Currently, a tendency to spin off operations and become focused on a few business areas is perceived to provide more value for all investors involved. For instance, Marathon Oil Corporation (NYSE:MRO) and Marathon Petroleum Corp (NYSE:MPC) were allocated from the Marathon Group. ConocoPhillips (NYSE:COP) divided its company into Phillips 66 (NYSE:PSX), which manages downstream operations, while exploration and production continue to be handled by ConocoPhillips (NYSE:COP) itself. Occidental Petroleum Corporation (NYSE:OXY) has also been considering the idea of a spinoff as well. I have added this company into the assessment in order to provide readers with a clearer picture of how the spinoffs for Marathon and ConocoPhillips (NYSE:COP) might be beneficial.
Recent updates
After spinning off Phillips 66 (NYSE:PSX), ConocoPhillips (NYSE:COP) has been engaged in a major capital reshuffle in geographic and administrative terms. This company reported slightly lower oil and natural gas production in 1Q13 compared to the same period in 2012, while profit dropped from $2.9 billion to $2.1 billion. Seeing unfavorable gas prices, the company has arranged its production mix in the Americas, with shift from natural gas to liquids, from 45% to 51%. ConocoPhillips (NYSE:COP) also plans to generate $8.2 billion by selling off assets in Algeria, Nigeria, and Kazakhstan.
Marathon Oil Corporation (NYSE:MRO) reported a profit of $383 million in 1Q13, when compared to $417 million in 1Q12. The 8% drop in profits comes at a time when production increased by 19%. However, the increase in production could not be translated into revenue growth because of weaker prices of crude oil. Marathon’s increase in production was supported by strong growth in the Eagle Ford and Bakken shale plays.
Occidental Petroleum Corporation (NYSE:OXY) had been rumored to be following the same spinoff path, but its CEO broke the news that, while the company did assess the option of spinning off, it is not currently the best idea for shareholders. For Marathon and ConocoPhillips (NYSE:COP), however, this was undoubtedly a beneficial solution.
Competition
ConocoPhillips offers the highest dividend yield, making the company a favorite for investors at first sight. It is also the most undervalued of the three, while being consistent with its income. The company’s revenue stream has shown a negative trend over the past three years, but we should keep in mind the reason for that (weak commodity prices and the recent spinoff of Phillips66).
Occidental Petroleum is a strong oil/ gas producer, but ConocoPhillips looks impressive with its ROE and depressed P/E rating.
| Indicator | Marathon Oil | ConocoPhillips | Occidental Petroleum |
|---|---|---|---|
| Price/Earnings ttm | 16.1 | 10.4 | 16.8 |
| Price/Book | 1.3 | 1.5 | 1.8 |
| Net Income Growth (3 Yr Avg.) | 2.6 | 24.1 | 16.4 |
| Revenue Growth (3 Yr Avg.) | -33.0 | -25.9 | 17.5 |
| Dividend Yield , % | 1.94% | 4.26% | 2.55% |
| Debt/Equity | 0.3 | 0.4 | 0.2 |
| ROE tttm | 8.6 | 13.2 | 11.0 |
| Current Price | $34. 99 | $ 61.94 | $ 92.61 |
Data taken from Morningstar and Financial Visualizations on June 18, 2013
ConocoPhillips is a clear winner in this selection in terms of financial health and dividend policy. The company’s payout ratio of 44.7% looks juicy. The dividend paid is $2.64 per share annually.
