorino's view, ConocoPhillips' acquisition action is similar to Chevron's acquisition of Hess. This is a defensive all-stock transaction aimed at integrating the industry rather than growth. Because the industry is in a defensive mode, energy transition is irreversible. You can slow it down, but you cannot reverse it.

Onorino also expects that future integration in the oilfield service industry and the downstream refining and marketing sector may also occur.