ConocoPhillips (NYSE:COP) agreed to buy Concho Resources Inc. (NYSE:CXO) for about $9.7 billion in stock, the largest shale industry deal since the collapse in energy demand earlier this year and one that will create a heavyweight driller in America’s most prolific oil field.
Investors will get 1.46 Conoco shares for each Concho share, the companies said Monday in a statement. The transaction represents a 15% premium over Concho’s closing price on Oct. 13, the last trading session before Bloomberg News first reported the companies were in talks.
The pandemic-induced price crash and lackluster global economic recovery have accelerated the push for consolidation across the shale patch, which is under severe financial strain after years of debt-fueled growth. The combination Conoco and Concho will be one of the dominant operators in the Permian Basin of West Texas and New Mexico, rivaling only the likes of Occidental Petroleum Corp. (NYSE:OXY) and Chevron Corp. (NYSE:CVX) in terms of crude output.
It’s Conoco’s biggest deal under its current chief executive officer, Ryan Lance, who until now has sought to position the company almost as an anti-shale option for Wall Street, touting little-to-no-growth, steady cash flow and disciplined spending.
Houston-based Conoco emerged from the oil market slump in a relatively strong position with about $7 billion of cash on hand. It recently resumed share buybacks. But its growth outlook is challenged: second-quarter production was down by almost 25% from a year earlier after it joined many other U.S. drillers in curbing output in response to lower prices.
COP shares flopped 38 cents, or 1.1%, to $33.39, while CXO shares dropped 35 cents to $48.25.
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