Please ensure Javascript is enabled for purposes of website accessibility

ConocoPhillips Wades Deeper Into Permian With Concho Acquisition

By Rich Duprey – Updated Oct 19, 2020 at 10:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The $9.7 billion all-stock deal makes Conoco a big player in the West Texas basin.

The Permian Basin is about to get a new heavyweight player as the rumors of ConocoPhilips (COP 4.21%) buying Concho Resources (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 (OXY 4.96%) and Chevron (CVX 2.62%) 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.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.