TULSA, Okla. — Phillips Petroleum Co. is merging with Conoco Inc. in a $15.4 billion stock deal, creating a gas retailing giant with 17,000 filling stations across the country.
Phillips, which bought the refining company Tosco Corp. earlier this year, will gain extra strength as a producer of petroleum. The combined market value of the new company would be $35 billion.
Under the terms of the deal, announced Sunday and described by the two rivals as a merger of equals, the combined company, ConocoPhillips, would have reserves of 8.7 billion barrels of oil equivalent and daily production of 1.7 million barrels.
Conoco sells gasoline, diesel fuel and other petroleum products at 5,000 outlets in the United States, while Phillips sells fuel at more than 12,000 stations under brands such as Phillips 66, Circle K and 76.
The merger is expected to close during the second half of 2002, pending regulatory and shareholder approval.
The deal, which also includes a $550 million breakup fee, puts ConocoPhillips behind Exxon Mobil Corp. and ChevronTexaco Corp. in the United States and ranks them sixth-largest in the world.
The companies describe the deal as a merger of equals, though under its terms, Phillips shareholders will end up with a 56.6 percent stake in the new company and Conoco shareholders will own 43.4 percent.
Phillips shareholders will get one share of each of ConocoPhillips stock for each Phillips share they own. Conoco shareholders will get .4677 shares of the new stock. The combined company will also have $18.6 million in debt and preferred securities.
Conoco chairman Archie W. Dunham is delaying a planned retirement to serve as chairman of the combined company. Phillips chairman James Mulva will be chief executive of the company and become chairman when Dunham retires in 2004.
Both will hold seats on the combined company's board, which will have 16 directors — eight from each company.
Initial reaction to the deal from Wall Street was positive, with investors sending each company's shares higher after trading began Monday morning. Conoco shares rose $1.82, or 7.5 percent, to $26.12 on the New York Stock Exchange, while Phillips shares were up $3.19, or 6.2 percent, to $55.01.
ConocoPhillips will based in Houston, home to Conoco. It will keep a reduced presence in Bartlesville, Okla., where Phillips employs 2,400 at its headquarters and research facility.
"This is really a growth story for Conoco and Phillips," said Dunham.
Conoco and Phillips have a combined global work force of 58,000 employees and expect to save at least $750 million annually by merging.
"What we saw was just an ideal time for us to put our growth plans together," Mulva said.
Mulva said most of the savings should come from realized operating efficiencies instead of job cuts, but he said some jobs will be eliminated in Bartlesville. He didn't say how many cuts would be implemented there.
Analysts said the deal would give the company better strategic balance.
"They really needed to beef up their exploration portfolio around the world," said Gene Gillespie, senior energy analyst with Howard Weil in New Orleans. "Conoco has a presence in some areas that Phillips is interested in, including the Gulf of Mexico and the MacKenzie Delta in western Canada."
There have been several big energy mergers in recent years. In September, the Federal Trade Commission approved Chevron Corp.'s acquisition of Texaco Inc. That deal followed BP Amoco's takeover of Atlantic Richfield Corp. two years ago and Exxon Corp.'s acquisition of Mobil Corp. in 1999, as the world's largest oil companies look for size and breadth to gain a competitive edge.
The merger should result in cost savings in refining, marketing and transportation and more capital to fund worldwide exploration and production, the two men said during a teleconference.
Talks that led to the merger began in earnest about six weeks ago, Dunham said. Both have been rumored merger candidates for years.
Phillips had tried to unload some of its refining and marketing operations in a deal with Conoco that fell through in 1996.
A familiar face to U.S. motorists with its Phillips 66 logo, Phillips has engaged in a flurry of growth acquisitions after being among the smaller integrated companies for decades.
In February, Phillips acquired Tosco of Greenwich, Conn. for $7 billion in stock, creating the nation's second-largest oil refiner and a gasoline retailer with more than 12,000 stations.
Last year, it merged its gas gathering and processing operations with Duke Energy and acquired production assets in Alaska jettisoned by BP Amoco to secure approval of its acquisition of Atlantic Richfield. Phillips also combined its chemicals division with ChevronTexaco.
In May, Conoco acquired Gulf Canada Resources and greatly increased its international oil reserves. Conoco operates nearly 6,000 miles of pipelines in the United States and has stakes in nine refineries in the United States, Europe and Asia. It operates more than 7,000 gas stations in Europe, Thailand and the United States.
Howard Weil's Gillespie said the deal would strengthen Conoco's finances in the wake of its $4.3 billion purchase of Gulf Canada.
"Obviously Conoco leveraged up their balance sheet to buy Gulf Canada," Gillespie said.
ConocoPhillips would operate or have equity interests in 19 refineries in the United States, the United Kingdom, Ireland, Germany, the Czech Republic and Malaysia, with a refining capacity of 2.6 million barrels a day.
Mulva said about 57 percent of the combined company's portfolio is in exploration and production, and executives hope to boost that to 60 or 70 percent.
About 73 percent of exploration and production would be in North America and the North Sea, Dunham said, giving ConocoPhillips a politically secure asset base.
On the Net: http://www.phillips66.com and http://www.conoco.com