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Sinnott Breaks Down the ConconoPhillips Marathon "Merger"

Sinnott Breaks Down the ConconoPhillips Marathon "Merger"

The deal is valued at $22.5 billion when including $5.4 billion in debt.

Joe Sinnott, Witting Partners, and host of The Energy Detox Podcast, breaks down the ConocoPhillips Marathon merger for $17.1 billion dollars. Sinnott was part of one of largest mergers in history, at the time, and explains what some of the employees, shareholders and company executives might be thinking.

First off, a few of the numbers. ConocoPhillips is buying Marathon Oil in an all-stock deal valued at approximately $17.1 billion as energy prices rise and big oil companies reap massive profits.

The deal is valued at $22.5 billion when including $5.4 billion in debt.

“Pretty easy math on paper to say when you have some complimentary assets and you have resources,” Sinnott said. “Obviously, you know, quite often from the human side of things that you can really manage more.”

Crude prices have jumped more than 12% this year and the cost for a barrel rose above $80 this week. Oil majors put up record profits after Russia’s invasion of Ukraine in 2022 and while those numbers have slipped, there has been a surge in mergers between energy companies flush with cash.

When asked whether this was a “Merger” or “Acquisition”, Sinnott explained why he disagreed with many of the headlines that said “merger”.

“Well, my perspective is this definitely checks the acquisition box, so all things will be ConocoPhillips,” Sinnott said. “They're taking these assets, they are clearly the big player in all this.”

The two discussed several other big mergers lately and their impacts.

For examples, Chevron said last year that it was buying Hess in a $53 billion acquisition, though that deal faces headwinds. The company warned the buyout may be in jeopardy because it will require the approval of Exxon Mobil and a Chinese national oil company, which both hold rights to development of an oil field off the coast of the South American nation Guyana where Hess is a big player.

In July of last year, Exxon Mobil said that it would pay $4.9 billion for Denbury Resources, an oil and gas producer that has entered the business of capturing and storing carbon and stands to benefit from changes in U.S. climate policy. Three months later, Exxon announced the proposed acquisition of shale operator Pioneer Natural Resources for $60 billion.

All of the proposed acquisitions could face pushback from the U.S. which, under the Biden administration, has stepped up antitrust reviews for energy companies and other sectors as well, such as tech.

“But one key big player that's going to take these resources, take these assets from Marathon and apply their best practices and what they think is best to generate those synergies and generate more value for their shareholders,” Sinnott said.

As part of the ConocoPhillips transaction, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips common stock for each share of Marathon Oil common stock that they own, the companies said Wednesday.

As part of the ConocoPhillips transaction, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips common stock for each share of Marathon Oil common stock that they own, the companies said Wednesday.

“No matter who you are in the company, no matter what side you're on, there's going to be a lot more questions than are answers for some period of time,” Sinnott said. “Looking at it through the leadership lens, a lot of my energy working with people who are navigating these types of things is being prepared to address questions that you don't have answers to.”

ConocoPhillips said Wednesday that the transaction will add highly desired acreage to its existing U.S. onshore portfolio.

“This acquisition of Marathon Oil further deepens our portfolio and fits within our financial framework, adding high-quality, low cost of supply inventory adjacent to our leading U.S. unconventional position,” ConocoPhillips Chairman and CEO Ryan Lance said in a prepared statement.

The deal is expected to close in the fourth quarter. It still needs approval from Marathon Oil stockholders.

Separate from the transaction, ConocoPhillips said that it anticipates raising its ordinary dividend by 34% to 78 cents per share starting in the fourth quarter. The company said that once the Marathon Oil deal closes and assuming recent commodity prices, ConocoPhillips plans to buy back more than $7 billion in shares in the first full year. It plans to repurchase more than $20 billion in shares in the first three years.

Shares of ConocoPhillips declined 3.3% before the market open, while Marathon Oil Corp.'s stock rose more than 7%.

“When it comes to the realities of corporate mergers and acquisitions, you can't just go through the motions and you can't just be on autopilot,” Sinnott said.

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