ConocoPhillips: Creating a Dangerous Duo
ConocoPhillips released information today stating that they plan to split into two entities. One being the exploration and production side and the other a refining division. What exactly does this mean for the company and what should be expect to come from this? Christopher Helman gives us the run down on this big oil split and what it means for shareholders.
…The move makes good sense in terms of unlocking shareholder value. Despite its shares outperforming its supermajor peer groupby more than 25% in the past 18 months, ConocoPhillips’s enterprise value is just 5.5 times its expected 2012 ebidta, according to Tudor, Pickering & Holt. Compare that with an average 8 times multiple for large-cap E&P pure plays and 6 times for independent refiners…
…Even so, it’s hard to see Conoco competing in the long-run for access to big untapped fields controlled by foreign governments. That’s because its production, at 1.7 million bpd is significantly less than the world’s other publicly traded integrated supermajors.Exxon leads the pack with 4.8 million bpd, followed by BP at 3.6 million, Shell at 3.5 million, Chevron at 2.8 million and Total with 2.4 million bpd. Without the heft, Conoco will have a tough time getting the best projects…
…On the downstream side, Conoco will be the world’s biggest pure-play refiner, and in the U.S. it will be on par with Valero Energy. Conoco in its investor presentation today says it intends to make some selective sales of downstream assets. In a May presentation, Conoco indicated it would be most likely to shed its marginal refinery in Germany, as well as two in Pennsylvania and New Jersey. Those Atlantic coast refineries suffer from lower crack margins because of the historically high price of Brent cruderelative to West Texas Intermediate – Brent, at $117 a barrel is $20 higher than WTI.
Thus we won’t see sales among Conoco’s mid-continent assets — where refiners benefit from the glut of cheap oil building up at Cushing. The crack spread (or margin between what refiners pay for crude and what they fetch for gasoline and other products) for midcon refiners is higher now than it’s been for 25 years, at some $35 per barrel…
This split could be a fierce move for this company. They would not depend on any other companies and will be capable of only depending on themselves. Conoco’s CEO also stated that he will be leaving the company once the split is finalized. Will this effect the jump off point for the two entities? We will see.
Quotes taken from report by Christopher Helman, Read the entire article here.
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