INTRODUCTION
In a major move within the oil and gas sector, ConocoPhillips has completed the acquisition of Marathon Oil in an all-stock deal, valued at USD 22.5 billion. This strategic acquisition expands ConocoPhillips’ presence in key U.S. regions, including the Permian Basin and Eagle Ford Shale, strengthening its position in important drilling areas. Being one of the largest deals in the industry in recent months, the transaction underscores the ongoing trend of consolidation, with companies focusing on securing strategic assets to enhance operational efficiency and drive long-term growth. The deal marks a significant step for ConocoPhillips in optimizing its resource base and reinforcing its competitive edge in the energy market.
COMPANIES OVERVIEW
ConocoPhilips
ConocoPhillips, headquartered in Houston, Texas, is an American multinational corporation, founded in 2002 through the merger of Phillips Petroleum and Conoco. In 2007 it was the first US oil company to join the Climate Action Partnership, a co-operative group of business and environmental organisations aiming to reduce the greenhouse gas emissions. Until 2012 it was involved in all stages of the industry from exploration to marketing of final products. Then the company was divided in two parts: one dealing with exploration and production of crude oil and natural gas, the other part became a separate company, named Phillips 66, engaged in the refining and marketing of petroleum products.
ConocoPhillips operates in the upstream sector, focusing on exploration and production of oil and gas. The company operates in 15 countries and has active production in the United States (about 49%), Australia, Qatar, Canada, Indonesia, Malaysia, China and Libya. ConocoPhillips manages its operations through 6 operating segments, defined by geographic region: Alaska (largest crude oil producer in this region), Lower 48 (largest segment, contributing 64% of the consolidated liquids production and 76% of the consolidated natural gas production), Canada, Europe, Middle East and North Africa, Asia Pacific and Other International.
The company’s competitors are private, public and state-owned companies in the E&P business; according to statistics published in the Oil and Gas Journal, ConocoPhillips had the third-largest worldwide liquids and natural gas reserves for U.S.-based oil and gas companies. Principal methods of competing include geological, geophysical and engineering research and technology, beyond economic analysis in connection with portfolio management.
Financials
In 2023 ConocoPhillips’ proved reserves amounted to 6.8 billion barrels of oil equivalent distributed in 46% of crude oil, 29% of natural gas, 34% of NGL and the last 6% of bitumen. The production mix in 2023 was about 1826 millions of barrels of oil equivalent, crude oil contributed for 51%, while 29% was natural gas,16% NGL and the remaining 4% bitumen. The total Operates Production remained the same in 2022 and 2023, but it increased from 2019, instead, the total Proved Reserves at Year-End increased both from 2019 and from 2022. The largest increase in the last year in terms of quantity was crude oil, while in terms of percentage was bitumen.
Conocophillips revenue in 2023 amounted to $58.57 billion; the Lower 48 region was the main contributor in terms of geographical area, while crude oil was the first one regarding type of resource. Net Income decreased $7,723 million in 2023, being negatively impacted by lower realized commodity prices, higher DD&A expenses due to higher rates from reserve revisions resulting from higher costs as well as higher overall production volumes and other external factors.
ConocoPhillips is ranked 156th on the Fortune 500 and in 2023 it was ranked as the 83rd largest public company worldwide by Forbes. The market capitalization is 129 bn USD, the gross profit margin for fiscal years from 2019 to 2023 averaged 46.2%, it peaked in December 2019 at 49.2% and it reached the lowest value of 35.4% in December 2020. In the last six months, ConocoPhillips’ stock price hit the minimum of 102.17 on 26th September, while it reached the highest value of 119.23 on 28th May.
Environmental impact and future plans
In the last years, prolonged periods of low commodity prices are the most significant factors among the ones that had an impact on the company’s revenues, operating income, cash flows and liquidity. The major revenue streams come from oil and gas production and sales, especially in the Lower 48 and Alaska. Moreover, the exploration and production of oil and gas generate robust cash flows; Lower 48, Alaska, Canada and Europe play a significant role in contributing to the production levels. On the other hand, the company is massively investing in Asia Pacific and Middle East, recognising the high potential of those regions. ConocoPhillips was ranked as the 14th most polluting company in the world by The Guardian in 2019, being responsible for 0.9% of global industrial greenhouse gas emissions from 1988 to 2015.
Targets and objectives
In 2023 the company achieved record full-year production for the total company and Lower 48. Furthermore, ConocoPhillips executed across all aspects of the Triple Mandate in
2023, achieving a 17% return on capital employed and delivered on the plan to return $11 billion of capital to shareholders, well in excess of the company’s greater than 30% of cash from operations annual through-the-cycle commitment.
