ConocoPhillips agrees to buy Marathon Oil in $22.5bn deal

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ConocoPhillips has agreed to buy rival Marathon Oil in an all-stock deal that values the Houston-based company at $22.5bn, including debt, as a wave of consolidation continues to wash across the US oil patch.

The acquisition would hand Conoco — one of the world’s biggest independent oil and gas producers — a suite of assets stretching from North Dakota to Texas as it seeks to bolster its position in America’s prolific shale fields.

Talks between the companies were first reported by the Financial Times.

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

The transaction, which is expected to close in the fourth quarter, would be the latest in a series of megadeals announced over the past eight months that are reshaping the US energy sector, as large oil companies seek to snap up the country’s best remaining shale resources and consolidate a once-fragmented sector.

ExxonMobil and Chevron last October both agreed massive acquisitions, with price tags of $60bn and $53bn respectively, sparking a wave of transactions across the sector, with companies including Occidental Petroleum and Diamondback Energy following suit.

Conoco, which boasts a market capitalisation of about $139bn, had been on the hunt for a deal in recent months and vied for several weeks with its smaller rival Devon Energy to acquire Marathon, three people briefed on the matter said.

Under the agreement announced on Wednesday, Marathon shareholders will receive 0.255 shares of Conoco for each Marathon share they own, representing a 14.7 per cent premium to the target’s closing share price on May 28. That gives Marathon an enterprise value of $22.5bn, including $5.4bn of net debt, the companies said.

Shares in Marathon were up almost 8 per cent during lunchtime trading in New York on Wednesday. Conoco shares were down almost 4 per cent.

The deal for Marathon is a boost for Conoco after it lost out to Diamondback earlier this year in a race to snap up Endeavor Energy Resources, one of the most sought-after private producers in the prolific Permian Basin of Texas and New Mexico.

Diamondback agreed a $26bn deal to buy Endeavor in February after a last-ditch bid that left Conoco smarting, according to people close to that transaction.

Lance has made no secret of the company’s desire to expand, saying in March that consolidation was “the right thing to be doing for our industry”.

“Our industry needs to consolidate. There’s too many players. Scale matters, diversity matters in the business,” he said in an interview on CNBC.

The Marathon acquisition would be Conoco’s biggest since it acquired Concho Resources for $10bn in 2021, taking advantage of the Covid-induced downturn.

Marathon owns assets in basins including North Dakota’s Bakken oilfield, the Scoop Stack in Oklahoma, Texas’s Eagle Ford and the New Mexico side of the Permian. It also holds an integrated gas business in Equatorial Guinea.

Marathon’s chief executive Lee Tillman said the deal was a “proud moment” for the company. “When combined with the global ConocoPhillips portfolio, I’m confident our assets and people will deliver significant shareholder value over the long term,” he said.

The company dates back to 1887, starting out as the Ohio Oil Company before being subsumed by JD Rockefeller’s Standard Oil. After almost a century as an integrated oil company it spun off its refining arm, Marathon Petroleum, in 2011.

Marathon is being advised on the transaction by Morgan Stanley and Kirkland & Ellis. Conoco is being advised by Evercore and Wachtell, Lipton, Rosen & Katz.

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