ConocoPhillips (NYSE: COP) is strengthening its foothold in the Permian basin and fracking with the acquisition of Concho Resources Inc. (NYSE:CXO). The oil and gas giant is to pay $9.7 billion to acquire the independent Permian Basin producer in an all-stock transaction.
ConocoPhilips–Concho Deal
Under the terms of the deal, Concho Resources shareholders are to receive 1.46 shares of ConocoPhilips for each share held. The deal represents a 15% premium to Concho's current valuation. The merger of the two companies will result in a combined company with an unmatched scale and quality across various segments in the energy industry.
The combined company will also boast of a low cost of supply asset base and a strong balance sheet able to navigate the emerging issues in the segment in the aftermath of the COVID-19 pandemic. In addition, it will have an asset base consisting of $23 billion worth of barrels of oil at an average supply of $30 a barrel.
With the deal ConocoPhilips rises up the ranks with the acquisition to become one of the biggest producers in the Permian basins. Its oil field will now stretch from West Texas to Southern New Mexico, making it the largest U.S independent producer pumping up to 1.5 million barrels a day.
Energy Industry Consolidation
The acquisition comes at a time when most shale producers are struggling to stay afloat in the aftermath of oil prices tanking to all-time lows. With the pandemic not showing any signs of easing off, a good number of shale producers are struggling to stay afloat, some having filed for bankruptcy protection.
The deal also comes at a time when most U.S shale companies have been mired with losses due to low oil prices. Likewise, a wave of consolidation has picked pace in recent months as major oil companies look to buy highly discounted assets. Struggles to raise capital to restructure heavy debts has also forced a number of companies to agree to deals in order to safeguard their future.
ConocoPhillips joins a number of companies that have completed low premium deals in recent months. WPX Energy Inc. (NYSE: WPX) has already inked a deal to acquire Devon, Chevron Corporation (NYSE: CVX), having inked a deal to acquire Noble energy.