News that ConocoPhillips will split into two parts, essentially cutting itself out of the refinery business and becoming the largest independent U.S. oil and gas provider in the U.S., took Wall Street by storm last week. Now that investors have had a few days to digest the news, what’s the financial impact of the Conoco split--and what should investors do about it?

The restructuring is a three-year deal where ConocoPhillips will come out at the end a very different company. The key step took place July 14, when the $160 billion, Houston-based oil giant announced that it would split its core businesses, refining and marketing, and exploration and production, into two stand-alone, publicly-traded corporations.

It's a classic upstream/downstream play, where ConocoPhillips seems to be playing one consistent revenue producer--exploration and production--against refining and marketing, which holds a riskier edge to it given the current oil and gas industry in an era of higher oil prices. Now ConocoPhillips is free to deploy more capital toward exploration and production, with the expected result more consistent earnings--a big factor for oil-stock investors.

In a statement from ConocoPhillips, the company said that its refining business will turn into a leading pure-play independent refiner with a competitive and diverse set of assets.

This is an excerpt from the ConocoPhillips statement:

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. Under the contemplated plan, both companies will be well positioned with financial strength and flexibility and experienced management teams committed to continued value creation.

That's an interesting description of what the split will look like for investors. ConocoPhillips has long embraced the notion that its stock is a solid value play for its shareholders.

If recent history is any guide--and it should be--that "value" sentiment is right on the money.

Some quick facts on ConocoPhillips' stock performance in the last year:

  • Stock price: (As of July 22, 2011): $75.25
  • 52-week trading range: $52.00 - $81.80
  • Average rate of return, July 2010 to July, 2011: 45.2%
  • P/E/ ratio: 9.12
  • Forward P/E ratio: 8.55
  • Earnings per share outlook (five years out): 5.40%
  • Dividend yield: 5.40%
  • Target price (estimated): $83.53
Five Key Takeaways

There is some precedent to think that ConocoPhillips' stock should rise, and potentially significantly. In January, Marathon Oil (Stock Quote: MRO) announced a similar split, and saw its stock price rise by 40%. On the day after the announcement, Conoco's stock did rise by 7.7% during trading (the highest number for the company since May, 2009). But it settled in at about a 1.50% for the trading session, not exactly a barnburner by Wall Street standards, where big moves come from big news.

Is that what's in store for Conoco stockholders once the spin-off takes place? Probably not. The 40% run-up by Marathon had as much to do with rising energy prices as much as any other factor, including any in-house operational overhauls.

So what does the split mean for shareholders? Here are five big potential influencing factors, right off the bat:

1. New management--Jim Mulva, chairman and chief executive officer, and the man behind the newly-reformed ConocoPhillips (the split is expected to be completed by the first half of 2012), will retire as soon as the ink is dry on the deal. For a company that loves value and continuity, bringing a new chief in after such a major restructuring may seem too risky for investors--especially new ones.

2. Higher – much higher – oil output--Mulva told reports on a July conference call that the company anticipates output to grow to 1.7 million barrels per day in 2011, and that's before the spin-off goes into play. Analysts say that number should rise significantly after the deal goes through in 2012. That should make ConocoPhillips the world's leading producer of oil. Apache Corporation (Stock Price: APA) currently has the highest output, using the first quarter of 2011 as a measuring stick. Apache had approximately 732,000 barrels of oil equivalent per day in Q1. Mulva says that ConocoPhillips expects an additional 800,000 barrels of oil per day by 2015.

3. Dividends will remain the same--ConocoPhillips also announced that its current dividend picture should remain the same: a 66-cent quarterly dividend. In addition, the company says that its planned $11 billion stock repurchase program is still on schedule to be completed this year.

4. Analysts' opinions remain unchanged--A survey of leading oil industry analysts by Thompson-First Call shows that of 16 analysts, recommendations break down as follows:

  • Strong Buy = 4
  • Buy = 6
  • Hold = 10
  • Underperform = 2
  • Sell = 0

Those numbers are largely unchanged from April, May and June, Thompson-First Call reports.

5. Last But Not Least? – CNBC’s Jim Cramer loves Conoco, calling it the "cheapest stock oil stock around." That's an up stock – it's going higher.

Big Value Play?

Conoco plans on pouring a ton of cash into its exploration and production activities during the next two years--$28 billion in 2011 and $15 billion each year through 2015. It looks like Conoco finally has a business plan that should resonate with investors, giving them the value play they've been hungering for all along.