Concho Resources Rallies On Report Of M&A Interest From ConocoPhillips

America’s largest independent oil explorer, ConocoPhillips COP is betting big on shale as it seeks to acquire rival Concho Resources Inc CXO, according to Bloomberg.

What Happened: The coronavirus pandemic has dented oil demand, which led to a crash in crude oil prices in March 2020.

A steep fall in crude prices has pushed many oil producers to the verge of bankruptcy, leading to consolidation in the oil-rich shale patch.

Conoco's acquisition deal could be announced in the coming weeks, but a final decision has not been made, according to Bloomberg.

Concho Resources shares closed at $44.14 on Tuesday, giving the Texas-based company a market cap of $8.7 billion. The terms of the deal or an acquisition price remain unknown.

If a deal goes through, the combined company would have huge production capacity. In the second quarter of 2020, both produced 1.3 million barrels of oil equivalent a day, just shy of Occidental Petroleum Corporation's OXY output.

Why It's Important: Analysts have anticipated consolidation in the energy sector, specifically in West Texas and the New Mexico Permian Basin.

The consolidation started with Occidental Petroleum acquiring Anadarko Petroleum Corp. in 2019 and Chevron Corporation CVX had acquiring Noble Energy in July 2020. Most recently, Devon Energy Corp. DVN acquired WPX Energy Inc. WPX in late September.

Conoco CEO Ryan Lance dropped hints about potential merger deals in July, according to Bloomberg.

"We’re looking at asset deals, we’re looking at asset deals, we’re looking at corporate deals, we look across the board," the CEO said.

COP, CXO Price Action: ConocoPhillips shares were trading 1.12% higher at $35.27 at last check Wednesday, while Concho Resources shares were up 12.17% at $49.51.