ConocoPhillips agreed Wednesday to acquire its smaller rival, Marathon Oil, the latest deal in a wave of consolidation sweeping the oil industry.
The all-stock deal values Marathon at $22.5 billion, including debt. The acquisition “further deepens our portfolio and fits into our financial structure, adding high-quality inventory and low supply costs,” said Ryan Lance, Conoco’s chief executive, in a statement.
Marathon’s operations are in some of the most sought-after oil fields in New Mexico, North Dakota and Texas; also drills offshore in Equatorial Guinea.
Marathon has its roots in the 19th century and, like ConocoPhillips, its predecessors were once part of John D. Rockefeller’s Standard Oil empire. In 2011, Marathon Oil spun off its refinery business, which now operates as Marathon Petroleum.
The oil industry in the United States, the world’s largest producer of crude oil, is made up of many small and medium-sized oil companies, ranging from mom-and-pop operations with a few wells in a state to global giants like Exxon Mobil. Wall Street values ConocoPhillips at about $140 billion, making it about 10 times bigger than Marathon Oil but about a quarter the size of Exxon.
Oil companies made some of the biggest acquisitions last year despite regulatory scrutiny from the Biden administration and volatility in the oil market. The North American giants have enjoyed record profits, giving them the firepower to acquire smaller players with operations in oil-rich regions such as the Permian Basin in New Mexico and Texas and the Gulf of Mexico.
There was $250 billion in trading activity in the oil and gas industry last year, according to Reuters, including Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources and Chevron’s acquisition of Hess for $ 53 billion, which was approved by Hess shareholders on Tuesday.
The boom in the oil business is largely due to the robust recovery in raw material prices since the early days of the pandemic, when oil prices fell.
The US benchmark crude oil price is now trading at around $80 per barrel. Although prices are about a third lower than the peaks that prevailed in 2022 following Russia’s invasion of Ukraine, they are high enough to allow Western oil companies to make robust profits and buy out other producers. Conoco said the Marathon purchase would add more than two billion barrels to its portfolio, with an average supply cost of less than $30 per barrel.
Conoco was in the running to buy Endeavor Energy Resources earlier this year, but lost out to Diamondback Energy, which announced a deal in February to buy the company for $26 billion.
Conoco’s agreement with Marathon is subject to regulatory clearance and a shareholder vote. The companies said they expect to close the deal in the fourth quarter.
In the year after the deal closes, Conoco said it expects to cut at least $500 million in costs across the combined company. Conoco also said it plans to increase its dividend by 34% later this year and repurchase more than $20 billion of its shares in the three years after taking control of Marathon.