The Strategist

ConocoPhillips buys Concho shale company for $ 9.7B

10/20/2020 - 03:48

US oil company ConocoPhillips announced acquisition of Concho Resources, a shale oil producer. The sum of the deal will amount to $ 9.7 bln, which will be paid in shares.

Shareholders of Concho will receive 1.46 shares of ConocoPhillips for each of paper. A premium in relation to the value of Concho’s shares at Friday trading will be just 1.5%. However, according to the companies’ statement, the premium amounts 15% if compared to a share value recorded on 13 October, that is, before the merger was declared officially.

The small premium and the entire deal paid in shares shows the difficult situation in the entire American shale industry. Firms are going through a hard drop in oil prices, given that the price of shale oil production in the United States is quite high, and can be profitable only when prices are sufficiently high. 

Some have already gone bankrupt since 2020 started, while other companies are choosing mergers to cut spending. At the end of September, WPX Energy and Devon Energy announced a deal which amounted to $ 2.5 bln; in July, Chevron acquired oil and gas Noble Energy for $ 13 bln.

The deal will make ConocoPhillips one of the largest independent oil and gas firm in the US with an oil production volume of 1.5 million bpd. Concho produces about 320,000 bpd. Concho’s loss in Q2 amounted to $ 435 mln against $ 97 mln compared to 2019; the firm's papers have lost almost half of its value since 2020 started. As the merger’s statement reads, the agreement will be saving $ 500 mln a year by 2022.