Marathon Oil
Marathon Oil Corporation, founded in 1887 in Ohio, is an independent exploration and production (E&P) company, operating in the upstream sector. In 1899 it was acquired by the Standard Oil Company, it became again independent after the antitrust case and the subsequent breakup of Jersey Standard’s holdings. In 1982, Marathon was acquired by United States Steel, then, the USX Corporation was created to act as the parent of US Steel and Marathon Oil, which operated as divisions. In 2001, USX created an independent company, named Marathon Oil Corporation. Ten years later, Marathon Oil created Marathon Petroleum as a separate company for its downstream operations. Since 2011, Marathon Oil has operated as an independent exploration and production company.
Marathon Oil operates in three segments: North America Exploration and Production, International Exploration and Production (outside of North America, including offshore locations in West Africa and in the UK waters of the North Sea) and the Oil Sands Mining (operating in Alberta, Canada). Moreover, the company owns non-operating interests in locations 90 miles offshore from Louisiana and in the Gulf of Mexico. Marathon Oil’s platforms are located in deepwater regions, such as in African waters, near Equatorial Guinea and Gabon. The company owns about one billion barrels of oil equivalent of estimated proven reserves, of which 86% is in the United States and 14% in Equatorial Guinea. The reserves are 52% of petroleum, 30% natural gas and 18% natural gas liquids.
Marathon Oil is one of the biggest companies in the refinery industry, being the leader in capacity, the main competitors are Valero and ExxonMobil but also Philipps 66 (previously part of ConocoPhillips) has a significant market share.
Financials
The annual revenue in 2023 was $6.58 billion, with the North America segment as the major contributor, in particular the US, while the main contributor in terms of type of commodity was petroleum. The revenue significantly decrease from the previous year ($8.04 billion), but overall increased from 2019 ($5.19 billion).
Marathon Oil is ranked 534th on the Fortune 500. The market capitalization is $15.97 billions, the gross profit margin for fiscal years from 2019 to 2023 averaged 74.5%, it peaked in December 2022 at 81.2% and it reached the lowest value of 63.1% in December 2020. In the last six months, Marathon Oil’s stock price hit the minimum of 23.83 on 29th May, while it reached the highest value of 27.29 on 15th November.
Environmental Impact
Furthermore, the company was responsible for about 0.2% of global industrial greenhouse gas emissions from 1988 to 2015, being the seventh-largest emitter in the oil and gas industry. Exploring and drilling for oil and gas in offshore regions is usually significantly responsible for environmental disasters, sometimes it can lead to controversials for the company. In 2015 an incident occurred on a North Sea platform: a blast occurred in the line because of a leak, corrosion may have led to the rupture.
MARKET OVERVIEW
The global oil sector has been experiencing a consistent growth from 2023 to 2024, with both production and demand reaching record-breaking levels: worldwide production of crude oil is averaging 102.6 million bpd (barrels per day) in 2024, up from 101.5 million bpd in 2023. This increase has been reflected also in the US, where, according to the U.S. Energy Information Administration (EIA), oil output is predicted to average 13.23 million bpd in 2024, a 2.3% increase from 12.93 million bpd of 2023. In contrast, Europe is grappling with declining oil production. According to Eurostat, total crude oil production in the European Union is expected to decrease from 16.3 million tonnes in 2023 to 15.7 million tonnes in 2024, a 3.7% decline. This trend reflects the region’s ongoing shift toward renewable energy sources and adherence to stringent environmental policies. Notwithstanding the multiple challenges that the market is facing, from geopolitical instability to increasingly stringent environmental policies, OPEC’s (Organization of the Petroleum Exporting Countries) plan to increase supply by 2.2 million bpd beginning in December reflects unwarranted optimism about the oil markets.
Major players
In the third quarter of 2024, the three leading U.S. upstream oil and gas companies – ExxonMobil, Chevron Corporation, and ConocoPhillips – demonstrated significant production outputs, reflecting a shared focus on scaling operations and enhancing efficiency in response to growing global demand. Major players in the sector have focused on key strategic objectives, to consolidate their position in a rapidly changing industry. Major goals of these companies span from consolidating their positions through targeted acquisitions, to leveraging advanced extraction technologies to optimize resource recovery, focusing investment on high-return assets in prolific basins like the Permian and Eagle Ford. They also include efforts to integrate lower-carbon initiatives, such as carbon capture and storage (CCS) projects and emissions reduction in upstream operations, ensuring they remain competitive as the energy landscape evolves.
Deals
Geopolitical instability in Eastern Europe and the Middle East, along with a surge in global demand, is incentivizing companies to consider deals that will increase drilling and production activity. This has set some appropriate conditions for a wave of consolidations, with large oil E&Ps (exploration and production) companies looking to secure acreage, enhance their cash flow and maximize returns via acquisition, rather than traditional exploration. For this reason, we have witnessed a surge in announced M&A deals over the last few quarters, additionally driven by an increasing recognition that oil will continue to play an important role in the energy landscape. The ConocoPhillips-Marathon Oil deal is a clear reflection of this trend, as it enables ConocoPhillips to expand its presence in strategic U.S. basins such as the Permian Basin and Eagle Ford. Two other major deals have further defined the Permian scene: Diamondback Energy’s $26 billion acquisition of Midland Basin-focused Endeavor Energy in September, making it the third-largest Permian producer, and APA Corporation’s $4.5 billion purchase of Callon Petroleum in January. Together, these transactions underscore the industry’s strategic goal of consolidation to meet evolving energy demands and secure long-term growth.
