Conoco Buys Concho For $9.7BN In Stock, Creating New Shale Giant

In what appears to be the first major deal to rock the American oil patch since the COVID-19-inspired springtime collapse in energy prices that briefly sent the price of oil as the prompt WTI contract plunged below $0/barrel back in April (incidentally netting billions of dollars for Goldman Sachs), ConocoPhillips has agreed to buy Concho Resources for $9.7 billion in stock. The deal will create one of America’s largest shale drillers operating in the Permian Basin.

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Concho stock-holders will get 1.46 Conoco shares for each Concho share the own, the companies said in a joint statement released Monday. The transaction price represents a 15% premium over Concho’s closing price from Oct. 13, the last trading session before Bloomberg broke the story that the two companies were in talks.

Plunging valuations and weakening demand for oil and gas have created an opportunity for larger oil and gas firms with a less debt-laden balance sheet to expand via acquisition. After years of low commodity prices and debt-fueled growth. many shale firms aren’t in a position to take advantage of the latest downturn.

But Houston-based Conoco is in a different position: the company emerged from the springtime oil crash in relatively strong position, with about $7 billion of cash on hand. CEO Ryan Lance has been trying to position the company as an anti-shale alternative for Wall Street, touting the company’s low debt and steady growth and profitability.

Conoco recently re-started share buybacks, but production was down 25% during Q2 as the company, like many of its rivals, slashed production to try and bolster prices.

A combined Conoco and Concho would be one of the dominant operators in the Permian Basin of West Texas and New Mexico, rivaling only the likes of Occidental Petroleum and Chevron.