ConocoPhillips Acquires Shale Company for 11 Trillion Won... 'Betting on Oil Price Recovery Next Year?'

ConocoPhillips Acquires Concho
Mergers and Acquisitions Continue in Shale Industry
Strategic Investment Amid Oil Price Recovery Expectations

[Asia Economy Reporter Naju-seok] US oil major ConocoPhillips has acquired shale company Concho for $9.7 billion (11.06 trillion KRW). This is interpreted as a preemptive investment betting on the oil market entering a full recovery phase after the COVID-19 crisis.

[Image source=AP Yonhap News]

On the 19th (local time), foreign media predicted that through this deal, ConocoPhillips will secure numerous oil wells in the Permian Basin area of Texas and New Mexico. Ryan Lance, CEO of ConocoPhillips, emphasized, "This deal confirms our commitment to leading structural changes in the shale industry."

CEO Lance recently told analysts, "We expect oil prices to show a recovery trend next year."

ConocoPhillips owns oil wells in Australia, the Asia-Pacific region, and Canada, but its crude oil production in the Permian Basin, the world's most profitable shale field, was less than 100,000 barrels per day. In contrast, Concho produced 330,000 barrels of crude oil per day last year, mainly in the Permian Basin. Accordingly, ConocoPhillips can now achieve economies of scale in the Permian Basin area as well.

Experts view that major oil companies are trying to acquire shale companies whose asset values have declined due to the COVID-19 crisis. Concho's market value exceeded $30 billion in 2018 but fell to about $8 billion after experiencing the COVID-19 crisis.

According to the deal terms, Concho shareholders will receive 1.46 shares of ConocoPhillips stock for each share they hold. This valuation includes a 15% premium over the stock price on the 13th. With this merger, ConocoPhillips has grown to a scale of $60 billion.

The goal is to achieve economies of scale by becoming larger through mergers and acquisitions. In fact, ConocoPhillips now holds oil wells with a supply cost below $30 per barrel, totaling about 23 billion barrels. Through this, ConocoPhillips can produce 1.5 million barrels of crude oil and natural gas per day.

[Image source=Reuters Yonhap News]

Amid difficulties intensified by the oil price crash triggered by COVID-19, the shale industry is undergoing consolidation. Chevron announced in July that it would acquire Noble Energy for $13 billion, and Devon Energy also agreed last month to acquire WPX for $12 billion.

In fact, US crude oil production was 13 million barrels per day last year, but due to the sharp decline in oil demand after COVID-19, it has decreased to 11 million barrels per day.

This content was produced with the assistance of AI translation services.