The shale drilling, or fracking, industry is getting a consolidation. ConocoPhillips has solidified a purchase deal with Concho Resources and it's a big one. At a time when crude oil prices are down and the COVID-19 pandemic is causing industry struggles, this is one way for two companies to tackle their debt.
About the ConocoPhillips and Concho Resources deal
ConocoPhillips agreed to purchase Concho Resources for $9.7 billion on Monday, Oct. 19. The consolidation is a tactical response to a disheartened oil industry hit by the COVID-19 pandemic and weakened oil prices.
The deal puts Concho Resources stock at $49.30 per share. The deal is a low-premium, all-stock fusion that's similar to Chevron's recent acquisition of Noble Energy. There's the potential for ConocoPhillips to produce a total of 1.5 million barrels of oil per day, which effectively makes it the largest independent U.S. oil driller.
What is Concho Resources?
Concho Resources focuses on the Permian Basin. The consolidation is a way for ConocoPhillips to gain more access to the land.
The Permian Basin spans from West Texas to the southeastern area of New Mexico. Before the deal, Concho Resources was pumping nearly 320,000 barrels per day sprawled across 500,000 acres. ConocoPhillips only had 50,000 barrels per day secured in the region.
It isn't a surprise that ConocoPhillips scooped up Concho Resources. Concho has a solid foundation, specifically in terms of its minimal debt and maximum production. The company's focus lies outside of federal land, which is a good thing for the two oil companies if Joe Biden wins the presidency and follows through with his promise to ban fracking on federal property.
What is ConocoPhillips's stock price today?
ConocoPhillips, which goes by the ticker symbol "COP" on the NYSE, opened on Oct. 19 at $33.97 per share. The stock is down 0.38 percent from the company's close on Oct. 16.
Since Oct. 1, ConocoPhillips has seen a large bull and a subsequent bear. The stock gained as much as 9.74 percent before dropping another 5.93 percent. ConocoPhillips has fallen 48.9 percent YTD.
What is Concho Resources' stock price today?
Concho Resources, which goes by the ticker symbol "CXO" on the NYSE, opened on Oct. 19 at $49.46 per share. The stock is up 1.77 percent from the company's previous close.
Concho Resources saw a major bull run during pre-market trading on Oct. 14 and ultimately skyrocketed 11.15 percent by the time the market opened. Since then, the stock has largely held its place with minor fluctuations.
When the deal between ConocoPhillips and Concho Resources moves forward, any existing Concho Resources shareholders will acquire a predetermined equivalent of ConocoPhillips stock, which ultimately equates to 1.46 ConocoPhillips shares for every one Concho Resources share already held. News about the deal bolstered the market for Concho Resources shareholders. We'll have to see if the momentum lasts.