Markets

Conoco-Concho Merge: ETFs in Focus on 2020's Top Shale Deal

ConocoPhillips COP has announced that it will purchase Permian-focused shale oil driller Concho Resources CXO for $9.7 billion, in the largest shale deal this year. ConocoPhillips shares gained more than 1% after hours on Oct 19. Concho Resources shares were also up 0.6% after hours. In the key trading session of the day, shares were down due to the broader market selloffs.

ConocoPhillips agreed to buy Concho Resources for $9.7 billion, as the energy sector scrambled to consolidate in an attempt to survive an environment marked by lower fuel prices and demand. A few weeks back, there was the merger of Devon Energy and WPX Energy, which created a $12 billion entity with a robust upstream position in the Permian Basin.

Inside the Deal

The latest Conoco-Concho deal was low-premium, all-stock in nature. It came as many U.S. shale companies have been struggling with losses due to weak crude prices.The deal swaps 1.46 shares of ConocoPhillips for each Concho share, at a premium of about 1.5% over its price on Oct 16.

Stable oil price is another reason for an uptick in energy sector consolidation. “While $40 oil is not high enough to restart the prolific shale machine, the absence of volatility is allowing producers time to take stock of how best to survive the ongoing Covid-19 downturn,”per the CEO of oilfield services company Canary, LLC, as quote don Forbes.

The purchase puts ConocoPhillips to the ranks of the top producers in the Permian Basin, and tags it as the largest U.S. independent oil and gas producer, pumping 1.5 million barrels per day (bpd). The deal will give ConocoPhillips an opportunity to create low-cost supply,” per the CEO Ryan Lance, adding Concho has “a low-cost supply that fits,” quoted on Reuters.

The fifth-largest producer by volume in the Permian, Concho pumps about 319,000 bpd, per Reuters. It has been a lucrative acquisition candidate due to its large production base, per an M&A analyst at consultancy Enverus.

The analyst went on to highlight that Concho has “scant drilling acreage on federal lands, a plus given Democratic party presidential candidate Joe Biden’s proposal to ban new fracking permits on government property,” as quoted on Reuters. Meanwhile, ConocoPhillips is a major producer in two other U.S. shale fields but pumps about 50,000 bpd into the Permian.

Against this backdrop, below we highlight a few energy ETFs that have considerable exposure to either of the companies or both at a time. These ETFs may benefit from the deal in the coming days.

ETFs in Focus

iShares U.S. Oil & Gas Exploration & Production ETF IEO

ConocoPhillips – 15.63%; Concho Resources – 4.6%

First Trust Indxx Global Natural Resources Income ETF FTRI

ConocoPhillips – 8.94%

VanEck Vectors Unconventional Oil & Gas ETF FRAK

ConocoPhillips – 8.25%; Concho Resources – 4.5%

John Hancock Multi-Factor Energy ETF JHME

ConocoPhillips – 6.00%; Concho Resources – 3.1%

iShares U.S. Energy ETF IYE

ConocoPhillips – 5.63%

Invesco Dynamic Energy Exploration & Production ETF PXE

ConocoPhillips – 5.21%; Concho Resources – 5.3%

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ConocoPhillips (COP): Free Stock Analysis Report
 
Concho Resources Inc. (CXO): Free Stock Analysis Report
 
iShares U.S. Oil Gas Exploration Production ETF (IEO): ETF Research Reports
 
VanEck Vectors Unconventional Oil Gas ETF (FRAK): ETF Research Reports
 
iShares U.S. Energy ETF (IYE): ETF Research Reports
 
John Hancock Multifactor Energy ETF (JHME): ETF Research Reports
 
Invesco Dynamic Energy Exploration Production ETF (PXE): ETF Research Reports
 
First Trust Indxx Global Natural Resources Income ETF (FTRI): ETF Research Reports
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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