ConocoPhillips to acquire Marathon Oil in all-stock deal

ConocoPhillips has announced a definitive agreement to acquire Marathon Oil Corporation in an all-stock transaction valued at USD22.5 billion, including USD5.4 billion of net debt. This strategic acquisition is expected to be immediately accretive to earnings, cash flows, and return of capital per share.

ConocoPhillips is one of the world’s leading exploration and production companies with operations in 13 countries and approximately 10,000 employees. Marathon Oil is an independent oil and gas exploration and production company with a focus on competitive resource plays in the U.S. and a world-class integrated gas business in Equatorial Guinea. Both companies are headquartered in Houston, Texas, U.S.A. As of May 2024, the market capitalisation of ConocoPhillips is approximately USD134.78 billion​​​​. Meanwhile, Marathon Oil Corporation has a market capitalisation of about USD16.17 billion​​.

Under the terms of the agreement, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips common stock for each share of Marathon Oil common stock. This represents a 14.7% premium to Marathon Oil’s closing share price on May 28, 2024, and a 16.0% premium to the prior 10-day volume-weighted average price.

Ryan Lance, ConocoPhillips chairman and chief executive officer, stated, “This acquisition of Marathon Oil further deepens our portfolio and fits within our financial framework, adding high-quality, low-cost 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 expected to save at least USD500 million over the first year from reduced general and administrative costs, lower operating costs, and improved capital efficiencies. By buying Marathon Oil, ConocoPhillips will gain more than two billion barrels of oil. It will cost them less than USD30 to extract each barrel of this oil, making it a cheap source of new oil. This deal will make their oil operations in the mainland U.S. even stronger and more efficient.

Enhanced shareholder returns

ConocoPhillips also announced plans to increase its ordinary base dividend by 34% to 78 cents per share starting in the fourth quarter of 2024. Upon closing the transaction, ConocoPhillips expects to repurchase more than USD7 billion in shares in the first year and more than USD20 billion within the first three years, assuming recent commodity prices.

“We remain committed to our differentiated cash from operations distribution framework of returning greater than 30% to our shareholders, with a track record of returning over 40% since our 2016 strategy reset,” added Lance. “We plan to raise our ordinary dividend by 34% in the fourth quarter and will prioritise share repurchases following the close of the transaction, aiming to retire the equivalent amount of newly issued equity in two to three years at recent commodity prices.”

Lee Tillman, chairman, president, and CEO of Marathon Oil, expressed confidence in the merger, stating, “This is a proud moment to look back on what we achieved at Marathon Oil. ConocoPhillips is the right home to build on that legacy, offering a truly unique combination of added scale, resilience, and long-term durability.”

Next steps and regulatory approval

The transaction is subject to approval by Marathon Oil stockholders, regulatory clearance, and other customary closing conditions. It is expected to close in the fourth quarter of 2024.