ConocoPhillips to acquire Permian-focused Concho Resources for £7.46 billion

In an announcement on Monday, ConocoPhillips (NYSE: COP) said it will acquire Concho Resources Inc (NYSE: CXO), a Permian-focused driller, for £7.46 billion. It will be the biggest shale deal of 2020 as the Coronavirus pandemic weighed heavily on the global oil prices this year and pushed the oil and gas producers into consolidation for survival this year.

At £26 per share, ConocoPhillips is currently more than 45% down in the stock market this year. But shares of the company have recovered sharply from a year to date low of £17.43 per share in March. The multinational corporation has a market capitalisation of £27.84 billion and a price to earnings ratio of 16.57.

ConocoPhillips to become a top-ranked producer in Permian Basin

The COVID-19 crisis that has so far infected more than 8 million people in the United States and caused a little under 225 thousand deaths pushed the countrywide shale companies into deep losses, as they failed to raise new capital this year in a bid to restructure debt.

The all-stock deal will replace each share for Concho shareholders with 1.46 shares of ConocoPhillips. The agreement translates to a per-share price of £37.90 that represents a premium of 1.4% on the price at which Concho closed the regular session in the stock market on Friday.

By 2022, the merged company is likely to see annual cost and capital savings of £384.38 million.  

Following the completion of the transaction, ConocoPhillips will become a top-ranked producer in the prime U.S. oilfield, Permian Basin. The Houston-based firm will pump 1.5 million BPD (barrels per day), the largest in the league of U.S.-based independent companies that focus on hydrocarbon exploration.

In Permian, Concho pumps close to 319 thousand BPD versus a much lower 50 thousand BPD for Conoco. In separate news from the U.S., the drilling oil and gas wells company, Halliburton reported £13.07 million of loss in the fiscal third quarter.

M&A analyst Andrew Dittmar’s comments on Monday

According to M&A analyst Andrew Dittmar of Enverus:

“Concho has been on the short list of big Permian companies attracting interest due to its large production, vast acreage and relatively low debt.”

At £37.36 per share, Concho Resources has so far lost 45% in the stock market this year. At the peak of the COVID-19 disruptions, shares of the company had tumbled to £27.68 per share in March.

At the time of writing, Concho is valued at £7.35 billion.