Big Energy deals: Oil & gas mergers

It was a busy week for mergers and acquisitions in the oil and gas industry. Hess (HES) shareholders approved plans to be acquired by competitor Chevron (CVX). A move that was first announced in October 2023. ConocoPhillips (COP) also reached an agreement to acquire Marathon Oil (MRO) in a $17.1 billion all-stock deal. These big energy deals signal a larger trend in the oil industry: a handful of larger companies gobbling up the lion share of the industry space. Will these M&A activities face regulatory scrutiny? Will these growing industry titans face antitrust enforcement? Here is what you need to know.

Hess shareholders agreed to a $53 billion acquisition by Chevron, Yahoo Finance's Ines Ferre covering the shareholder vote reports: "A Chevron spokesperson saying after this vote: 'We are pleased that a majority of Hess shareholders have voted to approve the merger. We anticipate moving the FTC regulatory process towards its conclusion in the coming weeks.'" However, Chevron may not be out of the woods yet, as they face serious opposition from competitor ExxonMobil (XOM). The two oil companies are fighting for the rights over a lucrative oil reserve in the Guyana coast (bordering Venezuela). Yahoo Finance's Alexis Keenan summarizes: "Now Exxon has about 45% share in that particular asset, Hess at 30%, and a China state-owned company owning 25%. What Exxon is saying is that its majority stake gives them the right to counter whatever Chevron would be offering for Hess's stake." With the Guyana coast oil reserve being the crown-jewel asset of this transaction between Chevron and Hess, Exxon's right of first refusal could kill the deal entirely.

ConocoPhillips is in talks to acquire Marathon Oil for $17.1 billion in an all-stock-deal. Tortoise Portfolio Manager Rob Thummel explains: "Marathon Oil actually has one of the highest free-cash flow yields in the oil & gas space. When you merge these assets together, what ConocoPhillips gets is some good assets across the Bakken in North Dakota, across the Permian and the Eagle Ford in Texas, but it get's a lot of free cash flow." ConocoPhillips merging with Marathon Oil is indicative of a larger trend in the oil & gas industry; smaller oil companies acknowledge that they cannot compete with their more powerful and resource-rich competitors. Alpine Saxon Wood's Chief Market Strategist Sarah Hunt elaborates: "The reality on the ground is fossil fuels are going to be with us for a lot longer, but there has been a change in the way investors perceive them. I think this is all about consolidating into a smaller number of players in a very mature industry, that is looked at as something that is not going to last forever."

The Dallas Federal Reserve surveyed industry executives in the oil & gas space in attempt to gauge the forecast for future M&A activities. Yahoo Finance's Ines Ferre reports: "Overwhelmingly they anticipate more mergers in the next two years. As one analyst told Yahoo Finance nobody wants to be too small to compete with the big guys."

This article was written by Noah Chadwick

Video Transcript

And big deals in the oil and gas industry.

Chevron closer to buying has and Conical Phillips is nearing a deal with a marathon.

Oil could regulatory scrutiny put these deals in jeopardy.

Has shareholders just approved Chevron's $53 billion acquisition of the company.

Yeah, that's right.

And we have been watching this, this deal closely spokesperson saying after this vote, we're pleased that a majority of shareholders have voted to approve the merger that they anticipate moving the to see a regulatory process towards its conclusion in the coming weeks.

This announcement by has that its shareholders say ok to this deal that's raising a problem.

And that is Exxon's rights over this guy on a coast oil reserve area, this very lucrative oil reserve area.

Now Exxon has about 45% share in that particular asset has at 30% and then a China state owned company owning 25%.

And so what Exxon is saying is that it's majority of stake that gives them the right to counter whatever Chevron would be offering for hess's stake.

You know, I think, you know, hess is up probably 20% since the, since the transaction was announced.

If the arbiter ruled that Exxon and C are entitled to a right of first refusal, then this deal will be, will be all because uh as everybody's highlighted, the crown jewel asset of this transaction is the Guyana asset.

As far as the second is concerned, uh This is uh Marathon Oil and Conocophillips.

Conocophillips would be acquiring Marathon Oil for a $17.1 billion in an all stock deal.

Oil actually has one of the highest free cash boat yields in the oil and gas space.

When you merge these assets together, what what Conocophillips gets.

There's some good assets in, in, you know, across the Bakken in North Dakota, across the firm and the Eagle Verd in, in, in Texas.

But it gets a lot of free cash flow.

What we're seeing now is because of the consolidation, you're getting larger companies who have control of more of the oil in the US and are going to be able to execute on moderate low to mid single digit oil production growth that should result in a healthier commodity backdrop where they'll be less responsive to spikes in oil prices and support higher and more stable oil prices.

The reality on the ground is we're going to be with fossil fuels are gonna be with us for a lot longer, but there's been a change in both the way investors perceive them.

So I think this is all about consolidating into a smaller number of players in a very mature industry that is looked at as something that is not going to last forever.

Now, industry executives surveyed in December by the Dallas Fed said overwhelmingly that they anticipate more mergers in the next two years.

As one analyst told Yahoo Finance, nobody wants to end up being too small to compete with the big guys.