Congratulations to our neighbors in Mexico! On Sunday, they successfully elected Claudia Sheinbaum to be their new president. She is not only the first female and Jewish president to lead the mostly Catholic country, but also a fellow energy engineer and climate scientist.
Now, let’s get to the other news items for this week.
Shangyou Nie
Editor, Well Read
ConocoPhillips Acquires Marathon
Jonathan Weiss/Shutterstock.com
The Supercycle of energy M&A deals continues. ConocoPhillips (COP) announced plans to acquire Marathon (MRO) for $22.5 billion in an all-stock transaction. The transaction will strengthen Conoco’s lead as the largest independent oil company in the world.
Deal details:
The deal included a $17.1 billion offer price and the assumption of $5.4 billion in long-term debt, representing a 14.7 percent premium over MRO’s share price as of 28 May.
MRO shareholders will obtain 0.255 share of COP stock in exchange for each MRO share.
The deal is expected to close in Q4.
MRO’s stock price increased 10 percent after the announcement, from $26.45 per share to $29.01 per share.
Size matters:
Bigger is better. From MRO’s point of view, being acquired by COP is more attractive in the long run than merging with a competitor of its own size such as Devon Energy, which was reportedly in its own discussions to merge with MRO.
Based on a Financial Times analysis, COP has been the best-performing energy stock over the past five years, outshining majors ExxonMobil, Chevron, TotalEnergies, Shell, ENI, and BP.
COP’s market cap is $135 billion and will increase to roughly $155 billion after the deal closes.
After the deal, COP will be approximately 50 percent bigger than BP (at $104 billion) and approaching the size of TotalEnergies ($167 billion).
COP will also solidify its position as the third-largest U.S. onshore producer, after ExxonMobil and Chevron.
Post-deal asset gains:
COP will add 390,000 boepd of production and 2 billion barrels of net resources. Sixty percent of its global production volume will come from the Lower 48.
COP will also add complementary acreage in the Eagle Ford, Bakken, and Delaware Basins.
According to Andrew Dittmar, senior vice president at Enverus Intelligence, the combined company will become the top producer in the Eagle Ford, ahead of EOG.
It will also add 2 mtpa of LNG capacity in Equatorial Guinea, a key business area for COP’s global LNG growth.
Big savings: COP claims it could save $500 million in the first year after the deal closes:
According to the Houston Chronicle, COP has 2,100 employees and MRO has 774.
COP will divest $2 billion over the next couple of years, a potential buying opportunity for others.
COP’s stock buyback program will increase from $5 billion to $7 billion for three years—putting them in a position to make another acquisition quickly.
COP will have roughly 1,000 re-frac locations—a new way to increase production in U.S. shale and a potential opportunity for service companies.
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On Sunday, OPEC+ agreed to extend production cuts into 2025, aiming to balance oil supply and stabilize the crude market.
Breaking it down: There are two sets of agreements: those agreed upon by all OPEC+ members and those agreed upon by the top eight producers only. Both sets occur concurrently.
Catch up fast:
The eight top OPEC+ producers—Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman—met in person in Riyadh, Saudia Arabia last weekend. The remaining OPEC+ members joined virtually.
The top eight producers will continue their voluntary cuts—agreed upon in November 2023—of around 2.2 million b/d until September 2024, when these will be phased out monthly over one year.
According to OPEC+, the 1.65 million b/d of voluntary cuts agreed upon in April 2023 will remain until the end of 2025.
Other details:
OPEC+ estimates that global crude demand will increase by 800,000 b/d in 2025.
UAE was able to increase its official quota by 300,000 b/d. By September of next year, UAE will have an official quota of 3.519 million b/d.
Why it matters:
Oil prices have been relatively stable during the past four years, averaging $86.6 per barrel for Brent and $81.9 per barrel for WTI since April 2021.
The last major oil price downturn was caused by a drop in demand during COVID-19.
OPEC+ collectively produces around 36 million barrels of crude daily, 41 percent of the global total, and maintains significant market power.
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