Evaluating the ConocoPhillips Acquisition of Marathon Oil

On Wednesday morning, ConocoPhillips (COP) announced the acquisition of Marathon Oil (MRO), the latest mega deal in a wave of consolidation across the oil and gas industry and largest announced to date in 2024. The deal is an all-stock transaction, valued at $22.5 billion, including $5.4 billion in net debt, representing a nearly 15% premium to Tuesday’s closing price. The market response has been mixed, with MRO stock up 8% and COP down 4% since the announcement Wednesday morning. Because of the size and scope of this transaction, we’ll start this week by evaluating the high-level deal analysis and a quick breakdown of the Eagle Ford play using TGS Well Data Analytics, then next week we’ll continue with an in-depth analysis of the Permian Basin.

As of Q1 2024, MRO is producing just over 300 MBOE/D, compared to 860 MBOE/D for COP, from operated wells (Figure 1). Both COP and MRO are actively drilling and completing wells in the Permian and Eagle Ford plays, with 148 (COP) and 14 (MRO) new wells in the Permian and 94 (COP) and 151 (MRO) new wells in the Eagle Ford coming online since the start of 2023.

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Figure 1: Combined COP & MRO US Coverage and Production

MRO and COP assets in the core of the Eagle Ford play are relatively collocated and have almost identical historical production rates, with both entities producing approximately 300 MMCFPD and 100 MBOPD (Figure 2). Comparing production normalized per well and per foot of lateral length, COP wells have historically yielded higher oil and gas production and lower decline rates (Figure 3). And although both entities predominantly develop acreage with between 200-400 ft spacing, COP is more heavily weighted towards more spread out spacing, while MRO has a higher proportion of tightly spaced wells (Figure 4). This could be a key factor in the variable production profiles between the two entities.

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Figure 2: Combined COP & MRO Eagle Ford Coverage and Production

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Figure 3: Normalized Production Comparison

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Figure 4: Well Spacing Comparison

Marathon has long been a key M&A target, with rumors of Devon Energy evaluating a merger appearing as early as October 2023. However, the deal with ConocoPhillips appears to have developed relatively quickly, with COP Chairman Ryan Lance commenting that the potential acquisition “came to our attention a few weeks ago” and “we weren’t out necessarily looking for something, but an opportunity presented itself.” 

The justification from the COP side is clear – ConocoPhillips expects to achieve upwards of $500 million in operational and capital savings within the first year, and the fact that this is an all-stock transaction rather than spending cash will allow ConocoPhillips to increase their ordinary base dividend by 34% and proceed with share buybacks of over $20 billion in the first three years. COP chairman Ryan Lance added additional justification, stating that the acquisition “further deepens [ConocoPhillips’] portfolio and fits within [their] financial framework, adding high-quality, low cost of supply inventory adjacent to [their] leading U.S. unconventional position.”

All-in-all this seems to be a solid deal for both parties, with the collocated Eagle Ford acreage and similar development profiles of the two entities ripe for operational optimization. Using TGS Well Data Analytics, we were able to quickly compare assets, plot historical production profiles, and evaluate normalized well performance.

With TGS Well Data Analytics, this kind of analysis can be performed rapidly.  
For more information on TGS Well Data Analytics or to schedule a demo, contact us at WDPSales@tgs.com.