BENGALURU/HOUSTON: ConocoPhillips on Monday agreed to buy US shale oil producer Concho Resources Inc for US$9.7 billion (RM40.18 billion), as the energy sector continued to consolidate amid lower fuel prices and demand.
The low-premium, all-stock deal comes as many US shale companies have been mired in losses due to weak crude prices and, unlike in past downturns, have struggled to raise new capital to restructure heavy debts.
The deal swaps 1.46 shares of ConocoPhillips for each Concho share, an about 1.5% premium over its Friday price. Concho shares on Monday morning were up a fraction at US$48.65. They sold for as much as US$93 a share in January before the Covid-19 pandemic cut oil demand and prices.
"Size, Scope and scale" has become more important," said Concho chief executive Timothy Leach, who once the deal closes will run the combined company's US production excluding Alaska. "This combination with ConocoPhillips was the best thing for our shareholders."
The purchase would propel ConocoPhillips to the ranks of the top producers in the Permian Basin, the prime US oilfield, which stretches from West Texas to southeastern New Mexico. It also would make it the largest US independent, pumping 1.5 million barrels per day (bpd).
The fifth-largest producer by volume in the Permian, Concho pumps about 319,000 bpd, from wells spread across more than half a million acres. Conoco is a major producer in two other US shale fields but pumps about 50,000 bpd in the Permian.
"Concho has been on the short list of big Permian companies attracting interest due to its large production, vast acreage and relatively low debt," said Andrew Dittmar, M&A analyst at consultancy Enverus.
It has scant drilling acreage on federal lands, a plus given Democratic party presidential candidate Joe Biden's proposal to ban new fracking permits on government property, he said.
ConocoPhillips CEO Ryan Lance said the two executives have a shared vision for building a business that can endure volatile markets. "We're focused on low-cost supply," he said, adding Concho has "a low-cost supply that fits."
The sector has been consolidating after many shale producers borrowed in a bet on higher prices. Prices tanked instead, leaving shale investors with little to show for the rising output and companies struggling to pay down debts.
The deal continues a trend of all-stock, low-premium combinations, including the WPX Energy-Devon merger and Chevron Corp's purchase of Noble Energy.
ConocoPhillips said the premium was 15% based on Concho's price on Oct 13, before news reports on the deal talks surfaced. Its shares were down a fraction at US$33.66 on Monday.
Concho had US$3.9 billion in long-term debt at the end of June and has not posted an annual profit since 2018. Its second quarter loss was US$435 million, wider than a loss of US$97 million a year earlier.
The combined company will hold about 23 billion barrels of oil equivalent resources with an average cost of supply of below US$30 per barrel of US West Texas Intermediate crude, Conoco said.
The deal is expected to provide US$500 million in annual cost and capital savings by 2022. – Reuters
