Oil giant ConocoPhillips said Thursday it will split into two companies: one that produces oil and another that refines it into gasoline and other fuels.
The decision was cheered by Wall Street analysts and investors, who see advantages to running smaller, more focused operations. Shares gained $1.53, about 2.1 percent, to $75.93 in afternoon trading.
"This is so positive for them," Oppenheimer & Co. analyst Fadel Gheit said of the Conoco split. "Everyone should stick to one business."
The move continues an about-face for a company that spent billions of dollars during the past several years growing into America's third-largest oil company. After snapping up Burlington Resources for $35 billion and making multi-billion dollar investments in Russia's Lukoil and the Rockies Express gas pipeline, Conoco was deep in debt. The company has been trying to shed assets since last year.
ConocoPhillips also said CEO Jim Mulva will retire when the spin-off is completed.
Conoco has talked about scaling back its refining business, but it had previously balked at a spin off. Gheit said that company officials likely changed their mind after seeing how successful Marathon Oil was at spinning off its refining operations.
Marathon's stock jumped 30 percent after it announced the split in January. On July 1, Marathon Petroleum Corp., the refining company, began trading on the New York Stock Exchange under the "MPC" ticker symbol.
Conoco's refineries produced 2.3 million barrels per day of gasoline, diesel and other petroleum products in the first quarter, eclipsing other independent players like Valero Energy Corp. Valero is still bigger in terms of worldwide refining capacity, however.
The refining business is notoriously volatile. It makes money when the prices of products like gasoline, diesel and jet fuel outpace oil and manufacturing costs. The trick is to refine crude as cheaply as possible and sell petroleum products in markets where they'll generate the biggest revenue.
Refiners have had more success doing that this year. Conoco's refineries earned $482 million from January to March. They lost $4 million in the same part of 2010. Valero earned $98 million in the first quarter, compared with a loss of $113 a year ago.
Often, however, refineries struggle to pass on high crude costs to consumers. The industry was hammered by thin profit margins following record high oil prices in 2008, and many companies were forced to idle or sell underperforming refineries.
Mulva told analysts that the company examined sales, joint ventures and other avenues before deciding a spin-off of the refineries was best.
"We really absolutely are convinced this is the right thing for our company to do, and now is the right time to do it," Mulva said in a conference call.
The company will continue to buy back $11 billion in company shares this year.
The split creates a new, yet-to-be-named company that will be tailored to short-term investors who like the volatility of the refining business.
"It's much less predictable," Argus Research analyst Phil Weiss said.
The split, which is expected to be tax free, does not need shareholder approval, but it does require acceptance by the Internal Revenue Service. It's expected to be completed during the first half of 2012.
Mulva, 64, will oversee the spinoff before leaving the company next year. Mulva has spent most of his career with the company, starting 35 years ago with Phillips Petroleum Co. He has been CEO at ConocoPhillips since 2002.
The Houston-based company has about 29,600 employees. Conoco had $160 billion of assets and $226 billion of annualized revenue as of March 31.
Chris Kahn can be reached at http://www.twitter.com/ChrisKahnAP .