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ConocoPhillips in Talks to Buy Concho Resources in Big Shale Bet

Ed Hammond, Kiel Porter and Scott Deveau
·3 mins read

(Bloomberg) -- ConocoPhillips is in talks to acquire rival Concho Resources Inc., according to people familiar with the matter, as one of America’s largest independent oil explorers looks to make a bold bet on shale during an historic industry downturn.

The companies may announce a deal in the next few weeks, said the people, who asked to not be identified because the matter isn’t public. Concho shares climbed as much as 15% in New York trading Wednesday, the most since April. They were up 13% at $49.73 each at 9:50 a.m., giving the Midland, Texas-based company a market value of about $9.8 billion.

Conoco shares climbed 1% to $35.25, translating into a market value of almost $38 billion. No final decision has been made and talks could fall through, the people said. Representatives for Conoco and Concho didn’t immediately respond to requests for comment.

The potential combination would be the latest sign that long-expected consolidation in the shale patch has finally arrived. A purchase of Concho, which has an enterprise value of $13.4 billion, could become the year’s largest takeover of an oil and gas company, according to data compiled by Bloomberg. It would likely surpass Chevron Corp.’s all-stock acquisition of Noble Energy Inc., which was valued at about $11.8 billion including debt when it closed in October.

It would follow Occidental Petroleum Corp.’s $38 billion purchase of Anadarko Petroleum Corp. last year and could come just weeks after a $2.6 billion merger of Devon Energy Corp. and WPX Energy Inc. A transaction would also continue a trend of explorers seeking to bulk up specifically in the oil-rich Permian Basin of West Texas and New Mexico, the most productive field in the U.S.

‘Across the Board’

Conoco has been dropping hints about a potential M&A deal for months. In July, Chief Executive Officer Ryan Lance said the company was encouraged by the low premiums needed for acquisitions in the shale sector, citing Chevron’s deal to buy Noble.

“We’re looking at asset deals, we’re looking at corporate deals, we look across the board,” he said at the time.

Concho has drilling rights on about 800,000 gross acres in the Permian, according to a September investor presentation. While Houston-based Conoco has lost nearly half its market value this year, it’s held up relatively well compared to peers as oil prices collapsed during the coronavirus pandemic.

A deal between the two companies would make “strategic and financial sense,” JPMorgan Chase & Co. analysts led by Phil Gresh wrote in a note Wednesday, adding that acquiring Concho would be accretive on most metrics and provide “critical mass” to Conoco’s position in the Permian.

Concho’s 2.4% bonds due 2031 rose as much as 5.8 cents on the dollar to 102.1 cents, the biggest intraday increase on record, according to Trace data compiled by Bloomberg.

Last month, Conoco said that it would resume share repurchases, after cutting production and curbing spending to conserve cash in the first half of 2020.

Concho and Conoco together produced about 1.3 million barrels of oil equivalent a day in the second quarter, according to data compiled by Bloomberg Intelligence, just shy of the output of crude giant Occidental.

(Updates shares in second paragraph.)

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