ConocoPhillips Set For Growth With Marathon Oil Acquisition: Analysts Anticipate Accretive Financials And Enhanced Asset Base

Several analysts expressed their views on ConocoPhillips’ COP deal to acquire Marathon Oil Corporation MRO in an all-stock transaction with an enterprise value of $22.5 billion.

Yesterday, ConocoPhillips also disclosed that it expects to increase its ordinary base dividend per share by 34% to $0.78 starting in the fourth quarter of 2024.

It targets repurchasing over $7 billion in shares in the first full year (up from over $5 billion standalone) and over $20 billion in shares in the first three years.

Truist Securities analyst Neal Dingmann writes that he views the deal positively, given the immediate accretion on all metrics, given MRO’s shares have traded at a notable discount to COP’s shares for several quarters.

The analyst writes that the transaction adds quality acreage, making ConocoPhillips one of the largest Bakken and Eagle Ford asset holders.

Dingmann expects ConocoPhillips to slow combined activity, though likely maintaining total production potentially. There is unlikely another suitor comes over the top for Marathon Oil, writes the analyst.

The analyst reiterated the Buy rating with a price target of $160.

J.P.Morgan analyst Arun Jayaram expects the acquisition deal to be accretive on FCF and earnings metrics (0.5% higher FCF yield, 0.7x lower P/E in 2025) and deliver $500 million of synergies ($400 million in pre-tax G&A/opex, $100 million in capex).

Commenting on the dividend hike, the analyst writes that the incremental base dividend will replace the special dividend.

Jayaram says that while MRO has taken a pragmatic approach to inventory renewal through organic enhancement and the $3 billion Ensign transaction in late 2022, the company would need to take additional steps to address inventory renewal over time.

BMO Capital Markets analyst Phillip Jungwirth, with an Outperform rating and $135 price target on COP, writes that the acquisition is financially accretive and deepens ConocoPhillips’s L48 positions (Bakken / Eagle Ford) at a competitive cost of supply.

Jungwirth adds that Marathon’s strong capital efficiency should compete for capital, and the deal will lower ConocoPhillips’ corporate FCF breakeven.

The analyst estimates ConocoPhillips’s 2025 EPS to increase by 6% at strip and cash flow per share and FCF per share to be higher by 5% and ~9%, respectively.

Related: ConocoPhillips’ Marathon Deal: Analyst Sees Short-Term Pain, Long-Term Gain

Mizuho analyst, with a Neutral rating and a $142 price target on COP, writes that although the deal adds ~2 bboe of reserves,~2,000 locations, and ~1,000+ refrac opportunities to the company’s U.S. shale portfolio, there is concern about whether the transaction makes COP better or simply bigger.

The analyst added that while both companies have outperformed peers in terms of well productivity since 2019, COP had a clear advantage over MRO, particularly in the Bakken and Eagle Ford.

Investors can gain exposure to COP via IShares U.S. Oil & Gas Exploration & Production ETF IEO and Westwood Salient Enhanced Energy Income ETF WEEI.

Price Action: COP shares are down 1.95% at $113.00 at the last check Thursday.