BP Should Weigh Spinoff After Conoco Split, UBS, JPMorgan Say

BP Plc (BP/), Europe’s second-largest oil company, came under pressure from analysts to follow ConocoPhillips (COP) and spin off its refining business as the shares struggle to recover from last year’s Gulf of Mexico spill.

ConocoPhillips said yesterday it will become two separate, publically traded companies by the end of next June, lifting shares as much as 7.7 percent, the biggest intraday gain in two years. BP has dropped 30 percent since the blowout at the Macondo well in April 2010 that triggered the worst U.S. spill.

That leaves BP trading at a 44 percent discount to the sum of the parts of its business, compared with an average discount of 27 percent for the world’s biggest oil companies, according to Fred Lucas, an analyst at JPMorgan Cazenove. UBS AG and Bank of America-Merrill Lynch also argued today that a refining spinoff would unlock value in London-based BP.

“We first proposed that BP pursue an upstream-downstream split back in 2006,” Lucas wrote in an e-mailed note. “The pressure, both peer-group and shareholder-related, to revisit this idea might have just increased several atmospheres.”

BP Chief Executive Officer Robert Dudley has sold $25 billion in assets since the spill and plans to dispose of half the company’s U.S. refining capacity to shore up the company’s balance sheet. Dudley has signed exploration deals with India and pursued an accord with OAO Rosneft in Russia that was blocked by BP’s billionaire partners in the TNK-BP venture.

BP has no plans to spin off its refining business, company spokesman Robert Wine said today.

Marathon Oil

Conoco’s move yesterday followed Marathon Oil Corp. (MRO)’s decision. Through yesterday’s closing price, Marathon’s spinoff of its refinery network, completed June 30, has yielded shareholders a 110 percent bonanza since it was announced in January.

“If any company were to mirror this transaction, it might be BP,” said Jon Rigby an analyst at UBS. “BP has traditionally been strategically bold and it’s on a large net asset value discount. The exploration and production and refining and marketing businesses would be very material companies in their own right and have critical mass, know-how and brand.”

OMV AG (OMV), Royal Dutch Shell Plc (RDSA) and Total SA (FP) are also well- placed for spinoffs, BofA-Merrill Lynch analyst Alejandro Demichelis wrote.

“The first move could come from BP as its underperformance and its wider discount to net asset value could force management to act on this front,” he said.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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