FANG - ConocoPhillips: Marathon Deal Looks Positive

2024-05-30 14:29:15 ET

Summary

• ConocoPhillips announced the acquisition of Marathon Oil for $22.5B including $5.4B in assumed debt with closing scheduled for Q4.
• Deal adds additional scale with Conoco becoming the 6th largest Western oil company by output and increases US share of production to 72%.
• Having raised 25E share buyback guidance to $7B and with $500MM in projected synergies, I estimate an initial ~11.4% FCF/sh uplift, rising to ~11.8% by 26E.
• Being double-digit accretive and at a discount to recent transactions, I am positive on the deal and remain Overweight with an unchanged price target of $133 per share.

Having previously remained on the sidelines in the ongoing consolidation wave, on May 29 ConocoPhillips ( COP ) announced the acquisition of mid sized shale E&P Marathon Oil ( MRO ), increasing production to 2.2Mboed with pro-forma US output share increasing 3 percentage points to 72%. Total consideration will be $22.5B with Conoco assuming $5.4B in outstanding debt and exchanging 0.2555 shares per share of Marathon oil, implying previous Marathon owners holding ~11% of the combined entity. Deal multiples look promising with Marathon having historically traded at a discount while Conoco was valued at the top end of US E&Ps. Alongside expected $500MM in synergies to be realized by YE25, I see higher guided share buybacks ($7B for 25E from previously $5B) to provide ~11.4% FCF/sh accretion for 25E, rising to ~11.8% by 26E....

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