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MarketScreener Homepage  >  Equities  >  Nyse  >  ConocoPhillips    COP


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ConocoPhillips to Buy Shale Rival Concho for $9.7 Billion -- 3rd Update

10/19/2020 | 10:57am EST

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 week.

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 shale wells.

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 deals.

"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 member.

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 oil basin.

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 output.

"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 international positions.

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 exploration program.

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 rebecca.elliott@wsj.com

(END) Dow Jones Newswires

10-19-20 1056ET

Stocks mentioned in the article
ChangeLast1st jan.
CHEVRON CORPORATION -0.08% 89.8 Delayed Quote.-25.48%
CONCHO RESOURCES INC. 3.23% 60.02 Delayed Quote.-31.46%
CONOCOPHILLIPS 3.08% 41.2 Delayed Quote.-36.64%
DEVON ENERGY CORPORATION 3.45% 15.31 Delayed Quote.-41.05%
DJ INDUSTRIAL 0.29% 29969.52 Delayed Quote.4.71%
JPMORGAN CHASE & CO. -0.66% 121.24 Delayed Quote.-12.45%
LONDON BRENT OIL 1.74% 49.64 Delayed Quote.-28.42%
NASDAQ 100 0.09% 12467.128958 Delayed Quote.42.63%
NASDAQ COMP. 0.23% 12377.181515 Delayed Quote.37.70%
NOBLE ENERGY, INC. 1.44% 8.46 End-of-day quote.-65.94%
OCCIDENTAL PETROLEUM CORPORATION 3.15% 16.39 Delayed Quote.-61.44%
S&P 500 -0.06% 3666.72 Delayed Quote.13.49%
WPX ENERGY, INC. 3.57% 7.83 Delayed Quote.-43.01%
WTI 1.62% 46.405 Delayed Quote.-28.04%
12/03CONOCOPHILLIPS : Change in Directors or Principal Officers (form 8-K)
12/02Equinor fire shuts Europe's biggest methanol plant
12/01U.S. oil producer ConocoPhillips to shed up to 500 workers
11/18CONOCOPHILLIPS : Conservation groups sue US to halt oil project in Alaska
11/16CONOCOPHILLIPS : Other Events, Financial Statements and Exhibits (form 8-K)
11/15CONOCOPHILLIPS : Global Water Sustainability Center turns 10
11/13CONOCOPHILLIPS : PGNiG makes large gas discovery in Norway
11/12CONOCOPHILLIPS : Announces Significant Gas Discovery Offshore Norway
11/11CONOCOPHILLIPS : LNG expertise meets changing market challenges
More news
Financials (USD)
Sales 2020 18 610 M - -
Net income 2020 -2 087 M - -
Net Debt 2020 9 861 M - -
P/E ratio 2020 -21,3x
Yield 2020 4,10%
Capitalization 44 000 M 44 000 M -
EV / Sales 2020 2,89x
EV / Sales 2021 2,48x
Nbr of Employees 9 800
Free-Float 59,5%
Duration : Period :
ConocoPhillips Technical Analysis Chart | COP | US20825C1045 | MarketScreener
Technical analysis trends CONOCOPHILLIPS
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus BUY
Number of Analysts 23
Average target price 46,91 $
Last Close Price 41,20 $
Spread / Highest target 50,5%
Spread / Average Target 13,9%
Spread / Lowest Target -12,6%
EPS Revisions
Ryan M. Lance Chairman & Chief Executive Officer
Matthew J. Fox Chief Operating Officer & Executive Vice President
William L. Bullock Chief Financial Officer & Executive Vice President
Dominic E. Macklon SVP-Strategy, Exploration & Technology
Robert A. Niblock Lead Independent Director
Sector and Competitors
1st jan.Capitalization (M$)
CNOOC LIMITED-40.59%44 349
EOG RESOURCES, INC.-42.49%27 897
ECOPETROL S.A.-36.05%25 150