Tags: Conoco | Phillips | split | COP

Is Conoco Phillips Worth More Split Into Two?

By    |   Thursday, 17 Nov 2011 12:49 AM

As the third-largest integrated U.S. energy company, Conoco Phillips (COP) has been the laggard of its sector. To increase shareholder value, management has proposed an optimization plan which includes splitting the company into to two corporations. Investors must decide if the steps make the company worth more than current share value.

Conoco Phillips discovers, produces and refines crude oil and natural gas on a global basis. The gross profit results are divided up into profit from exploration and production (E&P), crude oil refining, midstream production of natural gas liquids and chemicals.

Metrics for ongoing comparison include average daily production in millions of barrels of oil equivalent (BOE) and the refining utilization rate. Changes in prices for crude oil and natural gas have the biggest effect on the final levels of profit.

For the 2011 third quarter, Conoco Phillips reported adjusted net income of $2.52 per share, up from $1.50 a year earlier. For the first nine months of the year, the adjusted net was $6.75, up from $4.60 in the same period of 2010.

In the third quarter average production was 1.54 million BOE per day, down from 1.72 million in Q3 2010. The average price received for crude oil was $97.24, compared to $69.25 a year earlier.

Repositioning assets

Conoco Phillips has initiated a program to increase value to shareholders. The program involves a steadily increasing dividend, aggressive share buybacks, and the eventual spinoff of the refinery business and other assets from the core E&P business.

The time frame for implementation of these programs is 2010 through 2012. Through the third quarter of 2011, 12 percent of the outstanding shares have been repurchased and the dividend is 32 percent higher than at the start of 2009.

The indication for the spinoff of the non-E&P portion of the company is mid to late 2012. The plan includes Conoco Phillips maintaining the dividend rate in effect as the spinoff adds another dividend stream.

The Wall Street analysts are themselves split on the value of Conoco Phillips. Brian Youngberg at Edward Jones reiterated his buy rating and likes the proposed repositioning plan. The analysts at The Benchmark Company recently reiterated their sell rating and believe the stock is $20 overvalued.

The company next reports on Jan. 27.

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As the third-largest integrated U.S. energy company, Conoco Phillips (COP) has been the laggard of its sector. To increase shareholder value, management has proposed an optimization plan which includes splitting the company into to two corporations. Investors must decide if...
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Thursday, 17 Nov 2011 12:49 AM
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