Several companies in the energy sector are set to spin off or sell individual businesses in 2011, as they look for ways to focus in on core operations and possibly increase shareholder value. These companies are in various energy sub-sectors including exploration and production, refining, and drilling. Let's take a look at some companies that will be spinning off parts of themselves, and analyze what this may mean for both the parent company and its spinoffs. (For background reading, see Parents And Spinoffs: When To Buy And When To Sell.)
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Tesoro (NYSE:TSO), a company that refines and markets petroleum products, announced that it would contribute its logistics assets to a master limited partnership (MLP) structure and then sell part of that MLP to investors in an initial public offering. The company expects to receive $200 million in gross proceeds in the offering.
The assets that Tesoro is putting into the MLP include oil gathering pipelines, refined product terminals and other midstream assets in various parts of the United States. These assets are only a small part of the company, and the deal leaves Tesoro with seven refineries and a production capacity of 665,000 barrels per day - not to mention an extensive retail marketing operation.
Some of the logistics assets may be a platform for future growth for the MLP. The High Plains crude oil gathering system, which serves the Williston Basin in North Dakota and Montana, may see a benefit from the extensive development of the Bakken and other formations in that area. (For insight on investing in MLPs, read Discover Master Limited Partnerships.)
Other refiners in the past have also been involved in similar actions. Valero (NYSE:VLO) acquired ownership of a logistics business in 2001 through the purchase of Ultra Diamond Shamrock. Valero started out as the majority owner of this business and reduced its ownership slowly over time before a final separation by the end of 2006. The company later changed its name to NuStar Energy L.P (NYSE:NS).
Similarly, Sunoco (NYSE:SUN) announced in June 2010 that it would separate SunCoke Energy, the company's metallurgical coke operation, from the rest of the company sometime in 2011. Metallurgical coke is used in the process of making steel and is growing faster than other Sunoco businesses. Sunoco later postponed this separation due to pending litigation with Arcelor Mittal (NYSE:MT) regarding coke pricing.
Exploration and Production
Forest Oil (NYSE:FST) recently announced that the company would contribute its Canadian assets to Lone Pine Resources, a newly created company, and sell 19.9% of Lone Pine Resources to the public sometime in 2011. Forest Oil intends to eventually conduct a tax-free spinoff of the balance of Lone Pine Resources.
Rowan Companies (NYSE:RDC), which is primarily a contract driller, has toyed with the idea of separating its rig manufacturing business from the rest of the company. LeTourneau Technologies has built many of the industry's offshore rigs, and might be worth up to $1 billion, according to Barclays Capital.
The Bottom Line
In 2011, a number of companies in the energy sector are poised to separate businesses that are considered non-core to the company. This is being done to sharpen focus and increase shareholder value. (For related reading, take a look at Cashing In On Corporate Restructuring.)
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