The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



) --

Exxon Mobil

(XOM) - Get Exxon Mobil Corporation Report

has reached an agreement with Philippines-based conglomerate

San Miguel Corp.

on the sale of Exxon's interests in three of its downstream businesses in Malaysia.

The downstream businesses that are being sold include operations in refining, retail and industrial and aviation fuels.

Exxon will continue to its exploration and production, or "upstream" activities, in Malaysia.

The deal comes as oil majors such as


(BP) - Get BP p.l.c. Sponsored ADR Report

have tried to divest some of their downstream assets while others, such as


(COP) - Get ConocoPhillips Report


Marathon Oil

(MRO) - Get Marathon Oil Corporation (MRO) Report

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have announced complete spinoffs of their downstream arms. Exxon and


(CVX) - Get Chevron Corporation Report

maintain that their downstream activities provide them with a significant competitive advantage.

We have a

$93 price estimate for Exxon Mobil

, which is a 25% premium to its current market price.

Signs of Limited Divestment in the Future?

Oil majors have been shifting their focus to the exploration and production (E&P) business as high crude oil prices have made upstream activities much more attractive.

Downstream operations, on the other hand, show cyclical returns that are negatively affected by high oil prices. ConocoPhillips became the latest player to follow the trend of focusing on E&P when it announced a tax free spinoff of its downstream businesses.

Exxon continues to pursue a vertical integration strategy, but the sale of its Malaysian downstream assets indicates that the company may be looking to sell some of its peripheral downstream assets in the future.

Refining businesses are currently at the peak of their up-cycle, helping boost valuations. According to


data, the "crack spread" -- the difference between the cost of crude oil and the selling price of its derivatives -- is now at its highest level in more than 25 years.

Exxon's Downstream Businesses

The refined products and marketing and chemicals businesses together contribute to around 16% of our $451 billion market cap estimate for Exxon Mobil. The businesses reported a 20% return in their last cycle and are viewed by the company as a significant source of strength.

Exxon's sale of Malaysian assets, which includes the 88-kbd Port Dickson refinery and more than 500 retail outlets under the brands Esso and Mobil, will not significantly affect our sales forecasts for its downstream divisions.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.