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ConocoPhillips to Concho for $9.7 Billion – Largest Deal Since COVID-19 Hit

PortandTerminal.com, October 19, 2020

Together, ConocoPhillips and Concho Resources will produce 1.5 million barrels a day and become a major player in the Permian Basin area

NEW YORK – ConocoPhillips (NYSE: COP) and Concho Resources (NYSE: CXO) today announced that they have entered into a definitive agreement to combine companies in an all-stock transaction.

The combined company would easily be the largest U.S. oil independent, with output in the prolific Permian Basin of Texas and New Mexico, second only to Occidental Petroleum Corp. OXY -0.03% , according to a JPMorgan Chase & Co. analysis of Enverus data.

“Together, ConocoPhillips and Concho will have unmatched scale and quality across the important value drivers in our business: an enviable low cost of supply asset base, a strong balance sheet, a disciplined capital allocation approach, ESG excellence and great people,” ConocoPhillips Chief Executive Ryan Lance said in a statement.

Under the terms of the transaction, which has been unanimously approved by the board of directors of each company, each share of Concho Resources (Concho) common stock will be exchanged for a fixed ratio of 1.46 shares of ConocoPhillips common stock, representing a 15 percent premium to closing share prices on October 13.

Wall Street Journal reporting on the deal notes that it has been a brutal year for U.S. oil companies, which are suffering from prolonged weak demand for fossil fuels during the pandemic. The companies had already been facing investor flight after failing to generate consistent returns, even as they helped lift American oil production to world-leading totals.

As of Friday, the value of Concho’s shares had fallen roughly 25% in a year, as the S&P 500 index rose about 17%. ConocoPhillips’s share price dropped around 38% in that time.

The deal marks a strategic departure for ConocoPhillips, which has spent years shedding assets even as peers chased aggressive growth. Adding Concho, which drills exclusively in the Permian, would give the company a far larger footprint in the nation’s top oil basin.

ConocoPhillips said it expects the combined company to be able to trim costs by $500 million annually by 2022, thanks in part to lower administrative expenses. The company also plans to reduce its global exploration program.

The deal, which is subject to shareholder approval, is expected to close early next year.

With reporting by the Wall Street Journal

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