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Robert Rapier

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What Does ConocoPhillips’ Marathon Acquisition Mean for the Permian?

  • ConocoPhillips has agreed to acquire Marathon Oil in an all-stock deal valued at $22.5 billion.
  • The acquisition is expected to be immediately accretive to ConocoPhillips' earnings, cash flow, and return of capital per share.
  • ConocoPhillips plans to increase its base dividend by 34% and repurchase over $20 billion in shares within three years.
Permian

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

The deal, subject to Marathon Oil shareholder approval, regulatory clearance, and customary closing conditions, is expected to be finalized in Q4 2024.

“This acquisition enhances our portfolio by adding high-quality, low-cost inventory adjacent to our leading U.S. unconventional position,” stated Ryan Lance, ConocoPhillips Chairman and CEO. “We share similar values and operational philosophies, and this move will be immediately beneficial to our earnings, cash flows, and shareholder distributions. Significant synergies are expected.”

Lee Tillman, Marathon Oil Chairman, President, and CEO, expressed pride in Marathon’s achievements and confidence in ConocoPhillips’ ability to build on their legacy. “With its robust asset base, financial strength, and operational excellence, ConocoPhillips is the ideal partner to enhance our assets and provide significant long-term shareholder value.”

Transaction Benefits

The acquisition is anticipated to be immediately accretive to ConocoPhillips’ earnings, cash flow, and return of capital per share. ConocoPhillips projects at least $500 million in annual cost and capital savings within the first year post-closing, achieved through reduced administrative costs, lower operating expenses, and improved capital efficiencies.

The acquisition will enhance ConocoPhillips’ Lower 48 portfolio, adding over 2 billion barrels of resources with a forward cost of supply estimated at less than $30 per barrel WTI.

Shareholder Distribution Update

Independent of the acquisition, ConocoPhillips will increase its base dividend by 34% to 78 cents per share starting Q4 2024. Following the transaction closure and assuming current commodity prices, ConocoPhillips plans to repurchase over $7 billion in shares within the first year and over $20 billion within three years.

Ryan Lance added, “We remain committed to returning over 30% of cash from operations to shareholders and will continue targeting top-quartile dividend growth.”

Criticisms

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

“As oil and gas companies continue to merge and acquire one another, it raises serious questions about the industry’s commitment to reducing emissions and transitioning to cleaner forms of energy,” said Cassidy DiPaola, Communications Director for 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 deal will also likely be criticized by some politicians who will cite antitrust issues. The Federal Trade Commission (FTC) has been stepping up antitrust reviews for energy companies. For instance, the FTC requested additional information from Exxon and Pioneer regarding their proposed deal, which is a standard step in assessing whether a merger could be anticompetitive under U.S. law. It is a safe bet that this will be the case with the ConocoPhillips acquisition as well.

By Robert Rapier 

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Leave a comment
  • Mike on June 11 2024 said:
    25 firms in North America in 24 months
  • O. Valdez on June 14 2024 said:
    The acquisition would increase the net acreage and production in the Permian basin. ConocoPhillips has one million net acres and Marathon Oil has 91000. The companies have a combined acreage of 146,500in the Delaware Basin, where many high producing wells were drilled. According to the 360 Energy Expert Network, ConocoPhillips is the 4th largest net acreage holder.

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