Joining the recent frenzy of energy mega-transactions, ConocoPhillips announced Wednesday it has agreed to purchase Marathon Oil for $22.5 billion.
The deal is expected to save $500 million in the first year of the combined Houston companies, as well as add 2 billion barrels of resources to ConocoPhillips’ U.S. onshore portfolio and expand its presence in key shale plays, including the Bakken in North Dakota and the Permian Basin and Eagle Ford in Texas.
“We never know when these opportunities come available,” said ConocoPhillips CEO Ryan Lance on a conference call about the Marathon deal. “This one came to our attention a few weeks ago. We weren’t out necessarily looking for something, but an opportunity presented itself.”
The all-stock deal includes $5.4 billion of net Marathon debt. Marathon shareholders will get 0.2550 shares of ConocoPhillips common stock for each share of Marathon common stock, representing a 14.7% premium to the closing share price of Marathon on May 28, and a 16% premium to the prior 10-day volume-weighted average price.
Pending regulatory approval, the deal is expected to close in the fourth quarter.
Wachtell, Lipton, Rosen & Katz served as ConocoPhillips’ legal advisor, while Kirkland & Ellis represented Marathon.
The Kirkland deal team was led by Houston corporate partners Sean Wheeler, Debbie Yee and Camille Walker; debt finance partner Rachael Lichman (Houston); capital markets partners Julian Seiguer and Atma Kabad (Houston); tax partners David Wheat (Dallas) and Bill Dong (Salt Lake); antitrust & competition partners Ian John (New York), Chuck Boyars (Washington), Thomas Sebastian Wilson(Brussels) and Athina Van Melkebeke (London); and Houston executive compensation partners Rob Fowler and Stephanie Jeane.
The Wachtell team was led by New York corporate partners Gregory Ostling and Zachary Podolsky, assisted by associates Ahsan Barkatullah, Rushi Patel and Claire Yang; antitrust partner Nelson Fitts and associate Emily Samra; executive compensation and benefits partner Michael Schobel and associate Amy Zeng; finance partner Emily Johnson and associate Taylor Custer; and tax partner Deborah Paul and associate Sarah Perez Berger.
In-house, Kim Warnica is Marathon’s executive vice president, general counsel and secretary. Kelly Rose serves as ConocoPhillips’ general counsel and senior vice president of legal.
Evercore was ConocoPhillips’ financial advisor, while Morgan Stanley & Co. served Marathon in the same capacity.
ConocoPhillips’ acquisition of Marathon, which has an approximate market cap of $16 billion compared to its purchaser’s market cap of more than $130 billion, adds another to the ledger of major energy deals over the past 12 months. The oil & gas sector is experiencing a wave of consolidation as companies aim to boost their reserves and reduce operating expenses.
Last year was particularly active in Texas, as two energy transactions were among the top ten deals in the world in terms of value, and a third was among the top 12:
- ExxonMobil’s $64.5 billion acquisition of Pioneer Natural Resources
- Chevron’s $59.6 billion purchase of Hess Corp., which shareholders approved yesterday
- ONEOK’s $18.6 billion acquisition of Magellan Midstream
Jeoffrey Lambujon, an analyst who follows ConocoPhillips at the brokerage firm TPH&Co in Houston, says in a note that the deal makes sense operationally given the overlap in the two companies’ assets, most meaningfully in the Eagle Ford in South Texas and the Bakken Basin of the Northern Rockies. He adds that Marathon’s international gas assets “fit well” within the global gas footprint that ConocoPhillips has built.
Lambujon would like some more details on the potential upside of $500 million in additional annual cost savings, any potential candidates for asset sales post-close and what ConocoPhillips’ expectations might be for regulatory involvement.
When the deal closes, ConocoPhillips expects share buybacks “to be more than $20 billion in the first three years, with more than $7 billion in the first full year, at recent commodity prices,” according to a news release.
Corporate Transactions Senior Writer Claire Poole contributed to this report.