Oil giant ConocoPhillips said on Thursday it will split into two companies: one that produces oil and another that refines it into gasoline and other fuels.
The decision was celebrated by Wall Street analysts and investors, who see advantages to running smaller and more focused operations.
Shares gained US$1.53, about 2.1 percent, to US$75.93 in afternoon trading.
“This is so positive for them,” Oppenheimer & Co analyst Fadel Gheit said of the Conoco split. “Everyone should stick to one business.”
The move continues an about-face for a company that spent billions of US dollars during the past several years growing into the US’ third-largest oil company.
After snapping up Burlington Resources for US$35 billion and making multi-billion dollar investments in Russia’s Lukoil and the Rockies Express gas pipeline, Conoco was deep in debt. The company has been trying to shed assets since last year.
ConocoPhillips also said chief executive officer Jim Mulva will retire when the spin-off is completed.
Conoco’s refineries produced 2.3 million barrels per day of gasoline, diesel and other petroleum products in the first quarter, eclipsing other independent players like Valero Energy Corp. However, Valero is still bigger in terms of worldwide refining capacity.
The refining business is notoriously volatile. It makes money when the prices of products like gasoline, diesel and jet fuel outpace oil and manufacturing costs.
The trick is to refine crude as cheaply as possible and sell petroleum products in markets where they will generate the biggest revenue.
Refiners have had more success doing that this year. Conoco’s refineries earned US$482 million from January to March. They lost US$4 million in the same part of last year.
Valero earned US$98 million in the first quarter, compared with a loss of US$113 million a year ago.
Often, however, refineries struggle to pass on high crude costs to consumers. The industry was hammered by thin profit margins following record high oil prices in 2008, and many companies were forced to idle or sell underperforming refineries.
Mulva told analysts that the company examined sales, joint ventures and other avenues before deciding a spin-off of the refineries was best.
“We really absolutely are convinced this is the right thing for our company to do, and now is the right time to do it,” Mulva said in a conference call.
The company will continue to buy back US$11 billion in company shares this year.
The split creates a new, yet-to-be-named company that will be tailored to short-term investors who like the volatility of the refining business.
Mulva, 64, will oversee the spinoff before leaving the company next year.
The Houston-based company has about 29,600 employees. Conoco had US$160 billion of assets and US$226 billion of annualized revenue as of March 31.
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