Top U.S. independent oil producer ConocoPhillips (NYSE) announced on Friday that it received a second request from the U.S. Federal Trade Commission (FTC) for more information regarding its proposed acquisition of Marathon Oil (NYSE).
Both companies received these requests on July 11 and are collaborating with the FTC to facilitate the review process.
Context:
In May, ConocoPhillips disclosed plans to acquire Marathon Oil for $22.5 billion in stock. This strategic move aims to enhance ConocoPhillips’ output and achieve greater economies of scale in U.S. shale fields and liquefied natural gas production.
This merger follows a series of major deals in the industry, including Exxon Mobil’s (NYSE) $60 billion acquisition of Pioneer Natural Resources (NYSE), Chevron’s (NYSE) proposed $53 billion merger with Hess (NYSE), Chesapeake Energy’s (NYSE) $7.4 billion purchase of Southwestern Energy (NYSE), and Occidental Petroleum’s (NYSE) $12 billion bid for CrownRock.
Why It Matters:
The FTC’s request for additional information is expected to delay the closing of the ConocoPhillips-Marathon Oil deal. Initially projected to close in the fourth quarter of this year, this timeline now appears conservative, potentially postponing the full realization of anticipated cost savings and operational benefits from shared resources.
Both companies operate extensively in West Texas, South Texas, and North Dakota’s shale fields.
By the Numbers:
The merger would create a combined entity producing 2.26 million barrels of oil and gas per day and add 1.32 billion barrels of proved reserves to ConocoPhillips’ existing 6.8 billion barrels. The offer of 0.255 shares of ConocoPhillips for each share of Marathon represents a 14.7% premium to Marathon’s pre-deal closing price.
Analysis and Market Implications:
The merger between ConocoPhillips and Marathon Oil signifies a substantial consolidation in the oil industry, aimed at optimizing resource use and boosting production efficiency. The scale of this merger could lead to significant cost reductions and enhanced operational synergy, potentially increasing shareholder value in the long term.
However, regulatory scrutiny, as evidenced by the FTC’s second request for information, could delay these benefits. Investors should consider the potential impacts of this delay and the broader regulatory environment on the deal’s completion.
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