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					Exxon, Chevron draw spinoff talk after Conoco move
By Steve Gelsi, MarketWatch
NEW YORK (MarketWatch) — Now that ConocoPhillips is spinning off its refining business, analysts
are pondering whether the U.S.’s two largest oil companies may similarly dismantle themselves.

Exxon Mobil Corp. XOM +0.39% and Chevron Corp. CVX -0.40% , the largest U.S. oil companies by market
capitalization, bulked up through acquisitions in the 1990s, which marked the birth of the super-major oil
company.

On Thursday, ConocoPhillipsCOP +1.63% , the third-largest company, said that model no longer meets its goal
of delivering extra value to its shareholders and charted a course to become two stand-alone companies with
clear, separate business lines. See story about ConocoPhillips spinoff.

Earlier in July, Marathon OilMRO -1.29% took a similar route by creating Marathon Petroleum Corp.MPC -
3.30%   , a new, independent refining company.




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Fred Labatt, director of equity research for South Texas Money Management Ltd., said the spinoff “made a lot
of sense” for Marathon Oil because its exploration side was undervalued.

So, too, a ConocoPhillips without its refining unit could earn a loftier valuation based on its stakes in the
liquids-rich Eagle Ford region of south Texas and other properties, he said.

But he pointed out that the oil-production business of Exxon Mobil and Chevron doesn’t offer the same kind of
growth rate as a company that focuses only on production.

Therefore, a stand-alone crude oil production unit wouldn’t command a loftier price-to-earnings ratio for
Exxon and Chevron, he said.

“I don’t know if you’d get a huge markup for Exxon and Chevron the way Marathon and ConocoPhillips did,”
Labatt said. “The large integrateds don’t have the production growth to justify stand-alone valuations.”
For production growth, Labatt said he favors smaller-cap companies such as Denbury Resources Inc. DNR -
2.47%   and Pioneer Exploration PIEX +260.00% .
Instead of spinning off their entire refining businesses, the oil majors are selling off some downstream units to
lift valuations, he said.

For example, Chevron is selling its 270,000 barrel-per-day Pembroke refinery in Wales to Texas-based Valero
Energy Corp. VLO -2.67% for $730 million, plus an estimated $1 billion for inventory and other items.
Mike Breard, an energy analyst for Hodges Capital Management, said “it would make sense” for Exxon and
Chevron to split off their refining businesses because of conflicts between the business types.

“Refiners buy oil to make into gasoline and they want oil to be as cheap as possible, but oil exploration and
production companies want oil to be as expensive as possible,” Breard said.

Overall, the gasoline-making business faces challenges from the wider use of biofuels, the potential of natural
gas as transportation fuel and the rising popularity of cars that run on less gasoline, he said.

“I’d rather see a refining pro running a refining company and an oil pro running an oil company,” Breard said.
“I guess Exxon and Chevron will see how Marathon and ConocoPhillips shares perform after the spinoffs and
then that will help them make up their minds.”

Chevron spokesman Lloyd Avram said the San Ramon, Calif.-based company “is committed” to its integrated
business model.

“We believe it is central to our value proposition and executing our long-term growth strategy,” Avram wrote
in an email to MarketWatch.

An Exxon spokesman could not be reached for comment on Thursday.

On its April 28 conference call with analysts on its first-quarter results, Exxon Mobil vice president David
Rosenthal said the Irving, Texas-based company continues to “leverage our unparalleled global integration”
which is helping it to “maximize long-term shareholder value.”

				
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posted:7/14/2011
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