Oil and gas firm ConocoPhillips announced Wednesday that it has entered into an agreement to acquire Marathon Oil Corporation in a multi-billion dollar deal expected to close by the end of this year.
The “all-stock transaction” will involve Marathon shareholders receiving 0.2550 shares of ConocoPhillips common stock for each share of Marathon Oil common stock, representing a 14.7 percent premium to Marathon’s share closing price on May 28. Marathon is calculated to have an enterprise value of $22.5 billion and net debts of $5.4 billion, which makes the acquisition valued at $17 billion. The transaction now needs to be approved by stockholders, gain regulatory clearance, and meet other closing conditions. ConocoPhillips expects the transaction to be completed in Q4, 2024.
ConocoPhillips shares closed at just over $118 on May 28. After the announcement, shares of the company were trading lower by more than four percent as of 1:30 p.m. ET, Wednesday.
The deal will provide ConocoPhillips with an estimated $500 million in cost savings within the first year after the transaction is completed. The savings will come from lowering administrative and operating costs and improving capital efficiencies. The company’s portfolio will be boosted by more than two billion barrels of oil reserves.
“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,” said Ryan Lance, ConocoPhillips chairman and chief executive officer.
When asked about the ConocoPhillips-Marathon deal, David Burton, a senior research fellow in economic policy at The Heritage Foundation, told The Epoch Times that mergers must be “evaluated based on consumer welfare standard, on whether it’s good for the public or not.”
Sometimes, mergers can lead to efficiencies, resulting in reduced prices. However, when a market has an “extreme concentration” of power that creates a monopoly, duopoly, or something similar, such deals could end up adversely affecting customer welfare, he noted.
Marathon Oil currently has operations in the Eagle Ford basin in South Texas, Bakken basin in North Dakota, and the Permian basin in West Texas. As of Q1, ConocoPhillips was the third biggest oil and gas producer in the Permian basin in terms of volume, following ExxonMobil and Chevron.
Once the transaction is closed, ConocoPhillips said in a statement it plans to repurchase more than $7 billion in shares in the first full year, with more than $20 billion set to be repurchased over the course of the first three years.
Merger and Regulatory Scrutiny
ConocoPhillips’s acquisition of Marathon comes as other big players have made similar moves and face regulatory challenges.On Nov. 1, Senate Majority Leader Chuck Schumer (D-N.Y.), along with 22 Senate Democrats, raised concerns about the acquisitions.
They complained that ExxonMobil’s takeover of Pioneer and Chevron’s acquisition of Hess would result in “greater concentration” in the market, thus reducing competition and forcing “American families to pay more at the pump.”
In a letter to the U.S. Federal Trade Commission (FTC) chair Lina Khan, the senators complained that such deals threaten to harm small operators and suppress the wages of workers. It asked the FTC to “carefully consider all of the possible anticompetitive” harms that such acquisitions pose.
The lawmakers pointed out that between 1990 and 2001 the number of major U.S. energy companies dropped from 19 to nine due to mergers. In 1993, the largest ten oil refiners controlled 55.6 percent of the market, which jumped to 81.4 percent by 2005.
“The oil-and-gas industry is still dominated by a handful of corporate giants, led by the top-two players Exxon and Chevron. Any further consolidation could harm American consumers.”
The FTC investigated the ExxonMobil-Pioneer deal and cleared it earlier this month. The agency also opened an investigation into the Chevron-Hess deal.
However, Mr. Burton thinks it is “unlikely” that there would be extreme concentration in the energy industry right now. He pointed out that such market concentration is particularly seen in heavily regulated sectors since larger firms are better positioned to deal with regulations than smaller ones.
“The costs of complying with the regulations don’t increase proportionately with size. They have a disproportionately adverse impact on small firms.”
He admitted there was a possibility that the ConocoPhillips merger could be taking place to make the company stronger in the face of a pushback against the fossil fuel industry under the Biden administration.
Another possibility is that both companies “simply see the ability to increase efficiency and reduce costs that will enable them to offer their goods and services at a lower price and more competitive prices.”
