By BEN LEFEBVRE
Murphy Oil says it can unlock hidden value by spinning off its
US fuel-making and distribution unit into a new company.
Recent experience by rivals Marathon Oil and ConocoPhillips
suggests it can be done.
The rationale behind such a move is that extracting oil and
gas is a very different business from turning crude into
gasoline and diesel and selling it.
At current oil prices, the upstream business has very high
margins, and high risks. Refining and marketing, which the
industry refers to as downstream, is lower-risk. But margins
are much lower and very vulnerable to high oil prices.
For ConocoPhillips, the May spinoff of its fuels, petrochemicals and pipeline
businesses into Phillips 66 has been a clear success, analysts
say. The two companies now have a combined market
capitalization of $98.5 billion, compared to
ConocoPhillips pre-split valuation of $92 billion.
Phillips 66 shares have climbed 35% since the company was
born, and management instituted a 25-cent dividend. Conoco
shares have been nearly unchanged during the same period,
closing at $56.79 on Monday.
The ConocoPhillips spinoff definitely created
value, said Brian Youngberg, broker at Edward Jones.
ConocoPhillips was a dime before the spinoff, and now
its two nickels, and the market likes nickels more than
Marathon Oil and its spinoff Marathon Petroleum currently
have combined market capitalization of $40 billion, up 13% from
Marathon Oil's pre-split value of $35.2 billion.
Marathon Petroleum has risen 46% since its inception in July
2011 while its dividend increased to 35 cents in the third
quarter. Shares of the standalone Marathon Oil closed down
Monday more than 9% since July 8, 2011, the first week after
Murphy announced Tuesday that it would jettison its ethanol refining segment, fuel distribution
businesses and retail gas stations into a new company so it
could focus its attention on improving its struggling oil and
gas exploration business.
Analysts at Simmons & Co. International said the move
could unlock $5 a share in enterprise value, or 8% of Murphy's
current share price.
The caveat about past performance not predicting future
gains holds, however.
"The spinoff is the easy part," Raymond James analyst Pavel
Molchanov said of Murphy's announcement. "The hard part is
taking the bulk of the upstream company and making sure that is
being run in a more successful manner."
Dow Jones Newswires