The Marathon Oil bond yield dropped by 57 basis points to 5.5% due to ConocoPhillips' $22.5 billion acquisition, which promises operational synergy and significant cost savings while facing scrutiny over antitrust concerns.
The Marathon Oil 5.7% Apr 2034 USD bond (US565849AR71) experienced a noteworthy shift in its yield, plummeting by 57 basis points to 5.5% over the span of the week.
The shift in yield can be attributed to the recent acquisition agreement between ConocoPhillips and Marathon Oil, announced on May 29, 2024. ConocoPhillips, one of the leading independent oil and gas producers in the United States, has agreed to acquire Marathon Oil for a staggering $22.5 billion. This deal forms part of a broader trend within the energy sector, characterized by a flurry of consolidation activities aimed at enhancing reserves and capitalizing on economies of scale.
The acquisition, structured as an all-stock offer amounting to $30.33 per Marathon share, represents a premium of nearly 15% to the stock's previous close. With ConocoPhillips assuming $5.4 billion of Marathon's debt, the transaction is anticipated to finalize in the fourth quarter of 2024.
Market response to the acquisition was swift, with Marathon Oil's shares surging by 9% to $28.85, while ConocoPhillips experienced a slight decline of 3.8% to $115.10 during morning trading. Analysts have underscored the operational synergy between the two companies, particularly in regions such as the Eagle Ford and Bakken basins, where asset overlap is most pronounced.
ConocoPhillips anticipates significant cost savings amounting to $500 million within the first year post-closure, buoyed by the addition of over 2 billion barrels of reserves to its portfolio. The company also disclosed plans to divest nearly $2 billion worth of assets and ramp up share buybacks, signaling its commitment to enhancing shareholder value in the wake of the acquisition.
While the consolidation activity within the industry has attracted heightened antitrust scrutiny, ConocoPhillips CEO Ryan Lance remains optimistic, citing the negligible impact of the deal on the global oil market. Lance also alluded to the FTC's precedent with previous industry mergers, suggesting a favorable regulatory outlook for the transaction.
Marathon Oil's senior unsecured debt is rated "BBB-" by S&P and Fitch, and 'Baa3' by Moody's, with an LTM EBITDA leverage of 1.2x as of December 31, 2023. ConocoPhillips has higher credit ratings of "A2" from Moody's, "A" from Fitch, and "A-" from S&P, with a lower LTM leverage ratio of 0.8x as of 3Q23.
The yield map for the USD-denominated bonds of Marathon Oil and ConocoPhillips as of June 3, 2024:
Marathon Oil Corp. is involved in exploring, producing, and marketing liquid hydrocarbons and natural gas. The company operates in two main segments: the United States (U.S.) and International. In the U.S., Marathon focuses on oil and gas exploration, development, and production activities. Internationally, the company is engaged in oil and gas development and production, primarily in Equatorial Guinea and the United Kingdom. Founded in 1887, Marathon Oil Corp. is headquartered in Houston, Texas. The company has a market capitalization of $16.2 billion as of May 31, 2024.
ConocoPhillips operates as an exploration and production company, focusing on the exploration, production, transportation, and marketing of crude oil, bitumen, and natural gas. Its operations span across distinct geographical segments, including Alaska, Lower 48, Canada, Europe, Middle East, and North Africa, Asia Pacific, and Other International. Founded by Isaac Elder Blake on November 25, 1875, ConocoPhillips is headquartered in Houston, Texas. The company has a market capitalization of $136 billion as of May 31, 2024.