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Amid the ongoing wave of consolidation in the U.S. oil and gas industry, ConocoPhillips (COP - Free Report) has agreed to acquire Marathon Oil (MRO - Free Report) in an all-stock deal worth $22.5 billion, including $5.4 billion in debt.

Investors seeking to tap the opportunity arising from the projected deal could bet on ETFs like iShares U.S. Oil & Gas Exploration & Production ETF (IEO - Free Report), Energy Select Sector SPDR (XLE - Free Report), Westwood Salient Enhanced Energy Income ETF (WEEI - Free Report) , First Trust Nasdaq Oil & Gas ETF (FTXN - Free Report) and iShares U.S. Energy ETF (IYE - Free Report).
 

Deal in Focus

Per the terms of the deal, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips for each share of Marathon Oil common stock, representing a 14.7% premium to the closing price on May 28 (see: all the Energy ETFs here).

ConocoPhillips chief executive Ryan Lance said, " this acquisition of Marathon Oil further deepens our portfolio and fits within our financial framework, adding high-quality, low cost of supply inventory adjacent to our leading U.S. unconventional position." The acquisition will add highly complementary acreage to ConocoPhillips’ existing U.S. onshore portfolio, adding over 2 billion barrels of resource.
The acquisition will make ConocoPhillips one of the largest asset holders in the Bakken shale play in North Dakota and the Eagle Ford play in Texas, according to analysts at Truist Securities. It will boost Conoco’s market cap to above $150 billion, extending the company’s lead as the largest independent producer, said Andrew Dittmar, M&A analyst at Enverus. Conoco will become larger than BP but will remain smaller than Shell, he said.  

This acquisition is expected to be immediately accretive to COP’s earnings, cash flows and return on capital per share. ConocoPhillips expects to achieve at least $500 million of run-rate cost and capital savings within the first full year following the closing of the transaction.

The transaction, expected to close in the fourth quarter of 2024, is subject to the approval of Marathon Oil stockholders, regulatory clearance and other customary closing conditions. Upon closing of the transaction, ConocoPhillips would ramp up share buybacks to $7 billion next year from this year's projected $5 billion and commit to buying $20 billion of its shares over the three years following the close of the deal. It also expects to increase its ordinary base dividend per share by 34% to $0.78 starting in the fourth quarter of 2024.

The ConocoPhillips-Marathon deal is the latest in a string of mergers in the U.S. oil and gas industry, where companies are looking to bolster reserves and create economies of scale. Last year, companies in the industry struck $250 billion worth of M&A deals, according to Reuters. The deal follows Exxon Mobil's $60 billion acquisition of Pioneer Natural Resources that was announced in October, and Chevron's (CVX) proposed $53 billion merger with Hess that was approved by the latter's shareholders this week.

Other deals include Occidental Petroleum's (OXY) $12 billion buyout of privately held oil and gas producer CrownRock and Diamondback Energy's (FANG) $26 billion acquisition of Endeavor Energy.
 

ETFs in Focus

Let’s delve into each ETF below:

iShares U.S. Oil & Gas Exploration & Production ETF (IEO - Free Report)

iShares U.S. 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 U.S. Select Oil Exploration & Production Index and holds 45 stocks in its basket, with COP taking the top position at 18.7% and MRO taking the #11 spot at 2.5% share (read: 4 Reasons Why Oil & Energy ETFs Can Continue to Soar).

iShares U.S. Oil & Gas Exploration & Production ETF has AUM of $804.9 million and trades in an average daily volume of 172,000 shares. The fund charges 40 bps in fees per year and has a Zacks ETF Rank #2 (Buy).

Energy Select Sector SPDR (XLE - Free Report)

Energy Select Sector SPDR is the largest and the most popular ETF in the energy space, with AUM of $37.9 billion and an average daily volume of 15 million shares per day. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 22 securities in its basket, with ConocoPhillips occupying the third spot with 8.7% share and Marathon Oil accounts for 1% share.

Energy Select Sector SPDR charges 9 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy).

Westwood Salient Enhanced Energy Income ETF (WEEI - Free Report)

Westwood Salient Enhanced Energy Income ETF is an actively managed ETF that seeks to provide current income and capital appreciation by investing in securities of North American energy companies primarily involved in the following industries: oil, gas and consumable fuels, as well as energy equipment and services. It holds 65 stocks in its basket, with ConocoPhillips and Marathon Oil accounting for 8.9% and 1.2% share, respectively.

Westwood Salient Enhanced Energy Income ETF has gathered $3 million in its asset base since its inception on May 1. It charges 85 bps in fees per year from investors.

First Trust Nasdaq Oil & Gas ETF (FTXN - Free Report)

First Trust Nasdaq Oil & Gas ETF follows the Nasdaq US Smart Oil & Gas Index, which provides exposure to U.S. companies within the oil and gas industry. It is a basket of 42 stocks, with ConocoPhillips accounting for 7.8% share while Marathon Oil makes up for 2.3% share.

First Trust Nasdaq Oil & Gas ETF has amassed $217.5 million in its asset base and trades in an average daily volume of around 39,000 shares and charges 60 bps in annual fees. FTXN has a Zacks ETF Rank #1.

iShares U.S. Energy ETF (IYE - Free Report)

iShares U.S. Energy ETF tracks the Russell 1000 Energy RIC 22.5/45 Capped Gross Index (USD), giving investors exposure to U.S. companies that produce and distribute oil and gas. It holds 39 stocks in its basket, with COP occupying the third position at 7.6% of the assets while MRO accounts for 0.8% share.

iShares U.S. Energy ETF charges 40 bps in fees per year from its investors. It has AUM of $1.4 billion and an average daily volume of about 545,000 shares. The product has a Zacks ETF Rank #1.

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