So COP has decided to spin off its downstream business into another company. What do you guys think of this?
Obviously the refining business is not nearly as profitable as the E&P side, and the capital intensive nature of refining also makes it that much less appealing. Marathon just recently spun off its refining arm and are doing relatively well.
With oil prices predicted to stay high, I think this might become an attractive option for the other intergrated IOC's.
Do you guys see this happening at Exxon, Chevron, BP, etc.??
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Otherwise seems like an interesting play, but it seems like they should be levering the refining side more than the E&P. It just doesn't seem optimal for the refineries to be all equity financed with all that capital to borrow against.
Or am I talking out my ass?
I don't think they have the need to lever up the refining side. I think this move is to just shake clean the balance sheet of underperforming assets. Only when they shore up these assets can they go out and rub shoulders with the big boys. I think the next ten years will be EPIC for E&P in general. COP has one of the highest refining capacities out of their peer group, they improved their refining position over the years for strategic purposes (to gain access to foreign oil reserves). Now that the National Oil Companies (NOC's) have developed their own downstream technologies, I think it will only benefit them (COP) to clear these assets off of their balance sheet.
I think now they're thinking of expanding their reserves at all costs. It should be interesting to see how it all plays out next. Marathon made this announcement last year, but now one of the supermajor makes the same move. It should be interesting to see what happens next...
Great points. Excellent time to be in energy.
I don't see XOM going this route.
And actually, though more cyclical than E&P, refining is killing it right now. Much stronger margins of late.
Then why split the two? Doesn't having the capability to do all sides (E&P as well as refining) reduce your risk as a company? Yes it limits the highs but doesn't it limit the lows if prices fall as well or am I looking at this all wrong?
Really? because off the top of my head MPC has $62 billion in TTM revenue in $2.5bn in trailing operating profit. MRO had $11bn in trailing revenue and $4bn in trailing operating profit. That is roughly 4% operating margins for the midstream and refining business and 35% operating margins for the upstream business. I know MPC is not a pure refining play ie Valero, but I doubt any refiner has better margins than an upstream business of similar quality.
I second that
[quote=pacman007]So COP has decided to spin off its downstream business into another company. What do you guys think of this?
Obviously the refining business is not nearly as profitable as the E&P side, and the capital intensive nature of refining also makes it that much less appealing. Marathon just recently spun off its refining arm and are doing relatively well.
With oil prices predicted to stay high, I think this might become an attractive option for the other intergrated IOC's.
Do you guys see this happening at Exxon, Chevron, BP, etc.??
http://www.bloomberg.com/news/2011-07-14/conocophillips-to-spin-off-ref…]
Refining overcapacity, thats the main reason.
http://finance.yahoo.com/news/Refining-Overcapacity-Will-twst-269119174…
Do you guys see this happening at Exxon, Chevron, BP, etc.??
ExxonMobil: Never Chevron: Possible BP: To pay the bills, why not
The question is who buys refineries ? Its Valero and state-owned petroleum companies like PEMEX and Lukoil
What do you guys think about natural gas in the next 4 years?
Huge profits.
Interesting. I read an article in the NYTimes a while ago about this growing trend in the industry..apparently it's been producing great results for the companies that have done it thus far, with Marathon being the most well-known example. I was under the impression though that these companies were just separating the two as different subsidiaries, not completely selling them off..whereas COP seems to be selling it completely, no?
edit: found it (scroll down a little). good read on the topic-- http://www.nytimes.com/2011/02/18/business/18views.html
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