ConocoPhillips and Marathon Oil: Finalizing the Strategic Play for U.S Energy Dominance

On May 29th, 2024, the acquisition of Marathon Oil by ConocoPhillips was announced in a $22.5 B all-stock transaction, inclusive of $5.4 B of Marathon's net debt. The deal is expected to close in the coming weeks, with both companies holding the previous goal of a late Q4 2024 settlement. Marathon Oil shareholders are to receive .2550 shares of ConocoPhillips common stock per each Marathon share owned resulting in a 14.7% premium derived from Marathon's May 28th closing price and a 16% premium on its 10-day weighted moving avg. price. The acquisition, along with its combined territories marks a culmination in establishing U.S. upstream energy dominance.

The deal aims to achieve cost-saving synergies of around $500 million after the first year of settlement stemming from operational effectiveness and capital reductions. ConocoPhillips is also confident in the acquisition's ability for an immediate positive impact on earnings, cash flows, and return on capital per share, due to an adjunct nature of respective assets and the companies' shared operating philosophy. The deal immediately provides ConocoPhillips access to more than 2 million barrel reserves with an estimated average point forward cost of supply, of less than $30 per barrel WTI. Moreover, the acquisition mainly provides a substantial increase in acreage for ConocoPhillips's domestic oil production, including access to coveted regions such as Eagle Ford, Bakken, and the Permian Basin. This substantial operating increase among the lower 48 states, will see to a greater competitive advantage in domestic oil production. A move consistent with ConocoPhillips plans to reduce global risk exposure and focus on long-term profitability and growth, as this acquisition will provide ConocoPhillips access to high-quality resources, in a stable market. Whereas, recent political instability in the Middle East has disrupted oil transportation and extraction, as well as contributed to volatile commodity pricing. Such instability can be seen through Chevron's closing of the Tamar gas fields in Israel. Furthermore, the recent Houthi militant attacks in the Red Sea, have disrupted oil tanker transportation. Chevron CEO Michael With publicly stated the severity of such attacks and the risk they pose to global operational efficiency.