Future projections
The main themes for next year for the oil and gas industry will be innovation and adaptability. The industry is currently seeing rapid technological growth, healthy cash flow, and robust financial health – all factors that point to a successful coming year. And yet, this is also a transformational moment for the industry, as technology and generative AI open up intact possibilities, and climate-consciousness becomes a non-negotiable rather than a nice-to-have. Generative AI is predicted to unlock new potential in the upstream sector, offering breakthroughs in exploration and production. New AI models can analyze vast geological data, identifying optimal drilling sites with greater accuracy, reducing operational costs and environmental risks. Moreover, by continuously monitoring equipment performance and predicting failures before they occur, these systems minimize downtime, reduce operational disruptions, and extend the life of critical machinery. Nonetheless, the increasing push for climate-consciousness presents significant challenges. Companies must innovate quickly to meet stricter emissions regulations and address investor and consumer demands for sustainability, all while maintaining profitability in an industry historically reliant on fossil fuels.
DEAL RATIONALE
The acquisition of Marathon Oil by ConocoPhillips, completed on November 22, is a strategic move designed to unlock significant cost and capital synergies through the integration of their complementary asset portfolios. By consolidating these assets, ConocoPhillips expects to achieve approximately $1 billion in run-rate synergies within the next 12 months, driven by cost reductions and optimized operating efficiencies, ultimately boosting capital efficiency.
This deal also combines Marathon Oil’s more than 2 billion barrels of resources, with an estimated supply cost of less than $30 per barrel, with ConocoPhillips’ existing reserves of 6.8 billion barrels of oil equivalent. This integration provides ConocoPhillips with access to high-quality, low-cost reserves that enhance resilience in fluctuating market conditions. Furthermore, Marathon Oil’s shareholders benefit from immediate value creation, with the acquisition price reflecting a 14.7% premium over the company’s closing share price as of May 28, 2024.
In addition to financial and operational synergies, the acquisition bolsters ConocoPhillips’ presence in key U.S. oil-producing regions, including the Eagle Ford, Permian, and Bakken basins. These regions are pivotal for their high-quality production capabilities and cost efficiency. The Permian Basin is renowned for its prolific shale oil output, while the Eagle Ford Basin offers immediate access to premium crude at low production costs with high market connectivity, ensuring resilience against market volatility. Similarly, the Bakken Formation, located in the Williston Basin, is a major source of shale oil with relatively low extraction costs and well-developed infrastructure that ensures efficient access to refineries and markets.
This acquisition enhances ConocoPhillips’ scale, geographical reach, and diversification, making the combined entity more robust in the face of volatile energy prices. The expanded footprint in these strategic regions supports long-term operational flexibility, financial stability, and alignment with growth-oriented investment strategies.
Beyond financial metrics, this transaction highlights a strategic alignment in environmental, social, and governance (ESG) priorities. Marathon Oil has demonstrated a strong commitment to ESG excellence, while ConocoPhillips seeks to enhance its safety practices, community engagement, and environmental management protocols. This alignment reinforces ConocoPhillips’ mission to deliver value responsibly, with an emphasis on sustainable practices and reducing emissions.
This acquisition represents a forward-thinking approach that extends beyond resource consolidation. By balancing profitability, sustainability, and operational excellence, it positions ConocoPhillips as a leader in a highly competitive and evolving energy landscape.
DEAL RATIONALE
ConocoPhillips’ acquisition of Marathon Oil is valued at $22 billion, encompassing $16.7 billion in equity value and $5.4 billion in target net debt. The transaction was executed entirely through the issuance of common shares as the payment method. This structure ensures that the deal is immediately accretive to ConocoPhillips’ earnings, cash flows, and return of capital per share, creating immediate value for shareholders.
To address potential dilution, ConocoPhillips has committed to a robust share repurchase program, allocating over $20 billion for buybacks over the next three years. Of this amount, $7 billion is set to be repurchased in the first full year following the transaction’s closure, demonstrating a strong commitment to shareholder returns and financial discipline.
In conclusion, the acquisition of Marathon Oil positions ConocoPhillips as a stronger, more diversified leader in the energy sector. The transaction combines financial synergies, enhanced operational capabilities, and strategic alignment in ESG priorities, all while delivering significant shareholder value. By leveraging high-quality assets, expanding its presence in key U.S. regions, and committing to sustainability and responsible practices, ConocoPhillips is well-equipped to navigate a competitive and evolving energy landscape with resilience and innovation.
Authors: Olga Nasledysheva, Francesco Savelli, Francesco Casati, Greta Angelova, Letizia Ianniciello
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Bocconi Students M&A Circle 