COP spikes 7 Percent: Will Split Downstream / Upstream

Updates

July 19, 2011: Upside Less Than Expected, SeekingAlpha.com

Analysis:  COP gives up "super-major dream."

ConocoPhillips has hit on a neat trick for dealing with its unwanted oil refineries at a time when plenty of plants are on the block and there are few buyers: it has decided to give them away.

Is it the unwinding of the supermajor movement from the late 1990s that saw the biggest oil companies race to bulk up, arguing they needed massive scale to tackle costly projects like deepwater and oil sands?

Is it also an admission that the Golden Age of refining, which saw even the least efficient U.S. refineries become hugely valuable as fuel demand soared before collapsing in 2008, is at an end?

It's hard to say, but there seems to be more at play here than just responding to equity investors' demand for more "pure play" companies. Refining may be struggling but in some places, like the U.S. Midwest, it is again enormously profitable.

Certainly all the supermajors, even ExxonMobil, are selectively cutting refining.

Shell, Chevron and Total have all closed or sold refineries in Europe recently and BP is exiting much of its U.S. portfolio after cutting back sharply in Europe.

But they all seem to see some value in retaining at least their best performing refineries.

Attribution: The original post was slightly incorrect. Technically "Don" was the first to alert me to the story. I happened to read "Charley's" e-mail first but they both sent me the news, almost at the same time, but "Don's" was there a few minutes earlier. I just hadn't gotten to it.

Connecting the dots: There are some interesting perspectives on why MRO and COP might be doing this (splitting upstream/downstream).

Remember this story back in 2008? XOM to sell its branded service stations? I think there are dots to connect among these stories, this one involving XOM, MRO, and COP. Remember, XOM is considered the best strategic player among "Big Oil."

Original Post

Link here. And here.

ConocoPhillips led gains in the sector, rising 6.6 per cent to $79.34 after the company announced its plan to split its refining and production businesses into two different publicly traded companies.  

“We estimate the value range on a split-up is between $73 and $92 per share. Essentially, we see little downside to owning the stock at current levels. Overall, we estimate we can comfortably get to $80 per share on a break-up value”, said Faisel Khan and analyst with Citi investment research.
COP in the Bakken, one of the bigger players -- I believe the number one producer through its subsidiary BR.

MRO recently announced same split (upstream/downstream). Will others follow? Do bears ... ?

More on this later.

A big "thank you" to Charley for alerting me to the story. I would have eventually seen it but I'm behind all the rest of you because a) I'm in Los Angeles (time difference); b) I am sleeping in late due to staying up late; and, c) I'm away all day with family.

Bear with me.