The Permian Basin is about to get a new heavyweight player as the rumors of ConocoPhilips (NYSE:COP) buying Concho Resources (NYSE:CXO) proved true.

The oil giant announced today that it has agreed to acquire its rival for about $9.7 billion, or a 15% premium. The deal puts Conoco on a footing with Occidental Petroleum (NYSE:OXY) and Chevron (NYSE:CVX) with some 372,000 barrels of oil equivalent per day (BOE/d) in the Permian. Occidental produced 465,000 BOE/d in the second quarter. Chevron had reported production of 580,000 barrels of unconventional net oil-equivalent in the first quarter, but announced in March it expected Permian production to decline to 125,000 BOE/d by the end of the year, or 20% below previous guidance.

Oil pumps at sunset

Image source: Getty Images.

Under the merger agreement, the all-stock transaction will see Concho shareholders receive 1.46 shares of Conoco stock and will give the combined company a $60 billion enterprise value. The oil and gas companies expect to capture $500 million of annual cost and capital savings by 2022.

The new business will have about 23 billion BOE/d, with a cost of supply of less than $40 per barrel of West Texas Intermediate (WTI), and an average cost of supply below $30 per barrel WTI. Currently, WTI is trading for slightly less than $41 per barrel.

The deal comes amid a pickup in industry consolidation, with Occidental acquiring Anadarko last year, and Chevron buying Noble Energy this past summer.

Other deals in the space include Southwestern Energy acquiring Montage Resources, and Devon Energy buying WPX Energy.

The transaction is expected to close in the first quarter of 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.