The decision was cheered by Wall Street analysts and investors who see advantages to running smaller, more focused operations.
In this March 8, 2008 file photo, clouds hover over a Conoco service station in Glenrock, Wyo. ConocoPhillips, the nation's third-largest oil company, said Thursday July 14, 2011 it will split itself into two separate publicly traded companies and its CEO and Chairman Jim Mulva plans to retire once the transaction is complete.NEW YORK — ConocoPhillips, the nation's third-largest oil company, said Thursday it will split into two companies: one that produces oil and another that refines it into gasoline and other fuels.
The decision was cheered by Wall Street analysts and investors who see advantages to running smaller, more focused operations. Shares jumped $3.11, about 4.2 percent, to $77.51 in morning trading.
"This is so positive for them," Oppenheimer & Co. analyst Fadel Gheit said of the Conoco split. "Everyone should stick to one business."
Conoco has talked about scaling back its refining business, but had previously balked at a spin off. Gheit said that company officials likely changed their mind after seeing how successful Marathon Oil was at spinning off its refining operations.
Marathon's stock jumped 30 percent after it announced the split in January. On July 1, Marathon Petroleum Corp., the refining company, began trading on the New York Stock Exchange under the "MPC" ticker symbol.
Conoco's move likely creates the largest independent refiner in the world, Gheit said. 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.
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 find a way to refine crude as cheaply as possible and sell petroleum products in markets where they'll generate the biggest revenue.
Refiners have had more success at that this year. Conoco's refineries earned $482 million in the first three months. They lost $4 million in the same part of 2010.
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.
Conoco's chief executive and chairman, Jim
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 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.
"It's much less predictable," Argus Research analyst Phil Weiss said.
The split is expected to be a tax-free transaction that does not require shareholder approval. It's expected to be completed during the first half of 2012.
Mulva plans to retire when the spin-off is completed. Mulva, 64, has spent most of his career with the company, starting 35 years ago with Phillips Petroleum Co. He has been CEO at ConocoPhillips since 2002.
The Houston-based company has about 29,600 employees. Conoco had $160 billion of assets and $226 billion of annualized revenue as of March 31.