ConocoPhillips' 'Pure-Play' Split

Details on plan to separate into two standalone, publicly traded companies; Mulva to retire

Published in CSP Daily News

By
Greg Lindenberg, Online Editor

HOUSTON -- Following a similar move by Marathon Oil, major oil company ConocoPhillips yesterday said that its board has approved splitting the company into two standalone, publicly traded corporations--one focused on exploration and production, the other on refining and marketing--via a tax-free spinoff of the R&M business to ConocoPhillips shareholders.

As reported yesterday in a Morgan Keegan/CSP Daily News Flash, the separation is expected to be completed in the first half of 2012, at which time chairman and CEO Jim Mulva intends to retire.

"The downstream [image-nocss] part of the business doesn't support necessarily gaining access to new opportunities for resources around the world. ... When you look at the large, integrated oil companies, they are more difficult to value compared to the pure plays upstream and downstream," Mulva commented in a conference call yesterday.

"We believe more value is created in the formation of two very clear, standalone companies versus accomplishing our objectives of rationalizing our downstream within the integrated oil structure," he added. There is also "greater management focus," he said.

( Click here for a presentation on the separation.)

Earlier this month, Marathon Petroleum Corp. completed its transformation into an independent, downstream energy company, spun off from the now upstream-focused Marathon Oil Corp. ( Click here for previous CSP Daily News coverage.)

The separation of ConocoPhillips into two companies does not require a shareholder vote, it said. The separation is subject to market conditions, customary regulatory approvals, the receipt of an affirmative IRS ruling, the execution of separation and intercompany agreements and final board approval.

Following the completion of the proposed separation, ConocoPhillips will be a large and geographically diverse "pure-play" E&P company with strong returns and investment opportunities. The company's strategy of developing new resources, growing reserves and production and continuing its asset sale program will not change, it said.

As a separate company, the as-yet-unnamed R&M business of ConocoPhillips will be a leading pure-play independent refiner with a competitive and diverse set of assets. The new downstream company will pursue transactions and investments across the value chain, it said.

The downstream company may shut down, retool or sell some refineries, reducing its refining capacity, Mulva said on the call. It will have 8,000 branded marketing units. "We like our model of wholesale marketing," he said.

Under the contemplated plan, both companies will be well positioned with financial strength and flexibility and experienced management teams.

"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," said Mulva, who until his retirement will continue to serve as ConocoPhillips' CEO and lead the separation efforts. "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 work to determine the detailed allocation of assets and liabilities, the management and governance of the companies, and the mechanics of completing the separation will begin immediately.

ConocoPhillips is an integrated energy company with interests around the world. Headquartered in Houston, the company had approximately 29,600 employees, $160 billion of assets, and $226 billion of annualized revenues as of March 31, 2011.

Keywords: 
financial