ConocoPhillips, Concho Resources to combine in all-stock transaction
Under the terms of the transaction, which has been unanimously approved by the board of directors of each company, each share of Concho Resources common stock will be exchanged for a fixed ratio of 1.46 shares of ConocoPhillips common stock, representing a 15% premium to closing share prices on October 13.
The transaction will create a company with an approximately $60B enterprise value.
The combined company will hold approximately 23B barrels of oil equivalent, or BBOE resources with an average cost of supply of below $30 per barrel WTI. The transaction brings together acreage positions across the Delaware and Midland basins that also includes leading positions in the Eagle Ford and Bakken in the Lower 48 and the Montney in Canada.
The companies announced that together they expect to capture $500M of annual cost and capital savings by 2022.
The identified savings will come from lower general and administrative costs and a reduction in ConocoPhillips’ future global new ventures exploration program. This de-emphasis of ConocoPhillips’ organic resource addition program is driven by the addition of Concho’s large, low-cost resource base.
Additional supply chain, commercial and drilling and completion capital efficiency savings are not yet included in these cost-reduction estimates. ConocoPhillips will offer a compelling ordinary dividend supplemented by additional distributions as needed to meet its target distribution of greater than 30% of cash from operations.
The company seeks to maintain a strong investment-grade credit rating across price cycles. On a pro forma basis, the combined company net debt is approximately $12B as of June 30, representing an attractive leverage ratio of 1.3 at 2021 consensus commodity prices.
Upon closing, Concho’s chairman and CEO Tim Leach will join ConocoPhillips’ board of directors and executive leadership team as executive vice president and president, Lower 48. This transaction will enhance the company’s competitive position in Midland.
The transaction is subject to the approval of both ConocoPhillips and Concho stockholders, regulatory clearance and other customary closing conditions. The transaction is expected to close in the first quarter of 2021.
In the meantime, an integration planning team consisting of representatives from both companies will be formed to ensure required business processes and programs are implemented seamlessly post-closing.
In light of the pending merger, ConocoPhillips has suspended share repurchases until after the transaction closes.
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