(source: houstonchronicle)
Company Background
ConocoPhillips
ConocoPhillips is one of the world’s leading exploration and production companies based on both production and reserves, with a globally diversified asset portfolio. Headquartered in Houston, Texas, ConocoPhillips had operations and activities in 13 countries, $97 billion of total assets, and approximately 10,300 employees as of September 30, 2024. Production averaged 1,921 MBOED for the nine months ended September 30, 2024, and proved reserves were 6.8 BBOE as of December 31, 2023
Marathon Oil Corporation
founded in 1985, is a direct banking and payment services company that operates the well-known Discover Card brand. With its headquarters in Riverwoods, Illinois, Discover has a storied history of innovation within the credit card industry and has expanded its offerings to include personal loans, home equity loans, student loans, and deposit products. The company has earned a reputation for exceptional customer service and its popular cashback rewards programs, which have been a key differentiator in a competitive marketplace.
The Merger
ConocoPhillips announced its intention to acquire Marathon Oil Corporation in an all-stock transaction valued at $22.5 billion, including $5.4 billion in net debt. Under the terms of the agreement, Marathon Oil shareholders received 0.2550 shares of ConocoPhillips common stock for each share of Marathon Oil common stock, representing a 14.7% premium to the closing share price of Marathon Oil on May 28, 2024. The deal was expected to be finalized in Q4 2024, subject to Marathon Oil shareholder approval, regulatory clearance, and customary closing conditions
Significance
Immediate Accretive Impact: The acquisition was expected to be immediately accretive to ConocoPhillips’ earnings, cash flows, and return of capital per share.
Cost and Capital Savings: ConocoPhillips projected at least $500 million in annual cost and capital savings within the first full year following the closing of the transaction, achieved through reduced administrative costs, lower operating expenses, and improved capital efficiencies.
Enhanced Portfolio: The acquisition enhanced ConocoPhillips’ Lower 48 portfolio, adding over 2 billion barrels of resources with a forward cost of supply estimated at less than $30 per barrel WTI.
Shareholder Distribution Update: Independent of the transaction, ConocoPhillips expected to increase its ordinary base dividend by 34% to 78 cents per share starting in the fourth quarter of 2024. Upon closing of the transaction, ConocoPhillips expected share buybacks to be over $20 billion in the first three years, with over $7 billion in the first full year, at recent commodity prices.
Strategic Fit: The merger was a perfect fit for ConocoPhillips, adding to its deep, durable, and diverse portfolio while meeting its strict financial framework. Marathon Oil added high-quality, low cost of supply inventory adjacent to ConocoPhillips’ leading U.S. unconventional position.
Synergy Potential: ConocoPhillips expected to deliver synergies of over $1 billion on a run rate basis in the next 12 months.
Market Positioning: The acquisition positioned ConocoPhillips to thrive amid rising crude prices and potential regulatory changes, strengthening its asset base and production in key regions.
Long-Term Strategic Advantages: The merger will expand ConocoPhillips’ asset base, particularly in key U.S. shale regions, thereby increasing operational scale and geographic diversification. The integration of Marathon Oil’s assets is expected to add over 2 billion barrels of resource with an estimated average point forward cost of supply of less than $30 per barrel WTI, significantly strengthening ConocoPhillips’ position in the Permian Basin and Eagle Ford.
Risks and Uncertainties: Despite the expected synergies, the acquisition of Marathon Oil also presents challenges and potential downsides for ConocoPhillips, such as the profitability of oil and gas companies heavily depending on crude oil and natural gas prices, which are influenced by geopolitical events, global demand, and regulations
This merger is significant as it not only enhances ConocoPhillips’ position in the U.S. energy market but also provides immediate financial benefits and long-term strategic advantages, positioning the company for future growth and industry leadership.