ConocoPhillips to split into upstream, downstream companies

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, July 14 – ConocoPhillips plans to separate its upstream and downstream businesses into two stand-alone, publicly traded corporations via a tax-free spinoff of the refining and marketing business to ConocoPhillips shareholders.

The resulting exploration and production company will focus on oil and gas worldwide while the downstream company will focus on refining and marketing, primarily in the US although ConocoPhillips has some downstream operations abroad.

Marathon Oil Corp. completed the spinoff of its downstream business, Marathon Petroleum Corp., making Marathon Oil an independent upstream company based in Houston. Marathon Petroleum became an independent refiner based in Findlay, Ohio (OGJ, July 11, 2011, Newsletter).

Jim Mulva, ConocoPhillips chairman and chief executive officer, intends to retire upon completion of the ConocoPhillips split, which is expected to be finalized during the first half of 2012. Until then, he will continue to lead ConocoPhillips and to direct the separation efforts.

The separation, which does not require a shareholder vote, remains subject to market conditions, customary regulatory approvals, an affirmative ruling from the US Internal Revenue Service, the execution of separation and intercompany agreements, and final board approval.

The board has yet to determine a future management team, Mulva said. The existing management team is working to determine the allocation of assets between the upstream and downstream companies as well as determining the logistics of completing the separation, he said.

“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 July 14 conference call.

Noting that an integrated strategy was effective for past years, Mulva said the value of ConocoPhillips as an integrated international oil company is not being reflected in its stock values.

“The transparency and potential of the integrated business is not as clear as pure plays,” Mulva said. He believes the resulting upstream and downstream companies will have financial and technical capability “on par with larger integrated majors.”

Previously, ConocoPhillips said it is contemplating selling some refineries. Mulva said July 14 he had no specifics of how many or which refineries might be sold, and he said there was no timetable for those potential divestitures.

ConocoPhillips is the process of divesting $5-10 billion of assets, and Mulva said those efforts are ongoing along with other 2011-12 initiatives previously announced. When asked about Canadian oil sands production, Mulva said those operations would be part of the upstream company.

Contact Paula Dittrick at paulad@ogjonline.com.

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