ConocoPhillips buys Marathon Oil for $22.5 billion

ConocoPhillips agreed to purchase rival Marathon Oil, valuing the Houston-based firm at $22.5bn including debt. This is part of a wave that continues to sweep across the US oil patch.

Conoco, one of the largest independent oil and natural gas producers in the world, would receive a range of assets spanning from North Dakota to Texas. The company is looking to strengthen its position within America’s prolific shales fields.

Conoco’s chief executive Ryan Lance stated on Wednesday that this deal “further deepens [our] portfolio” and adds “high-quality, lower cost supply inventory adjacent to the leading US unconventional position”.

The deal, expected to close by the end of the fourth quarter, is the latest in an eight-month series of megadeals that have reshaped the US energy industry, as oil companies try to grab the country’s most valuable shale resources, and consolidate what was once a fragmented sector.

ExxonMobil, Chevron and Occidental Petroleum all made massive acquisitions in October, at prices of $60bn each.

Three people with knowledge of the situation said that Conoco had been looking for a deal for months. It was in a bidding war for several weeks against its smaller competitor Devon Energy for the Marathon.

According to the agreement announced Wednesday, Marathon shareholders receive 0.255 Conoco shares for every Marathon share that they own. This represents a 14.7% premium over the closing share price of the target on May 28. The companies stated that this gives Marathon a value of $22.5bn. This includes $5.4bn in net debt.

Marathon shares closed 8.4% higher on Wednesday in New York. Conoco shares dropped 3.1 per cent.

Conoco’s deal with Marathon comes after losing out earlier this year to Diamondback in a bid to acquire Endeavor Energy Resources – one of the most wanted private producers of oil and gas in the Permian basin of Texas and New Mexico.

Diamondback has agreed to a $26bn deal with Endeavor to purchase the company in February, after Conoco made a last-ditch offer that had them stung.

Lance, the CEO of the company, has not hidden his desire to expand. In March, he said that consolidating was “the best thing for our industry”.

Our industry must consolidate. Too many players. In the business, scale and diversity are important,” he stated in an interview with CNBC.

Conoco would have made its biggest acquisition since Concho Resources was acquired for $10bn by Conoco in 2021. This is a great opportunity to take advantage of the Covid-induced recession.

Marathon has assets in several basins, including the Bakken in North Dakota, the Scoop Stack oilfield in Oklahoma, Texas Eagle Ford, and the New Mexico Permian. It also has an integrated gas business with Equatorial Guinea.

Lee Tillman, the chief executive of Marathon, said that the acquisition was a proud moment for the company. He said that combining the assets and employees of Marathon with those of ConocoPhillips would create significant shareholder value in the long run.

It was founded in 1887 as the Ohio Oil Company, before it was subsumed into JD Rockefeller Standard Oil. Marathon Petroleum spun off from the integrated oil company after almost a century.

Morgan Stanley and Kirkland & Ellis are advising Marathon on this transaction. Conoco will be advised by Evercore, Wachtell, Lipton Rosen & Katz, and Wachtell Lipton Rosen & Katz.

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