Energy giant ConocoPhillips will split itself into two companies by spinning off its refining business, following a move made by firms such as Marathon Oil earlier this year.
After the split, ConocoPhillips will be a pure-play exploration and production company and the company’s Chairman and CEO Jim Mulva will retire.
The refining company, which has not yet been named, will be the second largest standalone refiner in the U.S. behind San Antonio-based Valero, according to the company. (see Conoco’s presentation on the plan below)
As a E&P firm ConocoPhillips will rank 6th among non-government owned global firms, behind ExxonMobil, BP, Shell, Chevron and Total, and ahead of U.S. independent Apache.
“Consistent with our strategy to create industry-leading shareholder value, we have concluded that two independent companies focused on their respective industries will be better positioned to pursue their individually focused business strategies,” Mulva said in a statement. “Both companies will continue to benefit from the size and scale of their significant high-quality asset bases and free cash flow generation, allowing them to invest and create shareholder value in a changing environment.”
The tax-free spin off is expected to be completed in the first half of 2012.
ConocoPhillips’ multi-billion dollar share repurchasing programs and plans to sell off some refining assets will continue, Mulva said in a Thursday morning conference call.
What remains up in the air, however, is the make-up of the two companies’ boards of directors and management teams, as well as where the existing chemical joint-venture businesses will land.
ConocoPhillips, which is Houston’s largest company by revenue, has about 29,600 employees, $160 billion in assets and $226 billion in annualized revenues as of March. As of earlier this year, ConocoPhillips had more than 3,700 employees in Houston.
ConocoPhillips’ shares jumped $3.60, or 4.8 percent, to $78 in premarket trading as the news of the split broke. To check ConocoPhillips’ stock click here.
Last year, the company took a series of steps to boost its value and bottom line. It sold $7.1 billion in noncore assets, including its 9 percent interest in Syncrude for $4.6 billion. It also cut its debt by 18 percent to $23.6 billion.
As a stand-alone business, it will be the largest independent refiner in market value in the world, Oppenheimer & Co. analyst Fadel Gheit told the Associated Press this morning.
“This is so positive for them,” Gheit said. “Everyone should stick to one business.”
ConocoPhillips was formed in 2002 from the $25 billion merger of Phillips Petroleum Co. and Conoco Inc., creating the third-largest U.S. oil company. The deal came about in an era when conventional wisdom said companies needed to grow bigger to compete on a global stage, and growth through acquisition was the best strategy.
A downturn in the refining business in recent years has made that strategy seem less attractive for some firms, however.
Mulva said in the morning conference call the split into two seperate businesses gives management the ability to better focus on their particular industries while giving investors greater clarity and choices.
“Investors have a better ability to overweight or underweight their postions in upstream or downstream under this plan,” Mulva said.
Some analysts on the call seemed to question the timing of the move.
One analyst said in past conference calls Mulva seemed to give the impression that the refining business wasn’t strong enough to stand on its own. Mulva said that was never his intent.
Another wondered if the move was coming at the tail end of a time when investors are willing to pay premiums for stand-alone firms.
The spin-off move wasn’t triggered by anything that happened in the market in the recent past, Mulva said.
“It was an evolving process,” he told analsyts. “We’ve been on-and-off working on this over the years, but the curent [spin-off plans] came about in the fall of last year.”
During the Q&A portion of the call analyst Doug Legate quipped to Mulva: “Congratulations on what looks like a great way to move into retirement.”
To see time line of ConocoPhillips’ rise to the top, click here.
Houston Chronicle business editor Laura Goldberg contributed to this report.