ConocoPhillips announced on Wednesday its agreement to acquire Marathon Oil in an all-stock deal valued at $22.5 billion, including debt. This acquisition is the latest in a series of mergers and acquisitions within the oil industry, driven by a strong recovery in commodity prices, record profits, and high share valuations among major players.
Ryan Lance, ConocoPhillips’ CEO, highlighted the strategic fit of Marathon’s asset base, which is geographically adjacent to Conoco’s operations, facilitating a seamless integration and creating significant synergies. “Marathon has a high-quality asset base with adjacencies to our own assets that will lead to a straightforward integration and meaningful synergies,” Lance said during a call with analysts.
Marathon Oil operates in some of the most coveted oil fields in the U.S., including regions in New Mexico, North Dakota, and Texas, as well as offshore in Equatorial Guinea. Many of these assets are located near ConocoPhillips’ existing operations, enhancing the strategic value of the acquisition.
Founded in the 19th century, Marathon Oil shares a historical lineage with ConocoPhillips, both having roots in John D. Rockefeller’s Standard Oil empire. In 2011, Marathon Oil spun off its refinery business, which now operates independently as Marathon Petroleum.
The U.S. oil industry, the world’s largest crude producer, comprises numerous small and medium-sized companies, from family-run operations with a few wells to global giants like Exxon Mobil. ConocoPhillips, valued at approximately $140 billion, is about ten times the size of Marathon Oil but roughly a quarter the size of Exxon.
Recent major acquisitions in the oil sector have proceeded despite regulatory scrutiny from the Biden administration and market volatility. U.S. oil giants have leveraged record profits to acquire smaller companies with lucrative operations in oil-rich areas such as the Permian Basin and the Gulf of Mexico.
Consolidation is partly driven by the extensive staking out of prime U.S. oil and gas fields, particularly those suitable for horizontal drilling and hydraulic fracturing. By merging, companies aim to cut costs and enhance profitability.
In 2023, the oil and gas industry saw $250 billion in deal-making, according to Reuters. This included Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources and Chevron’s $53 billion deal with Hess, which received shareholder approval on Tuesday.
The surge in oil deals is largely attributed to the recovery in energy prices since the early pandemic days when oil prices plummeted. Currently, the U.S. benchmark crude oil price hovers around $80 a barrel. Although this is about a third lower than the 2022 peaks following Russia’s invasion of Ukraine, it remains high enough for Western oil companies to generate robust profits and pursue acquisitions.
Over the past four years, ConocoPhillips’ share price has nearly tripled. On Wednesday, however, Conoco’s stock fell by about 3 percent, while Marathon’s rose approximately 8 percent following the acquisition news.
The Marathon acquisition is expected to add over two billion barrels to Conoco’s portfolio at an average supply cost of less than $30 per barrel. Conoco was previously in the running to buy Endeavor Energy Resources but lost to Diamondback Energy, which announced a $26 billion agreement in February. The opportunity to acquire Marathon arose only a few weeks ago, Lance informed analysts.
The merger would position ConocoPhillips as the leading producer in the Eagle Ford, a prominent oil and gas field in southern Texas, according to Enverus Intelligence Research. The deal is pending regulatory approval and a shareholder vote, with an expected closure in the fourth quarter.
Post-acquisition, ConocoPhillips anticipates cutting at least $500 million in costs within the first year. Additionally, the company plans to increase its dividend by 34 percent by year’s end and repurchase over $20 billion of its shares over the next three years, effectively reclaiming all shares used in the Marathon acquisition.
This acquisition not only strengthens ConocoPhillips’ position in the oil industry but also underscores the ongoing consolidation trend as companies seek to capitalize on strategic synergies and enhanced operational efficiencies.
