Conoco Phillips' (NYSE:COP) upcoming restructuring into separate upstream and downstream entities is proceeding on schedule and is expected to be completed by the end of April 2012. To know more about oil and gas, read Oil And Gas Industry Primer.

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Separation
In July 2012, Conoco Phillips announced a plan to split into two separate publicly traded companies. The separation would be effected through a tax-free spinoff of the company's Refining and Marketing segment to Conoco Phillips shareholders. The new downstream company will be called Phillips 66, while the Exploration and Production segment will be retained by the company and operate under the Conoco Phillips name.

Conoco Phillips' shareholders will receive one share of Phillips 66 for two shares owned of Conoco Phillips. If the company receives the necessary regulatory approvals, the distribution date is expected to be Apr. 30, 2012, with the first trading date as separate public companies on May 1, 2012.

Largest Separation
The upcoming separation of Conoco Phillips into two entities is the largest effected in the energy sector in recent years, eclipsing the 2011 separation of Marathon Oil (NYSE:MRO), which spun out its refining businesses as Marathon Petroleum Company (NYSE:MPC).

A Look at Phillips 66
Phillips 66 is a domestic focused company with operations in the refining, chemicals and midstream areas. The company's refining and marketing businesses will dominate the new company and also generated 78% of Phillips 66's net income in 2011.

It owns 15 refineries, including 11 located in the United States. The company has 2.2 million barrels per day of refining capacity, making it's the second largest independent global refiner. Only Valero (NYSE:VLO), with crude oil capacity of 2.58 million barrels per day, is larger.

It also operates 10,000 retail marketing outlets to distribute its product and has 15,000 miles of pipeline in its network.

Phillips 66 plans to pay an annual dividend rate of 80 cents per share, and have net debt of approximately $8 billion. The company's debt to capitalization ratio will be about 30%, with the bonds rated near the bottom of the investment grade range.

Conoco Phillips
After the separation is complete, Conoco Phillips will be the largest U.S. based publicly traded independent exploration and production companies. Conoco Phillips estimates that 2012 production will be approximately 1.55 million barrels of oil equivalent (BOE) per day, with 8.4 billion BOE of reserves.

The company will aggressively explore and develop its oil and gas properties over the next few years and expects to generate 3 to 5% compound annual production growth through 2016.

The Bottom Line
The upcoming restructuring of Conoco Phillips into separate upstream and downstream entities is proceeding on schedule, according to management. The passage of time will solve the mystery of whether a separate focus on individual parts of the energy complex will lead to a long-term increase in shareholder value, or is just useless chicanery. For additional reading, check out A Guide To Investing In Oil Markets.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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