Conoco Phillips (NYSE:COP) has decided to split off its refining and other downstream assets into a separate public company, thus becoming the largest company in the Energy Sector to pursue this popular type of reorganization. (To learn more about stocks splits, check out Understanding Stock Splits.)
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The Facts
Conoco Phillips will engage in a tax-free spin off of the refining and marketing business to shareholders. The company still needs regulatory and final board approval, and expects the separation of the company to be completed by mid-2012.

Largest Separation
Conoco Phillips is the third-largest U.S. based-integrated oil and gas company with a market capitalization of $105 billion. Only Exxon Mobil (NYSE:XOM), with a market capitalization of $406 billion, and Chevron (NYSE:CVX), at $211 billion, are larger.

The largest previous reorganization of this type in the Energy Sector was completed in June, 2011, when Marathon Oil (NYSE:MRO) completed a similar separation and gave birth to Marathon Petroleum Corporation (NYSE:MPC). These two public companies have a combined market capitalization of $36 billion.

A Giant
The exploration and production assets of Conoco Phillips as a stand alone public upstream pure play would even dwarf some of the largest independent oil and gas companies. Apache Corp. (NYSE:APA) and Anadarko Petroleum Corporation (NYSE:APC) have market capitalizations of $46 billion and $38 billion, respectively. (For more information on the oil industry as a whole, see A Guide To Investing In Oil Markets.)

Upstream Summary
Conoco Phillips reported average production of 1.7 million barrels of oil equivalent (BOE) per day in the first quarter of 2011. The company reported adjusted earnings of $2.6 billion in the exploration and production business in that quarter. It's upstream operations are diversified geographically, with approximately 63% of its earnings generated from international operations, as Conoco Phillips, like most other major integrated oil companies, has extensive non-U.S. holdings.

Conoco Phillips is also diversified by commodity, with average oil and natural gas liquids production of 860,000 barrels per day in the first quarter of 2011.

Downstream Summary
Conoco Phillips reported adjusted earnings of $480 million in the refining and marketing business in the most recent quarter. Conoco Phillips has refining capacity of 2.4 million barrels per day, with approximately two million barrels of this capacity located in the United States. The company would be the second largest refiner in the United States, just behind Valero (NYSE:VLO), which has 2.1 million barrels per day of capacity. The company also has approximately 9,9000 marketing outlets in the United States and abroad.

The Bottom Line
Conoco Phillips has jumped onto the recent trend in the energy industry towards less integration and will jettison the company's refining and marketing segment through a spin off by the middle of 2012. These types of reorganizations have increased in number over the last year as managements respond to investor pressure and look for ways to increase shareholder value. (To better understand the oil and gas industry, check out Oil And Gas Industry Primer.)

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