ConocoPhillips in talks to buy Concho Resources in big shale bet

[NEW YORK] ConocoPhillips is in talks to acquire rival Concho Resources, according to people familiar with the matter, as one of America's largest independent oil explorers looks to make a bold bet on shale during an historic industry downturn.

The companies may announce a deal in the next few weeks, said the people, who asked to not be identified because the matter isn't public. No final decision has been made and talks could fall through.

Representatives for Conoco and Concho didn't immediately respond to requests for comment. Concho shares fell 1.3 per cent in New York on Tuesday, closing at US$44.14 and giving the Midland, Texas-based company a market value of about US$8.7 billion. Conoco was down 2 per cent at US$34.88, with a market value of about US$37 billion.

A tie-up would be the latest sign that the consolidation investors and analysts have long anticipated in the shale patch has finally arrived. It would follow Occidental Petroleum's US$38 billion takeover of Anadarko Petroleum last year and could come just weeks after a US$2.56 billion merger of Devon Energy and WPX Energy.

A deal would also continue a trend of explorers seeking to bulk up specifically in the oil-rich Permian Basin of West Texas and New Mexico, the most productive field in the US.

Chevron agreed in July to buy Noble Energy for about US$5 billion, adding to its assets in the region.

Conoco has been dropping hints about a potential M&A (mergers and acquisitions) deal for months. In July, chief executive officer Ryan Lance said the company was encouraged by the low premiums needed for acquisitions in the shale sector, citing Chevron's deal to buy Noble.

ACROSS THE BOARD

"We're looking at asset deals, we're looking at asset deals, we're looking at corporate deals, we look across the board," he said at the time.

Concho has drilling rights on about 800,000 gross acres (about 324,000 hectares)in the Permian, according to an investor presentation in September. While Houston-based Conoco has lost nearly half its market value this year, it's held up relatively well compared to peers as oil prices collapsed during the coronavirus pandemic.

Concho and Conoco together produced about 1.3 million barrels of oil equivalent a day in the second quarter, according to data compiled by Bloomberg Intelligence, just shy of the output of crude giant Occidental Petroleum.

Conoco said last month that it would resume share repurchases, after cutting production and curbing spending to conserve cash in the first half of 2020.

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