ConocoPhillips to buy Marathon Oil in $22.5 billion deal in latest energy merger

By Seher Dareen and Arathy Somasekhar

HOUSTON (Reuters) -Top U.S. independent oil and gas producer ConocoPhillips on Wednesday agreed to buy Marathon Oil for $22.5 billion, the latest in a series of mega-deals in the energy industry.

The U.S. oil and gas industry has been riding a consolidation wave over the last two years as companies look to bolster reserves and create economies of scale. Last year was one of the most active, with some $250 billion in deals struck. The momentum has carried over into this year as the stock market continues to boom and as U.S. shale oil production scales new records.

"We're heading into a period of kind of Shale 2.0, which is more about using technology and efficiencies, data analytics and some of the refrack potential that allows us to extend some tier one inventory," said ConocoPhillips CEO Ryan Lance.

The all-stock offer equates to $30.33 per Marathon share, a premium of nearly 15% to the stock's Tuesday close, according to Reuters calculations. The transaction, which includes $5.4 billion of Marathon's debt, is expected to close in the fourth quarter of 2024.

Shares of Marathon Oil rose 9% to $28.85, while ConocoPhillips fell 3.8% to $115.10 in morning trading.

"The deal makes sense operationally given the asset overlap most meaningfully in the Eagle Ford and Bakken in L48," Tudor, Pickering and Holt analyst Jeoffrey Lambujon said. Marathon Oil's international gas assets fit well with the Conoco's global gas footprint, he added.

ConocoPhillips expects cost savings of $500 million within the first full year after the closing of the transaction. The acquisition adds over 2 billion barrels of reserves to its portfolio.

Marathon Oil has operations in the Bakken basin in North Dakota, the Permian basin in West Texas and South Texas' Eagle Ford basin - regions that are prime targets for producers looking to increase their inventory.

ConocoPhillips last quarter was the third largest oil and gas producer by volume in the Permian, the top U.S. shale oil field.

The deal follows Exxon Mobil's $60 billion acquisition of Pioneer Natural Resources that was announced in October, and Chevron's proposed $53 billion merger with Hess that was approved by the latter's shareholders on Tuesday.

The consolidation activity in the industry has, however, attracted increased antitrust scrutiny.

The Federal Trade Commission (FTC), however, recognizes that oil is a global market and the deal represents a "very, very small percentage of that global market," Lance said.

The company's estimate of a closing late this year is conservative, he said. The FTC has "already kind of gotten over that Rubicon with some of the deals that have come over the last couple of years."

ConocoPhillips also added that it would dispose of nearly $2 billion worth of assets.

The company also signaled it would ramp up share buybacks to $7 billion next year from this year's projected $5 billion and commit to buying $20 billion of its shares over the three years following the deal's closing.

(Reporting by Arathy Somasekhar in Houston, Seher Dareen, Tanay Dhumal and Gnaneshwar Rajan, additional reporting by Arpan Varghese in Bengaluru; Editing by Anil D'Silva and Marguerita Choy)