ConocoPhillips to buy Concho Resources for $9.7B

ConocoPhillips agreed Monday to buy U.S. shale oil producer Concho Resources Inc. for US$9.7 billion, as the energy sector continued to consolidate amid lower fuel prices and demand.

The, low-premium, allstock deal comes as many U.S. shale companies have been mired in losses due to weak crude prices and, unlike in past downturns, have struggled to raise new capital to restructure heavy debts.

The purchase would propel ConocoPhillips to the ranks of the top producers in the Permian Basin, the prime U.S. oilfield that stretches from West Texas to southeastern New Mexico. It also would make it the largest U.S. independent, pumping 1.5 million barrels per day (bpd).

The fifth-largest producer by volume in the Permian, Concho pumps about 319,000 bpd, from wells spread across more than half a million acres.

Conoco is a major producer in two other U.S. shale fields, but pumps about 50,000 bpd in the Permian.

“Concho has been on the short list of big Permian companies attracting interest due to its large production, vast acreage and relatively low debt,” said Andrew Dittmar, mergers and acquisitons analyst at consultancy Enverus.

It has scant drilling acreage on federal lands, a plus given Democratic party presidential candidate Joe Biden’s proposal to ban new fracking permits on government property, he said.

The sector has been consolidating after many shale producers borrowed in a bet on higher prices. Prices tanked instead, leaving shale investors with little to show for the rising output and companies struggling to pay down debts.

The deal values Concho at US$49.30 per share, 1.4 per cent above Friday’s close, and continues a trend of all-stock, low premium combinations, including the WPX EnergyDevon merger and Chevron Corp.’s purchase of Noble Energy.