Finimize - 💪 Going for broke

What’s going on here?

The US energy industry’s wave of deals swelled even higher on Wednesday, as ConocoPhillips announced an agreement to buy Marathon Oil.

What does this mean?

The US oil and gas industry went on a $250 billion shopping spree last year, with big firms snapping up the country’s best-remaining resources and bringing together a once-disjointed sector. Exxon and Chevron made massive acquisitions last October, signing deals that had price tags of $60 billion and $53 billion, respectively. That sparked a succession of acquisitions, with companies like Occidental Petroleum and Diamondback Energy following suit. The latter outbid ConocoPhillips to grab Endeavour Energy – one of the most sought-after private oil producers in the US. So not wanting to be left behind, ConocoPhillips has now agreed to buy Marathon Oil in a $17 billion all-stock deal, with shareholders receiving shares instead of cash.

Why should I care?

Zooming in: Playing Monopoly.

Despite the agreement, the deal won’t be done until it gets the green light from regulators. And that might not be straightforward: they’ve been keeping a close eye on the industry to ensure too much power doesn’t rest with too few. After the string of deals, you can understand why they’re concerned. Now, just ten companies control more than half of the oil and gas coming out of the Permian Basin – the US’s biggest and most important energy-producing region.

The bigger picture: One plus one equals three.

Antitrust regulators are trying to balance the disadvantages of consolidation with its advantages – namely, improved efficiency and lower costs. After all, combining nearby land lets oil companies operate across huge areas rather than small pockets. In turn, that lets them extend their horizontal underground wells and centralize operations up top.

What’s going on here?

Saudi Arabia is reportedly looking to raise billions of dollars by selling shares of oil giant Aramco.

What does this mean?

Aramco is the world’s most valuable oil company – and Saudi Arabia’s crown jewel. Now, the kingdom is said to be planning to sell at least $10 billion more of the company’s stock, possibly as early as this week. Aramco made a ton of noise back in 2019, when it raised nearly $30 billion with its initial public offering – the world’s biggest. But that was just a fraction of the oil giant: Saudi Arabia still holds a whopping 82% of Aramco, and its public investment fund – which invests on behalf of the government – owns another 16%.

Why should I care?

Zooming out: It’s crunch time.

Saudi Arabia has flirted with the idea of selling more Aramco stock for years, hitting pause only because of iffy economic and market conditions. But the timing now is better: global stock markets are on the up, and oil prices are hovering above $80 a barrel. Plus, Saudi Arabia needs the cash. The country’s got some ambitious projects on its to-do list, like launching a global airline and building a new city, and that could cost trillions.

The bigger picture: Taking a bite.

If history is anything to go by, the appetite for Aramco’s share sale could be huge. Just check out the numbers: in the past two years, 61 Saudi companies have gone public. And in 17 of those debuts, stock prices rose 30% above their original offering price – the maximum gain possible – on their first day of trading. What’s more, the 61 stocks have delivered an average return of 32% since their debuts. To put that into perspective, European IPOs in the same time frame have averaged a comparatively measly 5.2% return.