ConocoPhillips' Marathon Oil Takeover: Is it Unlocking Superior Value?

ConocoPhillips COP finalized its acquisition of Marathon Oil Corporation late last year. The acquisition added more premium oil and natural gas resources to its portfolio, where the production costs are relatively low. This means COP is well-positioned to survive periods when the commodity prices turn low.

The upstream energy giant also anticipated significant cost synergies from the Marathon Oil takeover. Now the obvious question: Is the company actually witnessing all the benefits from the buyout? On the latest earnings call, ConocoPhillips revealed that it is doing better than expected from the takeover.

COP initially projected an annual cost synergy of $500 million from the Marathon Oil acquisition. However, during the second-quarter earnings call, it stated that it now expects to save more than $1 billion annually. COP is likely to realize this gain by the end of 2025, without needing to drill a single well. 

Investors should know that ConocoPhillips believes that it has acquired more valuable oil and gas resources from the Marathon Oil takeover than earlier estimated, thanks to the Permian, the most prolific basin in the United States.

CVX & FANG’s Solid Permian Footprint

Like ConocoPhillips, Chevron CVX and Diamondback Energy, Inc. FANG also have a significant presence in the Permian.

Chevron has a strong footprint in the Permian. With more than 2 million net acres of land, CVX has been operating in the basin for more than 100 years.

Diamondback Energy is a pure-play Permian operator. FANG has a huge inventory of oil and gas wells, thereby showcasing a solid production outlook.

COP’s Price Performance, Valuation & Estimates

Shares of COP have lost 10.9% over the past year compared with the 17.5% decline of the composite stocks belonging to the industry.

From a valuation standpoint, COP trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 5.44X. This is below the broader industry average of 11.03X.

The Zacks Consensus Estimate for COP’s 2025 earnings has been revised upward over the past seven days.

COP stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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