ETFs
ConocoPhillips to Buy Marathon Oil: Energy ETFs to Win
Amid the ongoing wave of consolidation in the U.S. oil and gas industry, ConocoPhillips COP has agreed to acquire Marathon Oil MRO in an all-stock transaction worth $22.5 billion, including $5.4 billion in debt.
Investors looking to exploit the opportunity arising from the planned deal could bet on ETFs like iShares U.S. Oil & Gas Exploration & Production ETF GOOSE, Energy Sector Select SPDR XLE, Westwood Salient Enhanced Energy Income ETF WEEI, First Trust Nasdaq Oil & Gas ETF FTXN and iShares US Energy ETF IYE.
The featured case
Under the terms of the agreement, Marathon Oil shareholders will receive 0.2550 ConocoPhillips shares for each share of Marathon Oil common stock, representing a 14.7% premium to the May 28 closing price (see: all energy ETFs here).
Ryan Lance, Chief Executive Officer of ConocoPhillips, said: “This acquisition of Marathon Oil further deepens our portfolio and fits within our financial framework, adding high quality, low cost supply inventory adjacent to our position. leader in the unconventional sector in the United States. » The acquisition will add highly complementary acreage to ConocoPhillips’ existing U.S. onshore portfolio, adding more than 2 billion barrels of resources.
The acquisition will make ConocoPhillips one of the largest holders of assets in the Bakken shale play in North Dakota and the Eagle Ford play in Texas, according to analysts at Truist Securities. That will bring Conoco’s market capitalization to more than $150 billion, expanding the company’s position as the largest independent producer, said Andrew Dittmar, a mergers and acquisitions analyst at Enverus. Conoco will become larger than BP but remain smaller than Shell, he said.
This acquisition is expected to be immediately accretive to COP’s earnings, cash flow and return on capital per share. ConocoPhillips expects to realize at least $500 million in cost and capital savings within the first full year following the closing of the transaction.
The transaction, which is expected to close in the fourth quarter of 2024, is subject to Marathon Oil shareholder approval, regulatory clearance and other customary closing conditions. Upon closing of the transaction, ConocoPhillips would increase its share repurchases to $7 billion next year from a planned $5 billion this year and commit to buying $20 billion of its stock over the three years. following the closing of the transaction. It also plans to increase its basic ordinary dividend per share by 34% to $0.78 starting in the fourth quarter of 2024 (read: Where could oil go from here? Focus on ETFs).
The ConocoPhillips-Marathon deal is the latest in a series of mergers in the U.S. oil and gas industry, where companies are seeking to bolster their reserves and create economies of scale. Last year, companies in the sector completed mergers and acquisitions worth $250 billion, according to Reuters. The deal follows Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources announced in October, and Chevron’s (CVX) proposed $53 billion merger with Hess that was approved by shareholders of the latter this week.
Other deals include Occidental Petroleum’s (OXY) $12 billion buyout of private oil and gas producer CrownRock and Diamondback Energy’s (FANG) $26 billion acquisition of Endeavor Energy.
The story continues
Focus on ETFs
Let’s take a look at each ETF below:
iShares US Oil & Gas Exploration & Production ETF (IEO)
The iShares US Oil & Gas Exploration & Production ETF provides exposure to U.S. companies engaged in the exploration, production and distribution of oil and gas. It tracks the Dow Jones US Select Oil Exploration & Production Index and holds 45 stocks in its basket, with COP taking the top position at 18.7% and MRO taking 11th place with 2.5% (read: 4 reasons why Oil and energy ETFs may continue to soar).
The iShares US Oil & Gas Exploration & Production ETF has $804.9 million in assets under management and trades an average daily volume of 172,000 shares. The fund charges 40 basis points in fees per year and has a Zacks ETF Rank #2 (Buy).
Selected Energy Sector SPDR (XLE)
Energy Select Sector SPDR is the largest and most popular energy ETF, with $37.9 billion in assets under management and an average daily volume of 15 million shares per day. It provides exposure to the broad energy space and tracks the Energy Select Sector Index. Energy Select Sector SPDR holds 22 stocks in its basket, with ConocoPhillips in third place with an 8.7% share and Marathon Oil accounting for 1% share.
Energy Select Sector SPDR charges 9 basis points in annual fees and has a Zacks ETF Rank #1 (Strong Buy).
Westwood Salient Enhanced Energy Income ETF (WEEI)
The Westwood Salient Enhanced Energy Income ETF is an actively managed ETF that seeks to generate current income and capital appreciation by investing in securities of North American energy companies primarily involved in the following sectors: oil, gas and consumable fuels, as well as as energy equipment and services. . He holds 65 stocks in his basket, with ConocoPhillips and Marathon Oil accounting for 8.9% and 1.2% shares, respectively.
The Westwood Salient Enhanced Energy Income ETF has amassed $3 million in its asset base since its inception on May 1. It charges 85 basis points in fees per year to investors.
First Trust Nasdaq Oil & Gas ETF (FTXN)
The First Trust Nasdaq Oil & Gas ETF tracks the Nasdaq US Smart Oil & Gas Index, which provides exposure to U.S. oil and gas companies. This is a basket of 42 stocks, with ConocoPhillips representing 7.8% while Marathon Oil represents 2.3%.
The First Trust Nasdaq Oil & Gas ETF has amassed $217.5 million in its asset base and trades an average daily volume of about 39,000 shares and charges 60 basis points in annual fees. FTXN has a Zacks ETF Rank #1.
iShares US Energy ETF (IYE)
The iShares US Energy ETF tracks the Russell 1000 Energy RIC 22.5/45 Capped Gross Index (USD), providing investors with exposure to U.S. companies that produce and distribute oil and gas. It holds 39 stocks in its basket, COP occupying third position with 7.6% of assets while MRO represents 0.8% of shares.
iShares US Energy ETF charges 40 basis points in fees per year to its investors. It has $1.4 billion in assets under management and an average daily volume of approximately 545,000 shares. The product has a Zacks ETF Rank #1.
Want the latest recommendations from Zacks Investment Research? Today you can download the 7 best stocks for the next 30 days. Click to get this free report
ConocoPhillips (COP): Free Stock Analysis Report
Marathon Oil Corporation (MRO): Free Stock Analysis Report
SPDR Energy Select Sector ETF (XLE): ETF Research Reports
iShares US Oil & Gas Exploration & Production ETF (IEO): ETF Research Reports
iShares US Energy ETF (IYE): ETF Research Reports
NASDAQ First Trust Oil & Gas ETF (FTXN): ETF Research Reports
Westwood Salient Enhanced Energy Income ETF (WEEI): ETF Research Reports