Elliot Management Takes $1B Stake In Phillips 66, Sees 75% Upside

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by Tyler Durden
Wednesday, Nov 29, 2023 - 03:00 PM

While the outward facing bastardization of the oil industry continues from left-wing lunatics, those actually interested in (1) reality and (2) making money realize that the runway for the world's fossil fuel industry still has plenty of room.

That's probably why Elliott Investment Management is reported to have amassed a $1 billion position in the American multinational energy company Phillips 66, according to reporting by CNBC's David Faber this morning. 

The investment manager sees potential upside of about 75% in the name, Bloomberg reported, and is seeking two directors at the company. 

In a letter to the company, Elliot wrote: "Given the Company's history of failed execution, we believe shareholders would welcome the appointment to the Board of two new directors with refining-operating experience."

It continued: "We have identified multiple highly qualified directors who we believe would provide relevant experience and expertise as the Board implements the necessary operational improvements at Phillips 66. Furthermore, we believe these directors will help enhance a Phillips 66 Board that has limited refining-operations expertise, which is particularly noteworthy given the Company's poor execution in this segment."

“Should Phillips 66 be unable to deliver on its 2025 targets, Elliott believes the Company could successfully implement a similar path to the one Marathon Petroleum Corporation followed after its engagement with Elliott in 2019,” it continued. 

"If it becomes necessary, we are confident Phillips 66 could follow a similar path," the firm wrote, by:

  • Making appropriate management changes;
  • Closing the current $2-$3 per barrel refining EBITDA gap between Phillips 66 and Valero; and
  • Generating $15 billion to $20 billion of after-tax cash proceeds from the sale of Phillips 66's CPChem stake, European convenience stores, and a portion of its non-operated midstream stakes – monetization events that would enable a best-in-class capital-return program while sustaining an investment-grade balance sheet.

“Over the past three years, as Phillips 66 has fallen further and further behind, its stock has meaningfully underperformed these peers,” it continued.

The company's operating expense per barrel has been “shaking investor confidence in the company’s ability to run its refining operations efficiently," the investment manager said. 

Elliot is not pushing for management changes at the company just yet, stating: "We are hopeful the current management team, supported by an enhanced Board, can deliver on its performance targets and achieve significant stock-price outperformance." 

"At present, we believe Mr. Lashier and the rest of the management team deserve investor support so long as they demonstrate meaningful progress against these targets. At the same time, we find the market's skepticism to be understandable, and we believe the Board must take several steps to reassure investors that Phillips 66 is in the best possible position to achieve its value-creation potential."

Warren Buffett had also previously been a shareholder in Phillips 66, but sold his stake in 2020. 

Elliot's stake could be coming amidst a broader change in sentiment about oil and gas companies. Recall we wrote just days ago that Deutsche Bank's CIO is now pressing for oil and gas companies to be included amongst ESG names. Markus Müller stated last week that sustainability funds should include traditional energy stocks, arguing that not doing so deprives investors of a prime opportunity to invest in the transition to renewable energy.

Obviously, Elliot isn't bothered by the ESG charade...