By Rebecca Elliott

ConocoPhillips has agreed to buy Concho Resources Inc. for $9.7 billion in what would be the largest U.S. oil deal since the coronavirus pandemic began roiling global energy markets.

The combined company would easily be the largest U.S. oil independent, with output in the prolific Permian Basin of Texas and New Mexico, second only to Occidental Petroleum Corp., according to a JPMorgan Chase & Co. analysis of Enverus data.

"Together, ConocoPhillips and Concho will have unmatched scale and quality across the important value drivers in our business: an enviable low cost of supply asset base, a strong balance sheet, a disciplined capital allocation approach, ESG excellence and great people," ConocoPhillips Chief Executive Ryan Lance said in a statement.

The all-stock acquisition values Concho at a 15% premium to its closing price on Oct. 13 and would give shareholders 1.46 shares of ConocoPhillips stock for each share of Concho common stock. Bloomberg News reported the companies were close to a deal last week.

It is the latest in a series of combinations in the U.S. oil patch, where companies are seeking to bulk up to ride out weak demand and low prices, which have hovered around $40 a barrel since June, below the level many companies require to make money on new shale wells.

Devon Energy Corp. agreed last month to a $2.6 billion merger with WPX Energy Inc., while Chevron Corp. agreed in July to buy Noble Energy Inc. for about $5 billion. Both were all-stock deals.

"Through this combination, we are joining a diversified energy company with even more scale and resources to create shareholder value in today's markets and beyond," said Concho CEO Tim Leach, who is set to join the combined company as an executive vice president and board member.

It has been a brutal year for U.S. oil companies, which are suffering from prolonged weak demand for fossil fuels during the pandemic. The companies had already been facing investor flight after failing to generate consistent returns, even as they helped lift American oil production to world-leading totals.

As of Friday, the value of Concho's shares had fallen roughly 25% in a year, as the S&P 500 index rose about 17%. ConocoPhillips's share price dropped around 38% in that time.

The deal marks a strategic departure for ConocoPhillips, which has spent years shedding assets even as peers chased aggressive growth. Adding Concho, which drills exclusively in the Permian, would give the company a far larger footprint in the nation's top oil basin.

ConocoPhillips said it expects the combined company to be able to trim costs by $500 million annually by 2022, thanks in part to lower administrative expenses. The company also plans to reduce its global exploration program.

The deal, which is subject to shareholder approval, is expected to close early next year.

Dave Sebastian contributes to this article.

Write to Rebecca Elliott at rebecca.elliott@wsj.com

(END) Dow Jones Newswires

10-19-20 0839ET