ConocoPhillips (NYSE: COP) and Marathon Oil Corporation (NYSE: MRO) have entered into a definitive agreement where ConocoPhillips will acquire Marathon Oil in an all-stock transaction valued at $22.5 billion, including $5.4 billion of net debt.
Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips common stock for each share of Marathon Oil common stock, reflecting a 14.7 per cent premium to Marathon Oil’s closing share price on May 28, 2024.
“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,” said Ryan Lance, ConocoPhillips chairman and chief executive officer.
“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 immediately accretive to earnings, cash flows and distributions per share, and we see significant synergy potential.”
Marathon Oil Chairman, President, and CEO Lee Tillman added: “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.”
Transaction Benefits
- Immediately Accretive: The acquisition is immediately accretive to ConocoPhillips’ earnings, cash from operations, free cash flow, and return of capital per share to shareholders.
- Significant Cost and Capital Synergies: ConocoPhillips expects to achieve at least $500 million in run-rate cost and capital savings within the first full year following the transaction’s closing. These savings will come from reduced general and administrative costs, lower operating costs, and improved capital efficiencies.
- Enhanced Lower 48 Portfolio: The acquisition will add over 2 billion barrels of resource with an estimated average point forward cost of supply of less than $30 per barrel WTI, enhancing ConocoPhillips’ U.S. onshore portfolio.
Independent of the transaction, ConocoPhillips plans to increase its ordinary base dividend by 34 per cent to 78 cents per share starting in the fourth quarter of 2024.
Following the transaction’s closure, assuming recent commodity prices, ConocoPhillips intends to:
- Repurchase over $7 billion in shares in the first full year.
- Repurchase over $20 billion in shares within the first three years.
“We remain committed to our differentiated cash from operations distribution framework of returning greater than 30 per cent to our shareholders, with a track record of returning over 40 per cent since our 2016 strategy reset,” added Lance.
“We plan to raise our ordinary dividend by 34 per cent in the fourth quarter and we will continue to target top-quartile dividend growth relative to the S&P 500 going forward.
“Additionally, we intend to prioritise share repurchases following the close of the transaction, with a plan to retire the equivalent amount of newly issued equity in the transaction in two to three years at recent commodity prices.”
The transaction is subject to Marathon Oil stockholders’ approval, regulatory clearance, and other customary closing conditions, with an expected close in the fourth quarter of 2024.