ConocoPhillips to split into two; shares surge
NEW YORK (Reuters) - ConocoPhillips will split itself into two by spinning off its refining arm, the third-largest U.S. oil company said on Thursday, sending its shares up more than 7 percent.
With the move, ConocoPhillips becomes the first of the so-called super majors to shift away 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.
SPLIT IN 2012
Houston-based ConocoPhillips said it expected to complete the separation in the first half of 2012.
"We have concluded that two independent companies focused on their respective industries will be better positioned to pursue their individually focused business strategies," said Chief Executive Officer Jim Mulva, who will retire upon completion of the separation.
The decision to split comes amid rising confidence that global oil prices will remain strong for years to come as rising demand from countries such as China and India soaks up supplies.
Benchmark Brent crude oil prices averaged $117 a barrel in the second quarter, and forward prices show the market currently expects prices of about $106 by the end of the decade.
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.
Shares of ConocoPhillips were up 7.3 percent at $79.80 in early New York Stock Exchange trading.
(Reporting by Matt Daily, Michael Erman, Ernest Scheyder and Roy Strom in New York, Anna Driver in Houston and Krishna N Das in Bangalore; Editing by Maju Samuel and Lisa Von Ahn)