ConocoPhillips to Buy Shale Rival Concho for $9.7 Billion -- 3rd Update
By Rebecca Elliott
ConocoPhillips has agreed to buy Concho Resources Inc. for $9.7
billion in what would be the largest U.S. oil deal since the
coronavirus pandemic began roiling global energy markets.
The acquisition gives ConocoPhillips, the largest oil producer
in Alaska, a much larger footprint in the hottest oil field in the
U.S., the Permian Basin of Texas and New Mexico. The combined
company would be the largest U.S. oil independent, with output in
the Permian second only to Occidental Petroleum Corp., according to
a JPMorgan Chase & Co. analysis of Enverus data.
"Sector consolidation is both necessary and inevitable,"
ConocoPhillips Chief Executive Ryan Lance told analysts Monday
following the announcement. "We both believe our industry needs
solutions that address the lack of scale, poor returns and,
increasingly, the challenges and opportunities of environmental,
social and governance matters."
The all-stock acquisition values Concho at a 15% premium to its
closing price on Oct. 13 and would give shareholders 1.46 shares of
ConocoPhillips stock for each share of Concho common stock.
Bloomberg News reported the companies were close to a deal last
It is the latest in a series of combinations in the U.S. oil
patch, where companies are seeking to bulk up to ride out weak
demand and low prices, which have hovered around $40 a barrel since
June, below the level many companies require to make money on new
Devon Energy Corp. agreed last month to a $2.6 billion merger
with WPX Energy Inc., while Chevron Corp. agreed in July to buy
Noble Energy Inc. for about $5 billion. Both were all-stock
"Scale has never been more important. Through this transaction,
we're joining Concho with a larger diversified energy company with
even more size and resources to create value in today's markets and
beyond," Concho CEO Tim Leach said Monday. He is set to join the
combined company as an executive vice president and board
It has been a brutal year for U.S. oil companies, which are
suffering from prolonged weak demand for fossil fuels during the
pandemic. The companies had already been facing investor flight
after failing to generate consistent returns, even as they helped
lift American oil production to world-leading totals.
As of Friday, the value of Concho's shares had fallen roughly
25% in a year, as the S&P 500 index rose about 17%.
ConocoPhillips's share price dropped around 38% in that time. Both
companies' shares were roughly flat early Monday.
The deal marks a strategic departure for ConocoPhillips, which
has spent years shedding assets even as peers chased aggressive
growth. Adding Concho, which drills exclusively in the Permian,
would give the company a far larger footprint in the nation's top
For Concho, joining with a larger, more diversified rival would
help alleviate one of the major challenges for shale companies:
Their wells generate a lot of oil and gas early on, but that output
trails off quickly. That leaves companies on a treadmill,
consistently plowing money back into the ground simply to maintain
"The size and scale that we are today with an underlying decline
rate that approaches 40%, it's hard to distribute cash back to the
shareholders as rapidly as we can in this new model," Mr. Leach
said, referring to the pace at which the company's production would
decline in a year if it didn't invest in new wells.
Without producing new wells, the combined company's output would
decline by less than 12% a year, ConocoPhillips said. Roughly half
of the combined firm's production would be in the Lower 48 states,
with another 15% coming from Alaska and the remaining 35% from
ConocoPhillips said it expects the combined company to be able
to trim costs by $500 million annually by 2022, thanks in part to
lower administrative expenses and a reduction in its global
The company also pledged to reduce the greenhouse-gas emissions
from its operations by 35% to 45% from 2016 levels by 2030, and
eliminate them by 2050. That doesn't include the emissions
generated when consumers use fossil fuels, such as by burning a
gallon of gasoline. To address those releases, Mr. Lance said the
company supports government measures to put a price on carbon,
which include such ideas as a carbon tax.
The deal, which is subject to shareholder approval, is expected
to close early next year.
Dave Sebastian contributed to this article.
Write to Rebecca Elliott at firstname.lastname@example.org
(END) Dow Jones Newswires
October 19, 2020 10:56 ET (14:56 GMT)
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