ConocoPhillips To Buy Marathon For $22.5 Bn In Latest Big Oil Deal

US energy giant ConocoPhillips announced Wednesday that it is acquiring competitor Marathon Oil for $22.5 billion in the latest big petroleum merger consummated in spite of rising concerns about climate change.

The all-stock transaction combines two familiar Houston-based oil players, expanding the larger ConocoPhillips' US holdings and potentially providing significant cost savings.

The acquisition "further deepens our portfolio and fits within our financial framework, adding high-quality, low cost of supply inventory," ConocoPhillips chairman and chief executive officer Ryan Lance said in a company statement.

The deal, which includes the assumption of $5.4 billion in Marathon debt, is the latest in a series of acquisitions in the US oil sector, extending the lifespan of petroleum at a time when climate change advocates are pressuring producers to transition to carbon-free energy.

It will enable ConocoPhillips to strengthen its position in shale oil and gas-rich regions such as at the Bakken formation in the northern United States, the Eagle Ford fields in Texas and the Permian Basin in Texas and New Mexico.

A company presentation highlighted the proximity of Marathon's acreage in these regions to ConocoPhillips' holdings, creating potential economies of scale.

The deal should see ConocoPhillips achieve savings of $500 million in the year after completion, according to a ConocoPhillips press release, largely due to reduced administrative and production costs.

ConocoPhillips pledged to return excess cash to shareholders, saying it plans to boost its dividend by 34 percent and expects more than $20 billion in share repurchases over the next three years.

The deal, which is expected to close in the fourth quarter of this year, gives Marathon Oil shareholders 0.255 shares of ConocoPhillips common stock for each share of Marathon Oil common stock.

That represents a 14.7 percent premium over Marathon Oil's closing price on Tuesday.

A note from JPMorgan Chase said the takeover solves a challenging outlook for Marathon, which has done "an excellent job in the field" but would have needed to do more "to address inventory renewal over time."

The 15 percent premium was an "attractive alternative," said the JPMorgan note.

Shares of Marathon jumped 8.4 percent, while ConocoPhillips fell 3.1 percent.

ConocoPhillips is the third biggest US oil company by market capitalization after ExxonMobil and Chevron, which both announced major petroleum-focused takeovers last year.

Both ConocoPhillips and Marathon were once part of integrated companies before spinning off their refining and downstream divisions.

"The full leverage to the upstream and the whims of oil and gas prices led both producers to slash their dividends in the oil crash of 2014-16," said a note from Peter McNally of Third Bridge. "Both companies have since recovered with more focused upstream portfolios and commitment to shareholder returns."

The wave of petroleum deals have come in spite of rising global recognition of climate change, resulting in a landmark agreement at December climate talks in which nearly 200 countries agreed that the world will be "transitioning away from fossil fuels" in order to achieve net-zero emissions by 2050.

However, while US oil companies have faced pressure from climate-focused NGOs and investors to accelerate climate-friendly investments, demand for conventional petroleum has remained firm.

The ConocoPhillips deal follows ExxonMobil's $60 billion takeover of Pioneer Natural Resources, which closed earlier this month.

Chevron's proposed $53 billion takeover of Hess cleared one hurdle on Monday after Hess shareholders voted to approve the transaction.

However, the Hess deal hit a speed bump earlier this year due to a challenge by ExxonMobil over the transaction's effect on ExxonMobil's holdings in Guyana.

Chevron has indicated it could walk away from the deal if arbitration is unsuccessful.