Following a record year for earnings and reserve additions forConoco, its parent, DuPont, is selling the company to focus onother businesses.

Analysts were not surprised by the move. In fact, some wonderedwhat took the company so long. “That’s something they’ve [talkedabout] for a long time and they’re finally acting on that,” saidCarol Freedenthal of Houston-based Jofree Corp. “I guess they’vejust got better places they can put their money than the oil andgas business.”

Edward Jones chemical analyst Bill Fiala said the move seemedimminent about a month ago after restructuring within DuPont didnot include Conoco. “I think the writing was on the wall at thatpoint,” he said. “I think it’s good for Conoco and good for DuPont.I think if Conoco’s ever going to thrive, it needs to be a littlemore independent and a little more agile.”

DuPont said it will offer up to 20% of wholly owned Conoco’scommon stock to the public in an initial public offering (IPO). TheIPO, which will be one of the largest in history, is the first stepin DuPont’s planned total divestiture of Conoco.

“Conoco has been a strong contributor to DuPont’s earnings andcash flow for nearly 17 years,” said DuPont CEO Charles O. HollidayJr. “However, we believe that value and growth can be enhanced forDuPont’s materials and life sciences businesses and for Conoco byseparating the two operations. We are building on our 10-yearstrategic direction, and intensifying our focus on life sciences,making it imperative that we rapidly accelerate our investment tocapture market opportunity and increase shareholder value.”

Holliday said DuPont intends to divest its remaining interest inConoco as soon as practical in the form of further stock offeringsor a spin-off to shareholders.

Last year Conoco earned $1.074 billion – its best year ever -and set a record for reserve additions, adding more oil and gasproved reserves to worldwide inventories than during any other yearin its 123-year history.

Domestic gas reserves increased to 2.9 Tcf, up 19%, primarilydue to reserves added through the acquisition of gas properties andrecent drilling in the Lobo Trend in South Texas near Laredo. The1997 reserve additions, plus future additions from the six-yeardrilling program underway in the region, are expected to expanddomestic gas reserves by 1.8 Tcf, which is 70% of the company’s1996 domestic proved gas reserves.

“An IPO gives us maximum flexibility. DuPont will have access tocash from the IPO and at the same time will benefit from Conoco’son-going financial contribution as we consider the options fordivestiture,” Holliday said. “Given this, as well as Conoco’s plansfor the future, the time is right for Conoco to be given theopportunity to operate as an independent entity.”

Edward Jones energy analyst Kate Warne agreed. She noted oilprices have rebounded somewhat recently, and, even so, “most largeoil companies, which Conoco will trade like, are affected by oilprices, but not as much as drillers or the oil service companies.”

While the move was viewed favorably by analysts, Standard &ampPoor’s CreditWire found some concerns for DuPont, at least in thenear-term. “Conoco, over time, has been an important source ofearnings and cash flow generation during economic downturns. Also,the decision to exit the energy business comes at a time whenDuPont’s financial profile has been stretched by a series ofacquisitions intended to bolster its emergent agriculturalbiotechnology business and several of its more traditional chemicaloperations. S&ampP placed its ratings of DuPont on CreditWatch withnegative implications.

Conoco CEO Archie W. Dunham said divestiture will give Conocothe opportunity to capitalize on opportunities resulting fromprivatization and deregulation in the energy sector around theworld. “Conoco is a much stronger company today than it was just afew years ago,” he said. “We significantly reduced our costs andupgraded our asset portfolio. We had record earnings in 1997 andenjoy experienced management, an extraordinary workforce, and animpressive solid set of core values that guide all of ouractivities.”

Dunham, 59, will serve as president and chief executive officerof Conoco. DuPont, which will hold more than 80% of Conoco afterthe IPO, will retain majority membership on the board. After DuPontreduces its ownership to less than 50%, it is expected that Dunhamwill become chairman.

Conoco, with revenues of about $22 billion, is active in 40countries and involved in exploration, production, transportation,marketing, refining and power. Conoco ranks 11th among U.S.companies in the production of gas.

Joe Fisher, Houston

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