HOUSTON -- In the last decade, ConocoPhillips CEO Jim Mulva achieved a feat with few equals in modern U.S. corporate history: creating a new oil major, almost from scratch. Now, as he prepares to retire next year, Mulva is presiding over the disintegration of his signature achievement--selling assets and splitting Conoco into two publicly traded companies, reported The Wall Street Journal.
The move was announced earlier this month and projected to be completed in the first half of 2012. (Click here for previous CSP Daily News coverage of the split.)
Mulva, 65, is the last of a generation of CEOs who presided over the megamergers that joined Exxon and Mobil, Chevron and Texaco and BP and Amoco. Yet even at its peak, Houston-based Conoco fell well short of the scale of the world's largest oil companies. And its rapid rise left it saddled with debt that hampered its ability to compete with bigger, cash-rich rivals.
Some experts said the breakup of Conoco was as much a result of Mulva's acquisition strategy, and resulting debt, as it was of changing market dynamics. Mulva sees it differently.
In a recent Journal interview, he said he built Conoco into a giant to compete better on a global stage, at a time when being able to both produce and refine eased access to international reserves. But that has changed with greater competition, notably from state-owned companies and declining fortunes for refined petroleum products, he said.
After a decade of aggressive growth, Mulva concluded the pieces of his 2001 creation were worth less together than on their own. He believes Conoco's core businesses--finding and producing oil, and turning it into gasoline--will be more competitive and more highly valued as separate companies. "ConocoPhillips today is not understood or well appreciated in the marketplace," he said."I would say it's not just ConocoPhillips; I would argue it's all of these international oil companies."
A decade ago, Mulva was preaching the benefits of integration and scale. Soon after Mulva's Phillips Petroleum Co. and Conoco Inc. agreed to merge in November 2001 to create the world's sixth-largest oil company by reserves, he told analysts: "So what have we really created? Well, we've created a world-class, new integrated major."
Philip Weiss, an Argus Research analyst, told the newspaper that it is difficult to imagine the new ConocoPhillips could have achieved the size and reach of its largest integrated peers. It came into being much later than its larger rivals, and in 2002 it had only 4.63 billion barrels of proven crude reserves, compared with 8.67 billion for Chevron Corp. and 11.82 billion for Exxon Mobil Corp."You can make a decent argument that they had ambitions, but they didn't pan out," Weiss said.
Mulva beginning his career in Phillips' treasury in 1973 and rose to the top job in 1999, said the report. He began his spree of major acquisitions while at the helm of Phillips, best known for its Phillips 66 brand of gasoline. Some moves mystified analysts, as when Phillips bought Tosco Corp. in 2001 for $7.49 billion, boosting its refining capacity at a time when Mulva said he wanted to expand the exploration-and-production business.
In its biggest buy, ConocoPhillips acquired natural-gas producer Burlington Resources for $35.6 billion in 2005. It proved a strategic miscalculation, as the industry went on to unlock previously unrecoverable natural-gas deposits, flooding the market and pushing down prices.
The company took a $34 billion charge against fourth-quarter earnings in 2008, essentially admitting assets it acquired had lost value. The global recession led Conoco to lay off 4% of its workforce in 2009. (Click here for previous coverage.) Mulva began to shrink the company to shore up its balance sheet. (Click here for previous coverage.)
Conoco sold $7 billion in assets in 2010 and plans to sell up to an additional $10 billion over the next few years.
Mulva said he believes splitting up Conoco will take the stock even higher, but others disagree.
"This decision was motivated by what Marathon did," Mark Gilman, an analyst for Benchmark Co., told the paper.
In January, Marathon Oil Corp. said it would spin off its refining arm into a publicly traded company. (Click here for previous coverage.)
Marathon, Gilman said, was able to unlock value from its split, completed last month, because its stock was trading at a significant discount to integrated peers; Conoco's stock, on the other hand, was at parity with its peers.
Conoco's move, announced July 14, has prompted debate over whether the split heralds the sunset of the integrated business model for oil companies, the dominant structure of the industry's giants since John D. Rockefeller built Standard Oil into a global power.
On Tuesday, BP CEO Bob Dudley said he would not rule out a spinoff of BP's refining operations. (Click here for previous coverage.)
"In a sense, it is a shocking decision because they did catapult themselves into being one of the very largest majors," Richard Rumelt, who specializes corporate strategy at the University of California-Los Angeles' Anderson School of Management, told the Journal concerning ConocoPhillips' breakup. "But being big isn't always the same as having the most value," he added. "If Mulva knows what he's doing, then this tells us that the economics of integration are overrated."
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