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Published: Friday, 7/15/2011

ConocoPhillips plans to split by selling off refining arm


NEW YORK -- ConocoPhillips will split itself into two by spinning off its refining arm, the third-largest U.S. oil company said Thursday, sending its shares up more than 7 percent.

Thus ConocoPhillips becomes the first of the so-called super majors to shift from the strategy that led the industry to consolidate into a handful of players with global reach in the oil and gas production and oil products businesses.

The move comes just two weeks after smaller peer Marathon Oil Co. spun off its refining arm into Marathon Petroleum Corp., and analysts said it could help close a valuation gap with other energy companies.

The "logic of the split makes sense," analysts at Houston energy investment bank Tudor, Pickering, Holt & Co. said in a note to investors.

ConocoPhillips shares trade at a discount to other companies, even though they outperformed their rivals by 28 percent last year and by 2 percent so far this year, the analysts said.

Over the past two years, ConocoPhillips has embarked on a massive portfolio shift to sell assets and reduce its debt load. It is the third-largest integrated U.S. oil company and the smallest of a peer group that includes Exxon Mobil, Royal Dutch Shell, Chevron, BP Plc, and Total SA.

Conoco's 2002 purchase of rival Phillips was among the last of the megamergers that began in 1998 when BP bought Amoco.

ConocoPhillips, based in Houston, said it expected to complete the separation in the first half of 2012.

Conoco's oil and gas production fell more than 5 percent last year to 1.8 million barrels of oil equivalent per day, but that business still provided more than 80 percent of the company's 2010 net profit.

Work on the separation will begin immediately, ConocoPhillips said, adding that the transaction does not need a shareholder vote.

The spinoff is subject to market conditions, regulatory approvals, and the receipt of a U.S. Internal Revenue Service ruling that approves its planned tax-free status.

It was not immediately clear which successor company would retain ConocoPhillips' 50 percent stake in Chevron Phillips Chemical Co. LLC, a joint venture with Chevron.

The venture, which makes plastics, brought in the lowest portion of ConocoPhillips' 2010 income -- $498 million.

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