Shares of ConocoPhillips (NYSE:COP) slumped 12.9% in October, according to data provided by S&P Global Market Intelligence. Weighing on the oil stock was an acquisition and its third-quarter earnings.
ConocoPhillips joined the recent wave of merger and acquisition (M&A) activity in the oil patch by agreeing to acquire Concho Resources (NYSE:CXO). The all-stock deal valued the Permian Basin producer at $9.7 billion, or $13 billion when including Concho's existing debt, a 15% premium. While that was a higher price than some other recent deals, it met Conoco's high-return hurdle rate, will add significant low-cost resources, and will be accretive to all its key financial metrics. The combined company expects to capture $500 million in cost savings by 2022 and return 30% of its cash flow to investors via dividends and share repurchases.
The other notable news item last month was ConocoPhillips' third-quarter results. The oil company posted an adjusted loss of $0.31 per share, which met expectations. Weighing on its results were lower oil prices and declining production due to asset sales, production curtailments, and underinvestment.
ConocoPhillips' acquisition target, Concho Resources, also reported third-quarter results last month, which weighed on both companies' shares. While the oil producer reported a better-than-expected profit due to its oil edges and cost-cutting initiatives, its production declined because of curtailed volumes and under-investment due to lower oil prices.
ConocoPhillips entered this year's oil market downturn in a position of strength thanks to its cash-rich balance sheet. That allowed it to go on the offensive and acquire Concho Resources, which it believes will enhance its ability to weather lower oil prices. While that deal and the third-quarter results weighed on the stock last month, it has significant upside potential as oil prices and demand improve, given its low-cost resource base.