Why ConocoPhillips Stock Is Falling Today

stock ConocoPhillips (cop -3.96%) It slumped this morning and is trading 3.5% lower as of 11:30 a.m. Wednesday.

ConocoPhillips’ big announcement today shouldn’t have surprised investors, as several of its peers have been buying in recent months. Oil and gas companies are acquiring peers in multibillion-dollar deals and expect these acquisitions to create long-term value for shareholders.

ConocoPhillips acquires Marathon and plans to announce a large dividend increase.

ConocoPhillips plans to acquire marathon oil (MRO 7.77%) It completed an all-stock deal valued at $22.5 billion, including $5.4 billion in net debt. Marathon investors will receive 0.2550 shares of ConocoPhillips stock for each share held, representing a 14.7% premium to Marathon’s closing price yesterday.

Management expects the acquisition to add more than 2 billion barrels to its inventory and significantly expand its presence in key regions, including the Eagle Ford, Bakken, Delaware and Permian basins.

Thanks to the overlapping operations of the two companies, ConocoPhillips believes it will save $500 million in the first year following the acquisition. We also expect this transaction to result in immediate accretion to our revenues and cash flow, thereby improving shareholder returns.

Management has continued to pay dividends and repurchase shares to increase shareholder profits. Following the acquisition, the share repurchase program is expected to grow to more than $7 billion in the first year, up from a previous target of $5 billion. The company also expects to repurchase $20 billion worth of stock over the first three years following the acquisition.

Additionally, the company plans to increase dividends by 34% in the fourth quarter of 2024, which is a large increase compared to the 14% increase in dividends in the fourth quarter of 2023. The current stock yield is 2.7%.

Is today’s drop an opportunity to buy ConocoPhillips?

Marathon Oil has a strong portfolio of assets, has generated solid cash flow, and has consistently paid dividends and repurchased stock for several years.

Investors in ConocoPhillips may be wary of the premium the company is paying and the debt it will be assuming, but management typically acquires low-cost assets. In recent years, the company has been consistent about how it will achieve its acquisition goals that align with and improve upon the 10-year plan established last year.

The plan focuses on cash flow, with a target price of approximately $35 per barrel to break even on free cash flow. The Marathon acquisition is expected to add value to ConocoPhillips and boost its stock price over the long term.