ConocoPhillips (NYSE: COP) has reached a definitive agreement to acquire Marathon Oil Corporation (NYSE: MRO) through an all-stock transaction valued at $22.5 billion, including $5.4 billion of net debt. This strategic acquisition is set to significantly enhance ConocoPhillips’ standing in the energy sector by adding Marathon Oil’s high-quality, low-cost supply inventory to its portfolio.

Transaction Details and Strategic Synergies

Under the terms of the agreement, Marathon Oil shareholders are set to receive 0.2550 shares of ConocoPhillips common stock for each share they hold. This exchange rate represents a 14.7% premium over Marathon Oil’s closing share price on May 28, 2024, and a 16.0% premium to the volume-weighted average price of the prior 10 days. The transaction is expected to be immediately accretive to ConocoPhillips in terms of earnings, cash flows, and shareholder distributions.

Ryan Lance, chairman and CEO of ConocoPhillips, emphasized the strategic fit of the acquisition: “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. Importantly, we share similar values and cultures with a focus on operating safely and responsibly to create long-term value for our shareholders. The transaction is immediately accretive to earnings, cash flows and distributions per share, and we see significant synergy potential.”

Impact on the Industry

The acquisition promises considerable synergies, particularly in cost and capital efficiency, with ConocoPhillips projecting to achieve a full $500 million synergy run rate within the first year post-closing. This includes reductions in general and administrative expenses, operational costs, and enhancements in capital efficiencies. Furthermore, the merger will bolster ConocoPhillips’ already prominent Lower 48 portfolio by adding over 2 billion barrels of resources with an estimated forward cost of less than $30 per barrel WTI.

Lee Tillman, chairman, president, and CEO of Marathon Oil, reflected on the merger’s benefits: “This is a proud moment to look back on what we achieved at Marathon Oil. Powered by our dedicated employees and contractors, we built a top performing portfolio with a multi-year track record of peer-leading operational execution, strong financial results and compelling return of capital to our shareholders – all while holding true to our core values of safety and environmental excellence. ConocoPhillips is the right home to build on that legacy, offering a truly unique combination of added scale, resilience and long-term durability.”

Financial Enhancements and Future Plans

Following the merger, ConocoPhillips plans to increase its base dividend by 34% to 78 cents per share starting in the fourth quarter of 2024 and to accelerate its share repurchase program. Over $7 billion in shares are expected to be repurchased in the first year following the transaction, with a total of over $20 billion in the first three years.

The acquisition is contingent upon approval by Marathon Oil shareholders, regulatory clearances, and other customary closing conditions, with an anticipated closure in the fourth quarter of 2024.

  ConocoPhillips, energy sector acquisition, Marathon Oil, oil and gas merger, stock transaction