ConocoPhillips and Concho Resources on Monday announced they have entered into a definitive agreement to combine companies in an all-stock transaction worth $9.7 billion, Kallanish Energy reports.

The deal with ConocoPhillips acquiring Concho will create the largest independent oil and gas company in the United States with scale and quality assets.

It will be a company with an enterprise value of $60 billion with a combined oil and natural gas portfolio of 23 billion barrels of oil-equivalent.

Together, the two companies produced about 1.3 million barrels of oil-equivalent per day in second quarter 2020.

The combined company will be one of the biggest operators in the Permian Basin of West Texas and New Mexico, rivaling Occidental and ExxonMobil for crude oil production.

Concho has 800,000 net acres in the Permian Basin, plus additional assets in the Eagle Ford Shale in South Texas, the Bakken Shale in North Dakota and Montana and the Montney Shale in western Canada.

The deal is expected to close in first quarter 2021.

“Opportunities to consolidate quality on the scale of these two companies do not come along often, so we are seizing this moment to create a company to lead the necessary transformation of our vital sector for the benefit for all stakeholders in the future,” said ConocoPhillips CEO Ryan Lance in a statement.

He added, “Concho is a tremendous fit with ConocoPhillips.”

Observers were equally impressed by the transaction.

“The combination is remarkable,” said Robert Clarke, Wood Mackenzie vice president, Lower 48 upstream, in a statement.

“Just in regards to scale, ConocoPhillips is adding enough Permian production to nip at the heels of ExxonMobil’s massive program.

“We like the distinctives each firm brings, too,” he said. “Concho has a history of acquisitions in the region and brings a considerable amount of incumbent Permian knowledge.

“ConocoPhillips has proven itself as a leader in shale technology. This can be seen in how its Bakken and Eagle Ford projects have progressed down the cost curve as well as how successfully it manages later-life shale declines.”

Clarke said the merger “bodes well for the Permian’s long-term outlook.”

ConocoPhillips will be able to reduce its exploration budget as a result of the merger, he said.

“If buying resource rather than exploring becomes a trend, the momentum for tight oil consolidation stands to increase considerably,” he said.

WoodMac director Ben Shattuck added, “Concho would be on the short list of any potential Permian buyer. Through a multitude of acquisitions, the company has been able to piece together one of the best footprints in the region.”

Concho holds assets in the Midland and Delaware basins with the right mix of production (cash flow) and inventory, he said.

He added, “While Concho has had the odd operational hiccup in the past, there is plenty of runway for ConocoPhillips to put its spin on development.”

Concho has been a leader in the Midland, Texas, community and was an early mover, by shale standards, on the ESG front, Shattuck said.

The companies announced that each share of Concho common stock will be exchanged for a fixed ratio of 1.46 shares of ConocoPhillips common stock, representing a 15% premium on the Oct. 13 closing price.

The merger has been approved by both companies’ board of directors.

After the deal closes, Concho chairman and CEO Tim Leach will join the ConocoPhillips’ board of directors and its executive leadership team as executive vice president and president of ConocoPhillips’ lower 48 operations.

The transaction is expected to generate savings if $500 million a year by 2022.

The deal will result in a financial framework that delivers greater than 30% of cash from operations via dividends and other distributions.

The combined company will also have about $12 billion in debt.

Lance told analysts in a Monday call that the deal “supercharges” ConocoPhillips’ efforts to bring investors back into the energy sector, the Houston Chronicle reported.

He said Concho was “a perfect complement.”

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