Published on 30 May 2024 on Zacks via Yahoo Finance

ConocoPhillips to Buy Marathon Oil: Energy ETFs to Gain

Amid the ongoing wave of consolidation in the U.S. oil and gas industry, ConocoPhillips COP has agreed to acquire Marathon Oil MRO in an all-stock deal worth $22.5 billion, including $5.4 billion in debt.Investors seeking to tap the opportunity arising from the projected deal could bet on ETFs like iShares U.S. Oil & Gas Exploration & Production ETF IEO, Energy Select Sector SPDR XLE, Westwood Salient Enhanced Energy Income ETF WEEI, First Trust Nasdaq Oil & Gas ETF FTXN and iShares U.S. Energy ETF IYE.

Deal in Focus

Per the terms of the deal, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips for each share of Marathon Oil common stock, representing a 14.7% premium to the closing price on May 28 (see: all the Energy ETFs here).ConocoPhillips chief executive Ryan Lance said, " this acquisition of Marathon Oil further deepens our portfolio and fits within our financial framework, adding high-quality, low cost of supply inventory adjacent to our leading U.S. unconventional position." The acquisition will add highly complementary acreage to ConocoPhillips’ existing U.S. onshore portfolio, adding over 2 billion barrels of resource.    The acquisition will make ConocoPhillips one of the largest asset holders in the Bakken shale play in North Dakota and the Eagle Ford play in Texas, according to analysts at Truist Securities. It will boost Conoco’s market cap to above $150 billion, extending the company’s lead as the largest independent producer, said Andrew Dittmar, M&A analyst at Enverus. Conoco will become larger than BP but will remain smaller than Shell, he said.  This acquisition is expected to be immediately accretive to COP’s earnings, cash flows and return on capital per share. ConocoPhillips expects to achieve at least $500 million of run-rate cost and capital savings within the first full year following the closing of the transaction.The transaction, expected to close in the fourth quarter of 2024, is subject to the approval of Marathon Oil stockholders, regulatory clearance and other customary closing conditions. Upon closing of the transaction, ConocoPhillips 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 close of the deal. It also expects to increase its ordinary base dividend per share by 34% to $0.78 starting in the fourth quarter of 2024 (read: Where Could Oil Go From Here? ETFs in Focus).The ConocoPhillips-Marathon deal is the latest in a string of mergers in the U.S. oil and gas industry, where companies are looking to bolster reserves and create economies of scale. Last year, companies in the industry struck $250 billion worth of M&A deals, according to Reuters. The deal follows Exxon Mobil's $60 billion acquisition of Pioneer Natural Resources that was announced in October, and Chevron's (CVX) proposed $53 billion merger with Hess that was approved by the latter's shareholders this week.Other deals include Occidental Petroleum's (OXY) $12 billion buyout of privately held oil and gas producer CrownRock and Diamondback Energy's (FANG) $26 billion acquisition of Endeavor Energy.