Fuels

BP Breakup Scuttlebutt

Split could be worth $100 billion; company resists following ConocoPhillips, Marathon

[UPDATE: BP Plc CEO Robert Dudley said in a BloombergTV interview today that "all options" are possible including a refining spinoff as Europe's second-biggest oil company reported earnings that missed analysts' estimates. "We are open to all kind of ideas, but they have to be ones that build long-term value for shareholders, not a short- term pop," Dudley told the news agency. "We will continue to look at those options."Click here for more.]

LONDON -- Robert Dudley could unlock $100 billion for BP Plc investors by following ConocoPhillips and splitting up Europe's second-biggest oil producer, said Bloomberg. BP, trying to recover from last year's Gulf of Mexico disaster, has lagged behind its three larger rivals this year. Conoco's decision to split its refinery arm from its exploration and production business led analysts at banks including UBS AG, Bank of America and JPMorgan Cazenove to recommend BP look at a similar move, said the report.

CEO Dudley's efforts to revive BP have been undermined by a failed exploration deal with Russia's OAO Rosneft and the prospect of billions of dollars of fines from the spill. JPMorgan Cazenove said BP's assets are worth about 800 pence a share, equal to a total market value of about $248 billion. The company currently trades at about $147 billion.

"On a sum of the parts basis, BP is ludicrously undervalued," JO Hambro Capital Management Group Ltd.'s Clive Beagles told the news agency. "Perhaps that means they need to take as radical a route as ConocoPhillips, or articulate a better strategy."

ConocoPhillips's spinoff plan follows a similar move by Marathon Oil Corp. Shares in Houston-based Marathon have gained 23% since it announced its split on January 13 even as a new refining company with a market value of $14.4 billion was created.

(Click here for previous CSP Daily News coverage of the ConocoPhillips split. Andclick here for coverage of the Marathon split.)

BP shares are down 28% since the oil spill in the Gulf, compared with a 13% gain for shares of larger rival Royal Dutch Shell Plc over the same period.

BP spokesperson Robert Wine said the company has no plans to split up its downstream refining and marketing operations and upstream exploration business.

"The principle of a split deserves a good airing," Ivor Pether, a fund manager at Royal London Asset Management, told Bloomberg. "The U.S. government would block any such proposal while Macondo [oil spill] liabilities are outstanding, but there are enough notes out there on the possibility to merit a considered response."

"Conoco spinning out downstream activities keeps the debate going about the benefits of integration," Tim Mann, a fund manager at Legal & General Group Plc, told the news agency.

BP has spent more than a decade paring down its refining arm because of overcapacity in Europe and the United States, the report said. BP plants can process about 2.7 million barrels of crude a day, down from 3.2 million barrels in 2000. The proposed sale of two of its five U.S. refineries will subtract about another 700,000 barrels of capacity.

"Once they've sold Carson and Texas City, they won't have much refining left and it would be difficult to exit completely," Iain Armstrong, an analyst at London-based broker Brewin Dolphin, told Bloomberg. "Why not break up into various upstream businesses? Bob has steadied the ship, but it should be doing better than this."

Since taking over in October, Dudley has overseen the sale of $25 billion upstream assets in Argentina, Colombia, Pakistan and Vietnam and said he will focus the company on exploration. He signed a $7 billion deal with Reliance Industries Ltd. to explore offshore India. The proposed $8 billion tie-up with Rosneft to explore Russia's Arctic Kara Sea was blocked by the billionaire partners in the TNK-BP venture.

"Splitting up an oil company can make for quicker decision times as well as sharper capital and other resource allocation," Andrew Steinhubl, a partner at management consultant Bain & Co. in Houston, told the news agency. "Whether the model fits for the larger companies remains to be seen."

(Click here for previous coverage of BP breakup speculation.)

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