ConocoPhillips acquires Concho Resources in $9.7 billion all-stock transaction

ConocoPhillips (NYSE: COP) and Concho Resources (NYSE: CXO) said they have entered into a definitive agreement to merge the two companies in an all-stock transaction. Under the terms of the transaction, which has been unanimously approved by the board of directors of each company, each share of Concho Resources (Concho) common stock will be exchanged for a fixed ratio of 1.46 shares of ConocoPhillips common stock, representing a 15% premium to closing share prices on October 13, 2020. The transaction combines two high-quality industry leaders to create a company with an approximately USD60 billion enterprise value.

Upon closing, Concho’s Chairman and Chief Executive Officer Tim Leach will join ConocoPhillips’ board of directors and executive leadership team as executive vice president and president, Lower 48. 

The transaction is subject to the approval of both ConocoPhillips and Concho stockholders, regulatory clearance and other customary closing conditions. The transaction is expected to close in the first quarter of 2021. 

In the meantime, an integration planning team consisting of representatives from both companies will be formed to ensure required business processes and programs are implemented seamlessly post-closing. 

In light of the pending merger, ConocoPhillips has suspended share repurchases until after the transaction closes.

Goldman Sachs & Co. LLC is serving as exclusive financial advisor to ConocoPhillips, and Wachtell, Lipton, Rosen & Katz is serving as ConocoPhillips’ legal advisor. Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC are acting as financial advisors to Concho. Sullivan & Cromwell LLP is acting as legal advisor to Concho.

Highlights of the transaction:

• Two best-in-class asset portfolios that create a combined resource base of approximately 23 billion barrels of oil equivalent with a less than USD40 per barrel WTI* cost of supply and an average cost of supply below USD30 per barrel WTI.
• High-quality balance sheet that offers superior sustainability, resilience and flexibility across price cycles.
• ConocoPhillips and Concho expect to capture USD500 million of annual cost and capital savings by 2022.
• A financial framework that delivers greater than 30% of cash from operations via compelling dividends and additional distributions.
• Elevated commitment to environmental, social and governance excellence with a newly adopted Paris-Aligned Climate Risk strategy

“The leadership and boards of both companies believe today’s transaction is an affirmation of our commitment to lead a structural change for our vital industry,” said Ryan Lance, ConocoPhillips chairman and chief executive officer. 

“Concho is a tremendous fit with ConocoPhillips. Together, ConocoPhillips and Concho will have unmatched scale and quality across the important value drivers in our business: an enviable low cost of supply asset base, a strong balance sheet, a disciplined capital allocation approach, ESG excellence and great people. Importantly, the transaction meets our long-stated and clear criteria for mergers and acquisitions because it is completely consistent with our financial and operational framework.”

“Through this combination, we are joining a diversified energy company with even more scale and resources to create shareholder value in today’s markets and beyond,” said Tim Leach, chairman and chief executive officer of Concho Resources. “Thanks to our team, Concho is one of the largest unconventional shale producers in the United States, with a high-quality asset base, a culture of operational excellence, safety and efficiency, and a strong balance sheet. Through consolidation, we will apply our assets, capabilities and superior performance to the business model of the future, creating a better-capitalised company with enhanced capital discipline, more flexibility and an unwavering commitment to sustainability. From our position of strength and in light of market trends, our board of directors and management team evaluated a wide range of options and unanimously determined that combining with ConocoPhillips is the best path forward for Concho and our shareholders. We look forward to bringing together our complementary operations, teams and cultures to realise the upside potential of this exciting combination.”

The new ConocoPhillips will be the largest independent oil and gas company, with pro forma production of more than 1.5 million barrels of oil equivalent per day (MMBOED). The transaction brings together contiguous and complementary “core-of-the-core” acreage positions across the Delaware and Midland basins to create an unconventional powerhouse that also includes leading positions in the Eagle Ford and Bakken in the Lower 48 U.S. states and the Montney in Canada. The expanded Permian position provides a strong complement to ConocoPhillips’ other globally diverse, low-capital-intensity legacy positions.