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ConocoPhillips' (NYSE:COP) upcoming spin-off of Phillips 66 (NYSE:PSX) began trading yesterday, allowing investors to see how the market has valued the two separate pieces.

ConocoPhillips will retain the "upstream" businesses of oil exploration and production, making Conoco a large pure-play on Petroleum. COP closed on a when-issued basis of $57/shr, assigning the parent a $71 billion market cap.

Phillips 66 consists of mid-stream pipelines and collection, refineries, chemicals and some natural gas production assets. Shares closed at $34/shr, assigning a market value of $21.7 billion.

We were expecting a lower price for the Phillips 66 portion, but at the present quotation 66 is selling at a 20% premium to their pro-forma book value of about $28, 6.1x trailing earnings and 11 times the average of 2009-2011 adjusted earnings. Shares yield 2.35% at the current price. Pipelines do get a higher multiple than refineries, and thus it's hard to draw a perfect comparison with refining peers such as VLO and TSO. But overall we feel that the upstream business represents better value at the current quotation.

The surviving parent company earned around $6.38/shr in 2011 and an average of $5.52/shr on average in the prior three years, putting the P/E ratios at 8.9x and 10.3x. The upstream business is much higher margin, with 30% operating margins in FY11 versus about 3% for the refining business. Conoco has been spending heavily to expand reserves in areas such as the Canadian oil sands, U.S. shale plays, and African deepwater sites. Their organic reserve replacement ratio was 120% for 2011, which is solid during a time in which high oil prices are increasing the prices of concessions and leases.

Interestingly, Conoco will retain the current $2.64/shr dividend payout, and thus the parent company is yielding a hefty 4.6% at the current price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Assessing ConocoPhillips And Phillips 66 After The Breakup