In a strategic move to bolster reserves and enhance operational efficiency, ConocoPhillips, the leading U.S. independent oil and gas producer, has announced an agreement to acquire Marathon Oil for $22.5 billion. This deal marks the latest in a series of substantial mergers within the energy sector.

Over the past two years, the U.S. oil and gas industry has witnessed a significant wave of consolidation, with companies striving to increase their reserves and achieve economies of scale. Last year alone saw deals amounting to approximately $250 billion. This trend continues into the current year, driven by a booming stock market and record-breaking U.S. shale oil production.

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“We’re heading into a period of Shale 2.0, which focuses on leveraging technology, efficiencies, data analytics, and refracking potential to maximize tier one inventory,” stated ConocoPhillips CEO Ryan Lance.

The all-stock transaction values Marathon Oil at $30.33 per share, reflecting a nearly 15% premium over the stock’s closing price on Tuesday. The deal, which includes $5.4 billion of Marathon’s debt, is projected to finalize in the fourth quarter of 2024.

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Following the announcement, Marathon Oil’s shares surged by 9% to $28.85, while ConocoPhillips saw a 3.8% decline to $115.10 in morning trading.

Tudor, Pickering and Holt analyst Jeoffrey Lambujon noted, “The deal makes sense operationally given the asset overlap, particularly in the Eagle Ford and Bakken regions. Marathon Oil’s international gas assets also complement ConocoPhillips’ global gas footprint.”

Marathon Oil has significant operations in the Bakken basin in North Dakota, the Permian basin in West Texas, and South Texas’ Eagle Ford basin—regions that are prime targets for producers looking to increase their inventory. ConocoPhillips was the third-largest oil and gas producer by volume in the Permian, the top U.S. shale oil field, in the last quarter.

This acquisition follows Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources announced in October, and Chevron’s proposed $53 billion merger with Hess, which was recently approved by Hess shareholders. The consolidation activity in the industry has, however, attracted increased antitrust scrutiny.

Despite this, Lance mentioned that the Federal Trade Commission (FTC) recognizes that oil is a global market and the deal represents a “very, very small percentage of that global market.” He added that the company’s estimate of a closing late this year is conservative, noting that the FTC has “already kind of gotten over that Rubicon with some of the deals that have come over the last couple of years.”

ConocoPhillips also plans to dispose of nearly $2 billion worth of assets and has signaled an increase in share buybacks to $7 billion next year from this year’s projected $5 billion. The company is committed to buying $20 billion of its shares over the three years following the deal’s closing.

ConocoPhillips anticipates achieving cost savings of $500 million within the first year after the transaction’s completion. Additionally, the acquisition will add over 2 billion barrels of reserves to ConocoPhillips’ portfolio.