ConocoPhillips strikes the next 'big oil' consolidation with Marathon deal

ConocoPhillips (NYSE:COP) brought the market a fresh ‘big oil’ takeover, with an ‘all stock’ paper deal to acquire Marathon Oil (NYSE:MRO), setting an enterprise value of $22.5 billion – inclusive of some $5.4 billion of net debt.

Valuing the equity at around $17.1 billion the transaction is pitched at a 14.7% premium to Marathon’s share price yesterday.

Marathon shareholders will receive 0.255 new ConocoPhillips for each Marathon share they currently own.

It will, if concluded, take the current round of deal-making in the top tier of the oil industry to around $250 billion.

Coming against a recent backdrop of heightened fuel pricing and greater scrutiny over carbon emissions, and the ascent of renewable energy and electric vehicles, the trend would appear to suggest that the leaders in the sector are more inclined to consolidate and chase ‘synergies’ rather than pour new capital into new projects for organic growth.

ConocoPhillips told investors it sees at least $500 million of run-rate cost and capital savings within the first full year after the transaction.

It meanwhile proposed to increase its dividend payout, with its ‘base’ dividend to increase by 34% to 78 cents per share in the fourth quarter.

After the deal, the enlarged company anticipates it’ll undertake some $20bn of stock buy-backs over three years – with $7bn earmarked for year one.

Ryan Lance, ConocoPhillips chief executive, said the deal deepens the group’s portfolio by adding ‘high-quality, low cost’ inventory adjacent to the company’s unconventional oil and gas resources.