Market consolidation continues
Oil and gas company Conocophillips takes over Marathon Oil
29.05.2024, 16:00
The next billion-dollar deal is looming in the US oil sector. Conocophillips is swallowing up a competitor. The deal is being made attractive to investors with a dividend increase this year and an expanded share buyback program.
The oil and gas company Conocophillips is completing a multi-billion dollar takeover that is shaking up the US energy market. Conocophillips is buying Marathon Oil for $17.1 billion in stock and is also taking on $5.4 billion in debt from its competitor. The transaction is the latest step in the consolidation of the energy sector, which has seen a flood of merger and acquisition activity this year. Hess shareholders recently approved the sale of the company to Chevron for $53 billion.
The agreement provides that Marathon Oil shareholders will receive 0.255 shares of Conocophillips for each share, which, according to the company, represents a premium of almost 15 percent over the closing price of Marathon Oil shares the previous day. The transaction is expected to close in the fourth quarter, subject to approval by regulators and Marathon Oil shareholders. Marathon Oil shares rose in premarket trading, while Conocophillips shares fell.
“High quality, cost-effective supplies”
Conocophillips expects the merger to be immediately accretive to earnings, cash flow and return on capital. The Houston-based company expects to realize cost and capital synergies of $500 million within the first year of the transaction, resulting from lower overhead, lower operating costs and improved capital efficiency.
According to Conocophillips, the transaction adds additional acreage to the existing onshore portfolio in the US. “The acquisition of Marathon Oil deepens our portfolio and fits within our financial framework as it adds high-quality, low-cost reserves to our leading position in unconventional oil in the US,” said Ryan Lance, Chairman and CEO of Conocophillips.
Independently of the transaction, Conocophillips expects to increase its base dividend by a third to 78 cents per share starting in the fourth quarter. The company also plans to repurchase $7 billion worth of shares in the first full year after the transaction closes, up from $5 billion.