Breaking Up Exxon Mobil (XOM) To Create Value

Energy

Published: May 11, 2008 4:31 pm

Oil companies are not typically the stuff of break-up actions. What would be the purpose of knocking Exxon Mobil (XOM) or Conoco (COP) into two pieces?

Some of the answer to that comes from Canada. Encana, one of the largest oil and gas companies in the world, will cut itself in two. One new company will run the oils sands business of Encana. Another will handle natural gas.

A look at Exxon’s "upstream" operations, which handle exploration and production shows that those businesses are growing quickly, especially outside the US. Earnings at the overseas "upstream" divisions at Exxon were $7.2 billion in the first quarter of this year compared to $4.9 billion in the period a year ago. The US earnings also grew from $1.2 billion to $1.6 billion.

"Downstream" operations at Exxon, which include refining and distribution, have done more poorly recently. The businesses had decreases in net income in the first quarter. The earnings drop in the US part of this company was more than 50% from $839 million last year to $398 in the most recent period. The refining industry has more and more obstacles as it get less margin out of the products it yields.

Exxon’s chemicals operations have also encountered rough going. Earnings in the US and overseas both dropped by double digits.

The "upstream" businesses at Exxon clearly carry a higher valuation than the balance of its operations. There is a lesson in Encana’s move.

Exxon may be worth more in three pieces than it is a single conglomerate.

Douglas A. McIntyre

Travel Cards Are Getting Too Good To Ignore (sponsored)

Credit card companies are pulling out all the stops, with the issuers are offering insane travel rewards and perks.

We’re talking huge sign-up bonuses, points on every purchase, and benefits like lounge access, travel credits, and free hotel nights. For travelers, these rewards can add up to thousands of dollars in flights, upgrades, and luxury experiences every year.

It’s like getting paid to travel — and it’s available to qualified borrowers who know where to look.

We’ve rounded up some of the best travel credit cards on the market. Click here to see the list. Don’t miss these offers — they won’t be this good forever.