HOUSTON: ConocoPhillips has agreed to acquire Marathon Oil Corp in an all-stock deal valuing the company at about US$17bil, extending a major buying spree among the largest players in the US oil and gas industry.
The move expands ConocoPhillips’ footprint in domestic shale fields from Texas to North Dakota and hands the company reserves as far afield as Equatorial Guinea.
It adds to a wave of recent megadeals as producers seek new drilling sites on a bet that oil and gas demand will remain robust for years to come.
The takeover agreement represents a 14.7% premium to the last closing share price for Marathon, the companies said in a statement Wednesday. The deal has an enterprise value of US$22.5bil.
“We never know when these opportunities come available, and this one certainly came available, or to our attention, here a few weeks ago,” chief executive officer Ryan Lance told analysts and investors Wednesday on a conference call. “We weren’t necessarily out looking for something, but it was an opportunity that presented itself.”
ConocoPhillips joins the ranks of major drillers pursuing production growth via recent acquisitions.
In October, Exxon Mobil Corp accelerated the pace of Permian Basin consolidation with a US$62bil deal for Pioneer Natural Resources Co. That was followed later that month by Chevron Corp’s agreement to buy Hess Corp for about US$53bil.
ConocoPhillips had already expanded in the Permian in recent years through a US$13bil takeover of Concho Resources Inc and a US$9.5bil purchase of Shell Plc’s assets in the region.
The ConocoPhillips deal stands out in some ways from other recent takeovers reshaping the US oil patch.
While acquisitions by Exxon and others focused largely on lining up future drilling sites, ConocoPhillips’s play for Marathon is more about cutting costs in the ageing Eagle Ford and Bakken shale basins, analysts from Citigroup said in a research note.
When combined with Marathon, ConocoPhillips sees roughly 2,000 locations across several US regions where the company can go back into older, lower-producing shale wells and frack it again.
That will allow it to take advantage of new hydraulic fracturing techniques for blasting water, sand and chemicals underground to release trapped hydrocarbons.
It’s what the oil patch calls a refrack, and is an example of a new chapter for the US oil industry, which Lance dubbed “shale 2.0”.
“It’s more about using technologies and efficiencies, data analytics and some of the refrack potential,” he said. Refracks can help extend some of its top-tier drilling locations in North Dakota’s Bakken and South Texas’ Eagle Ford shale plays, he said.
ConocoPhillips shares fell 4.1% in New York, while Marathon gained 7.8%.
Although smaller than the massive deals struck by Exxon and Chevron, ConocoPhillips’ takeover is still apt to face antitrust scrutiny from the US Federal Trade Commission, which has been taking a more active interest in corporate mergers under chair Lina Khan. The agency declined to challenge Exxon’s deal, but only on the condition that Pioneer co-founder Scott Sheffield be excluded from the supermajor’s board.
Devon Energy Corp held talks with Marathon last year over a potential combination, people familiar with the matter told Bloomberg news at the time.
ConocoPhillips expects the takeover will add resources totalling the equivalent of two billion barrels to its inventory.
The company sees the deal closing in the fourth quarter, pending regulatory approvals. After that point, ConocoPhillips said its share buybacks will top US$20bil for the next three years, with more than US$7bil in the first full year, assuming recent commodity prices.
The company also plans to increase its ordinary base dividend by 34% to 78 US cents per share starting in the fourth quarter.
Evercore is ConocoPhillips’ financial adviser on the deal, and Wachtell, Lipton, Rosen & Katz is the company’s legal adviser. Morgan Stanley and Kirkland & Ellis advised Marathon. — Bloomberg
