Conoco Phillips Agrees to $9.7 Billion Concho Resources Purchase

ConocoPhillips agreed to buy Concho Resources Inc. 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 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 of 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. and Chevron Corp. in terms of crude output.

Adding Concho will dramatically alter Conoco’s production profile.  The Midland, Texas-based shale company is entirely focused on the Permian and pumped 319,000 barrels in the second quarter, about six times what Conoco produced there.

The combination will save $500 million a year by 2022, and hand shareholders more than 30 percent of cash from operations through dividends and other distributions, the companies said.

The Conoco-Concho deal may also signal further mergers and acquisitions in the sector.  Despite a compelling rationale for more consolidation in order to cut costs, a lack of cash and Wall Street’s antipathy toward the sector has made it hard to get deals across the line.  But with oil stable at around $40 a barrel, there are signs that M&A may be picking up.  Chevron Corp. completed its acquisition of Noble Energy Inc. in early October, and in late September Devon Energy Corp. announced it was buying Permian operator WPX Energy Inc.

Concho’s shares were little changed at $49 at 7:23 a.m. in pre-market trading in New York, as were Conoco’s at $33.80.