Newscasts - BVTV: Big Oil’s new M&A well

Marathon Oil

31/05/2024 08:15

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Source: 'Reuters - Business videos'

Description: ConocoPhillips is following Exxon Mobil and Chevron with a chunky
acquisition of a smaller rival. Its plan to buy Marathon for $23 bln is
cheaper and more focused on cash production, but it’s motivated by the same
fundamental forces. Rob Cyran explains the deal logic.
Short Link: https://refini.tv/3KqvVXc

Video Transcript:

ConocoPhillips has the latest US oil company to buy a rival. But the $135
billion firm has a different goal in Exxon Mobile or Chevron. While it's
larger rivals are engaged in big and risky deals. Conoco’s $22.5 billion
purchase of marathon oil is more about buying assets they are cheap and pump
out a lot of cash. Marathon's production in the first quarter shrinks 7%
compared to last year. And it owns lots of land in the Bach and Eagle Ford.
These shale basins are maturing, and so aren't particularly exciting, but they
do throw off a lot of cash. The company should generate about $2.4 billion of
operating profit next year. Moreover, Conoco owns land in these basins too, so
the company thinks it can cut costs, Do’s and basic math and Conoco sure
earn a decent 10% return on its investment. What's more, Conoco has a good M&A
record, it expanded massively during the pandemic, buying when oil prices were
depressed. It paid $20 billion for about three quarters of a million acres in
the Permian Basin in Texas. Not only was the land in the best Shale basin in
the US cheap, it was also close to Conoco's land, which again made cost cuts.
That's a big reason why Conoco shares have outperformed Marathon, Exxon Mobil,
Chevron, and this S&P 500 index over the past five years. Conoco's new deal
probably won't work out quite as well after all few deals do, but it gives the
company something profitable to do for the next few years, digest its assets,
which is also a bigger companies like Exxon and Chevron will probably be
doing. Meanwhile, the pressure that is driving oil firms to emerge won't go
away. Demand for fossil fuels will soon start to shrink. That means the world
needs fewer and lower cost oil companies. Conoco has been a shrewd buyer and
the odds are it may turn into a shrewd seller eventually