ConocoPhillips (NYSE:COP) plans to buy Marathon Oil Corporation (NYSE:MRO) in an all-stock deal for $22.5 billion, including $5.4 billion of net debt. This acquisition marks a significant step for ConocoPhillips as it continues to strengthen its position in the energy sector.
The strategic move will add high-quality, low-cost supply inventory to COP’s portfolio, enhancing its market position. The transaction is likely to close in Q4 of 2024.
Transaction Details
Under the terms of the deal, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips for each share of Marathon Oil. This exchange ratio represents a 14.7% premium to Marathon Oil’s closing price on May 28, 2024, and a 16% premium to the prior 10-day volume-weighted average price.
Key Benefits of the Transaction
The deal is expected to be immediately accretive to ConocoPhillips in terms of earnings, free cash flow, and return of capital per share to shareholders. ConocoPhillips expects to achieve $500 million in cost and capital synergies within the first year following the transaction’s closure. These savings are projected to stem from the expected reduction in general and administrative expenses, lower operating costs, and improved capital efficiencies.
Moreover, the acquisition will significantly bolster ConocoPhillips’ portfolio by adding over 2 billion barrels of resources at an estimated average cost of supply of less than $30 per barrel WTI. This complementary acreage enhances the company’s existing U.S. onshore portfolio.
COP to Boost Shareholder Returns
ConocoPhillips plans to increase its dividend by 34% to $0.78 per share in Q4 of 2024. Further, following the acquisition and assuming stable commodity prices, ConocoPhillips intends to repurchase shares worth over $7 billion within the first year after closing, up from the current $5 billion.
Further, the company plans to buy back shares worth $20 billion over the next three years.
Is ConocoPhillips a Buy or Sell?
Wall Street is bullish about ConocoPhillips stock. With 11 Buys and two Hold recommendations, ConocoPhillips stock sports a Strong Buy consensus rating. COP stock has gained about 18% in one year. The analysts’ average price target for COP stock is $147.75, implying a 28.20% upside potential from current levels.
