ConocoPhillips expects to complete the spinoff its refining arm by the middle of next year, which would absorb the natural gas and oil pipelines as well as joint venture projects, CEO Jim Mulva said last week.

Mulva addressed energy analysts at the Barclays Capital CEO 2011 Energy Conference in New York City. The company split, announced in July, would transform ConocoPhillips into a pure-play exploration and production (E&P) company and the largest independent in the United States (see NGI, July 18).

The spun off integrated business, still to be named, would house the refining, chemicals, and oil and natural gas pipeline businesses, which today are worth about 30% of ConocoPhillips’ total value, said Mulva. Stockholders would receive one share of the new company for every two shares they hold of the current company.

The Houston-based major has been repositioning itself for the past year by selling noncore properties. Expect that to continue, Mulva said. Up to $25 billion in assets are to be sold through next year, including a 20% stake in Russia’s OAO Lukoil. A large portion of the proceeds would finance a share buyback program, the CEO explained. Around $11 billion is to be spent this year alone on share repurchases, he said.

“ConocoPhillips will sell $4 billion in assets this year,” including nonstrategic assets in North America and in the North Sea, along with some pipelines and nonproducing properties, but Mulva didn’t elaborate. Once the sales are completed, 2012 year-end production for the independent would be around 1.5 million boe/d, down from 1.7 million boe/d at the end of 2010. Total gas and oil output is expected to grow 3-4% beginning in 2013.

The sales strategy is based on the assumption that natural gas prices will trade on average at around $5.20/MMBtu from 2013 to 2015, said Mulva. ConocoPhillips also assumes that Brent oil prices will average about $104/bbl over the same period. If commodities prices were to trade below those levels, the company still could perform well, he said.

From one standpoint, the split is simple. ConocoPhillips’ E&P business is expected to make a profit of $9 billion in 2011 while the refining arm is forecast to earn $3 billion. ConocoPhillips would receive an estimated $6 billion from the spinoff, which mostly would be used to reduce debt. From 2013 to 2015 annual capital spending for the E&P would be around $15 billion. The new refining entity would spend $2.5 billion a year over that same period, according to Mulva.

The downstream company’s portfolio would include not just refineries (12 in the United States) but also the chemicals business, which now is the largest North American high-density polyethlene producer and fourth largest ethylene producer. In addition, the business would absorb an estimable natural gas midstream business, which includes a half-stake in DCP Midstream LLC; Spectra Energy owns the other 50%. Mulva said ConocoPhillips today is the largest gas gatherer and processor in the United States and the largest natural gas liquids producer, with 60 plants and 11 fractionators. It also has 61,000 miles of pipeline.

Announcements about who will manage the two companies are scheduled for later this year, said Mulva, who plans to retire once the split is completed.

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