ConocoPhillips announced on July 14 that it intends to split itself into two companies, spinning off its refining segment to shareholders by the first half of 2012.

The third largest integrated energy company in the U.S., ConocoPhillips had previously indicated intentions to divest downstream assets, keeping with the rationale that downstream capacity is not critical to resource attainment. The spin-off is consistent with these past remarks, as the two newly created independent and publicly traded companies will be able to apply a more precise concentration on their respective industries.

"We have concluded that two independent companies focused on their respective industries will be better positioned to pursue their individually focused business strategies," said Jim Mulva, ConocoPhillips chairman and chief executive officer, in a statement. "Both companies will continue to benefit from the size and scale of their significant, high-quality asset bases and free cash flow generation, allowing them to invest and create shareholder value."

The ConocoPhillips name will remain attached to the upstream sector. The business "will be a large and geographically diverse pure-play exploration and production company with strong returns and investment opportunities."

On the other hand, the new refining and marketing company is set to become the largest U.S. independent refiner and fifth largest refiner in the world.

"In addition to executing the company's initiatives to improve downstream returns through portfolio rationalization and other operating efficiencies, the new downstream company will be able to further position its portfolio by pursuing transactions and investments across the value chain," Mulva said.

Upon the formal separation of ConocoPhillips next year, Mulva will retire as chief executive. Until then, he will continue to manage preparations for the split.

The approval of the separation did not require a shareholder vote.

According to Loren Steffy of the Houston Chronicle, crack spreads ultimately led to the division of exploration and refining within ConocoPhillips. Essentially the disparity between the cost of crude oil and refined products, the spread is currently the widest it has been in 25 years--more than $35 a barrel according to Bloomberg. That being said, it is possible that ConocoPhillips believed its stock did not adequately reflect the value of the two sectors. Splitting the companies would make each of them worth more individually than as an integrated enterprise.

A Simmons & Co. International appraisal of the transaction concluded it to be positive, as it will provide investors with improved options. However, the firm does not expect the separation "to unlock substantial value within the ConocoPhillips share price."

Meanwhile, Morgan Stanley Research analyst Evan Calio maintains that ConocoPhillips has been one of the most active companies in unlocking value, clarifying its business strategy and one of the first restructuring stories in one of the most defining investment trends in energy in the last two years.

"We believe the company is in a much better competitive position than in mid-2008," Calio wrote in a July 14 research note. "Today's announcement is the culmination of this restructuring effort, in our view. We believe Jim Mulva has improved the competitive position of [the company] and helped define his legacy: his announced retirement pending completion of this separation is the culmination of this strategy. However, we believe the stock price reflects the improved valuation."

On the day of the announcement, the company's shares were trading around $76.18 mid-day, up from the previous day's adjusted closing price of $74.40.

Contact the editor, Rhonda Duey, at rduey@hartenergy.com.