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Shell, Exxon Shift Away From Refining

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Shell, Exxon Shift Away From Refining, Eye Output, JPMorgan Says

By Fred Pals – Sep 23, 2010 10:12 AM GMT+0100

The world’s biggest oil companies such as Exxon Mobil Corp. and Royal Dutch Shell Plc will continue to sell refining and other non-core assets and focus on exploration and production to create more value, JPMorgan Cazenove analysts said.

“We see a continued shift upstream; downstream looks destined to become an equity value driver of diminishing relevance,” London-based JPMorgan analysts Fred Lucas and Nitin Sharma wrote in a note today. “Certain integrated names are gradually morphing into hybrid exploration and production companies.”

Energy companies are selling fuel stations, pipelines and refineries as they boost spending on oil and gas production to take advantage of rising prices. Shell is divesting refineries in Germany and Sweden and marketing assets in Africa to curb costs and spending, while Exxon sold a stake in a Norwegian pipe network in April as it reviews assets.

BP Plc, Shell, Exxon and Total SA are instead investing in hard-to-reach unconventional gas reserves in rock formations in Australia, China and the U.S, as well as projects in Qatar and oil sands to boost production growth.

“Whilst we continue to advocate faster and more complete upstream-downstream ‘disintegration,’ not least to encourage investors to re-think the value proposition in the space, we agree with the direction of this strategic shift,” the note said.

To contact the reporter on this story: Fred Pals in Amsterdam at [email protected].

To contact the editor responsible for this story: Will Kennedy at [email protected].

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