Occidental Petroleum (NYSE:OXY) has announced a proposal to split its operations up into separate companies — a move that may actually prove enticing to other oil companies and could potentially create an extra $100 billion in market value. As well as Occidental, ConocoPhilips (NYSE:COP), Anadarko Petroleum (NYSE:APC), and Talisman Energy are considering whether their traditional global strategy is no longer effective in the face of the U.S. shale boom, and whether in fact they would benefit more by splitting their U.S. operations from the rest of their operations around the world.
Paul Sankey, an analyst at Deustche Bank (NYSE:DB), said that by separating low-cost investments in U.S. shale plays from higher risk, but potentially higher reward, foreign assets, shareholders could unlock a huge, hidden bounty that will massively boost the over companies market value.
Over the past three years Cabot Oil & Gas (NYSE:COG), a company that is based almost entirely in the Marcellus shale formation, has more than tripled in value. Occidental,on the other hand, held back by foreign assets in Libya and Yemen, as well as other diversified investments, only grew by 7.3 percent.
David Neuhauser, the managing director at Livermore Partners, explained to Bloomberg that “if you’re smaller, you can be much more dynamic by really focusing on your assets and growth.”
Doug Leggate, an analyst at the Bank of America (NYSE:BAC), estimates that if Occidental proceeds with its plans to split its domestic assets from international investments it could increase its current market value of $74 billion by $47 billion. If ConocoPhillips, Anadarko, and Talisman experienced similar results, then Bloomberg calculates that investors would have access to an extra $84 billion in market value.
Originally written for OilPrice.com, a website that focuses on news and analysis on topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.
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