UPDATE 4-Murphy Oil to spin off U.S. downstream unit
* Mulling sale of Syncrude, Montney
* Shares up nearly 10 pct in afternoon
* Spin-off seen complete mid-2013 (Adds details on units, updates stock price)
By Anna Driver
Oct 16 (Reuters) - Murphy Oil Corp said it will spin off its smaller retail gasoline business in the United States, review options for other assets, pay a special dividend and buy back shares as it seeks to return more cash to shareholders.
The news sent Murphy's shares climbing nearly 10 percent on Tuesday afternoon on the New York Stock Exchange.
Murphy and a number of other companies, including ConocoPhillips and Marathon Oil Corp, have sold or split off their refining units with the aim of allowing investors to assess the value of the businesses on a standalone basis.
Tuesday's announcement came days after Murphy Oil said it was talking with shareholders, including hedge fund manager Daniel Loeb's Third Point LLC, to find ways to increase share value.
"I think we would be remiss if we didn't listen to shareholders" who have advocated for a spinoff of the retail business and a share buyback, Steven Cosse, Murphy's chief executive officer, told analysts on a conference call.
Loeb recently told Third Point fund investors that shares of the oil and gas company could be 60 percent higher, and he outlined changes it could make to add value, such as spinning off its retail business or selling its Canadian natural gas assets.
Houston-based energy investment bank Simmons & Co said Murphy's planned changes are a step toward improving the stock's valuation.
"Management had previously shown an unwillingness to take the necessary steps to unlock trapped value in the stock," the bank said. "This obviously changes with this announcement and we believe could be a sign for more aggressive move to continue to improve the valuation in shares."
Murphy has hired an investment bank to explore options for its stake in a Canadian oil sands project as well as its Montney natural gas assets in British Columbia.
Murphy has a 5 percent stake in Syncrude Canada Ltd, one of Canada's largest oil sands plants with the capacity to produce 350,000 barrels of synthetic crude oil per day.
The Montney shale region in northeastern British Columbia contains trillions of cubic feet of natural gas and is one of the main sources of supply for a handful of liquefied natural gas plants planned in the province.
It has sought a buyer for a refinery in Britain since 2010.
The El Dorado, Arkansas-based company also said its board authorized a special dividend of $2.50 per share for a total payout of about $500 million, and a common stock buyback program of up to $1 billion.
After the planned split, Murphy will be an independent exploration and production company.
Murphy Oil USA, the downstream unit, will be called Murphy USA, a publicly traded company with more than 1,100 gasoline retail outlets, most of which are located in Walmart store parking lots. Murphy USA will also operate seven product distribution terminals and two ethanol production plants in North Dakota and Texas.
In the first six months of this year, Murphy's exploration and production business had net income of $552 million, while its refining and marketing arm had a profit of $76 million.
The Murphy USA spinoff to shareholders is expected to be completed by mid-2013, the company told analysts.
Murphy shares were up 9.5 percent at $64.60 on Tuesday afternoon. (Reporting by Anna Driver in Houston, Swetha Gopinath in Bangalore, Steve James in New York and Scott Haggett in Calgary; editing by Jeffrey Benkoe, Maureen Bavdek and Matthew Lewis)