Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Another Special Situation Within Big Oil

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

It appears that a trend that has been taking shape among integrated oil companies will continue when ConocoPhillips (NYSE: COP  ) , the third-largest U.S.-based member of Big Oil, figuratively oversees the divorce of its exploration and production business from its refining and marketing operation.

According to a conference call conducted by Conoco's CEO Jim Mulva on Thursday, the company's powers-that-be have concluded that the separation "was the best way to create value for our shareholders." With crude prices having moved steadily upward during the past couple of years, exploration and production (upstream) earnings have generally been robust, while refining and marketing (downstream) margins have been squeezed, creating in imbalance in the sectors' respective contributions to the integrated companies' earnings.

Marathon Oil (NYSE: MRO  ) was the most recent company to formally separate its upstream and downstream operations. Recently, the company exchanged one share of a new company composed of its refining and sales operations for every two shares held in Marathon Oil. The newly formed company, called Marathon Petroleum (NYSE: MPC  ) , operates from a Findlay, Ohio, headquarters, while Marathon Oil remains in Houston.

Among the two U.S. majors that are larger than Conoco, Chevron (NYSE: CVX  ) has been steadily trimming its downstream assets during the past couple of years, without fully separating the two operations. At the same time, ExxonMobil (NYSE: XOM  ) , the big enchilada of Big Oil, appears comfortable with its status as a fully integrated company.

For ConocoPhillips, the jettisoning of its downstream operations could be something of a coup de grace for a now two-year-old program to increase the value of the company's shares. During an active buying program in the past decade, the company accumulated considerable debt.

As a result, in 2009 it initiated an effort to reshape its balance sheet by selling at least $10 billion of non-core assets, along with its stake in Russia's big oil company, OAO Lukoil. The program was extended earlier this year.

Mulva intends to retire once the spinoff of the downstream operation is completed -- probably during the first half of 2012. The new refining company would have a throughput capacity of about 2.4 million barrels a day, placing it slightly ahead of Valero Energy (NYSE: VLO  ) regarding size supremacy in the group.

Among all the members of Big Oil, then, ConocoPhillips clearly leads the pack in recasting itself. As such, my inclination is to advise Fools with a yen for energy investments to keep a close eye on the company, but to permit the restructuring process to advance farther before grabbing your wallets with buy orders on your minds. There's not a better way to initiate such an effort than by adding Conoco to your version of My Watchlist.

Motley Fool newsletter services have recommended buying shares of Chevron. Try any of our Foolish newsletter services free for 30 days.

We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1519490, ~/Articles/ArticleHandler.aspx, 10/21/2016 5:15:18 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,162.35 -40.27 -0.22%
S&P 500 2,141.34 -2.95 -0.14%
NASD 5,241.83 -4.58 -0.09%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/20/2016 4:00 PM
COP $41.49 Down -0.23 -0.55%
ConocoPhillips CAPS Rating: ****
CVX $101.87 Down -0.40 -0.39%
Chevron CAPS Rating: ****
MPC $43.05 Up +0.40 +0.94%
Marathon Petroleum CAPS Rating: ****
MRO $14.70 Up +0.05 +0.34%
Marathon Oil CAPS Rating: *****
VLO $54.77 Up +0.23 +0.42%
Valero Energy CAPS Rating: ****
XOM $87.21 Up +0.04 +0.05%
ExxonMobil CAPS Rating: ****