ConocoPhillips to buy Marathon Oil for $22.5 billion in latest energy merger

By Seher Dareen

(Reuters) -ConocoPhillips on Wednesday agreed to buy Marathon Oil 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.

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’ portfolio.

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

Marathon Oil shares were up 5.5% at $27.22, while Conoco shares were down about 3% in premarket trading.

“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.

The deal follows U.S. majors Exxon Mobil’s acquisition of Pioneer Natural Resources that was announced in October, and Chevron’s proposed $53 billion merger with Hess 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 Energy, Occidental Petroleum and Chesapeake Energy.

RBC analysts termed the Marathon deal as a “surprise transaction,” but see the asset mix fitting well and strengthening ConocoPhillips’ onshore assets while building on its global LNG presence.

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

The company plans to increase its base dividend by 34% from the fourth quarter of 2024 onwards. After the transaction closes, it aims to buy back more than $7 billion in shares in the first full year.

(Reporting by Seher Dareen and Gnaneshwar Rajan in Bengaluru; Editing by Mrigank Dhaniwala and Anil D’Silva)