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ConocoPhillips (NYSE:COP) Acquiring Concho Resources Inc. (NYSE:CXO)

ConocoPhillips (NYSE:COP) is planning to strengthen its prospects and footprint in the hard-hit energy industry. The oil and gas exploration company has opened talks to acquire rival Concho Resources Inc. (NYSE:CXO). The proposed acquisition comes at a time when most oil majors have resorted to cost cuts in a bid to conserve capital.

ConocoPhilips – Concho Resources Merger

A merger of ConocoPhilips and Concho Resources will result in one of the largest oil explorers wielding too much power in the industry. It will also mark the largest takeover in the oil and gas industry. The acquisition would also affirm the start of consolidation in the oil industry as companies continue to explore ways of staying afloat.

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The acquisition comes hot on the heels of ConocoPhilips, confirming it will start repurchasing shares. The repurchase push follows the trimming of production and curbing of spending that has allowed the company to conserve a significant amount of capital. JPMorgan analyst, Phil Gresh, maintains the deal makes a lot of sense as it would be accretive on most metrics while providing critical mass.

While no terms of the deal have been given, the deal is likely to surpass the $11.8 billion acquisition of Noble Energy by Chevron Corporation (NYSE: CVX). The ConocoPhillips- Concho  Deal is also likely to match the $38 billion purchase of Anadarko Petroleum Corp by Occidental Petroleum Corporation (NYSE: OXY) last year.

Merger Benefits

A deal for Concho  Resource would not come as a surprise as ConocoPhilips has been dropping hints about M&A deals. In July, the company’s Chief Executive Officer reiterated they were encouraged by the low premiums needed for acquisition on the company’s valuations tanking significantly given the turbulence in the broader energy industry.

The acquisition will allow ConocoPhilips to access Concho drilling rights of about 800,000 acres in the Permian. The deal will also help bolster the company’s valuation, which has shrunk by nearly half since the start of the year. A merger will result in a combined company capable of producing in the upwards of 1.3 million barrels of oil a  day.

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Ruchi Gupta

Ruchi Gupta covers various beats from finance to technology and from lifestyle to hobbies. She has an MBA in Finance. Ruchi enjoys writing on celebrities and political news. She likes traveling and exploring places.

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