Conoco Moves For Break-Up To Enhance Value (COP, MRO, MPC, HFC, XOM, CVX)

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Looks like the whispers we were hearing yesterday about a split-up of some sort at oil major ConocoPhillips Corp. (NYSE: COP) were true. The company has announced this morning that it will spin-off its refining and marketing business in a tax-free transaction to Conoco’s shareholders.  Build the empire, dismantle the empire.

Shifting refining assets around is a popular game these days. Marathon Oil Corp. (NYSE: MRO) completed the spin-off of its refining operations in June into a new publicly traded company, Marathon Petroleum Corp. (NYSE: MPC). Holly Corp. completed its acquisition of Frontier Oil Corp. in late June as well, and formed a new company called HollyFrontier Corp. (NYSE: HFC). Marathon was primarily interested in boosting its refining capacity without having to build a new refinery, and Frontier was the likeliest candidate.

Conoco’s split does not require a shareholder vote and is expected to be completed in the first half of 2012. As soon as the deal is completed, CEO Jim Mulva will retire. Conoco said that the detailed work on the deal will begin immediately and that more details would be announced as the plan is worked out.

At the end of the first quarter, Conoco’s Refining & Marketing group held assets valued at $43 billion, about 27% of the company’s total. First quarter sales in the group totaled about $42 billion, about 74% of the company’s revenue. Net income from refining and marketing totaled $482 million, about 16% of the company’s total.

The refining business at Conoco, and other integrated oil majors like Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) has been very good recently. Refining margins have been strong, and the WTI-Brent spread has worked in favor of companies with onshore US production and inland refineries.

With refining margins still high and higher prices for crude coming soon, this is a good time for Conoco to make this move. The refining business is notoriously fickle so striking now is a good deal for shareholders.

Investors must agree, because Conoco shares are up about 11% in pre-market trading, at $82.59, a new 52-week high if it holds.

Paul Ausick