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Elliott Investment Management, an activist investment group, said on Wednesday it had amassed a $1-billion stake in one of the largest U.S. refiners, Phillips 66, and expressed dissatisfaction with the company’s underperformance in recent years.
Apart from disclosing its $1 billion investment in Phillips 66, the activist investment firm sent a letter to the Board of Directors of Phillips 66, in which it outlined its ideas of how the refiner could regain trust with investors and unlock significant and sustainable value for its shareholders.
“Elliott sees approximately 75% upside to the current stock price,” the activist investor said today, sending the stock price of Phillips 66 (NYSE: PSX) up by 5% in pre-market trade in New York.
According to Elliott, Phillips 66’s performance has declined in recent years “as it has shifted its focus away from its Refining segment.”
“As a result, operational execution has suffered, and the Company was poorly positioned to take advantage of the refining super-cycle in 2022 and 2023,” Elliott said in the letter.
During the same period, Phillips 66 peers such as Marathon Petroleum and Valero Energy “were far better prepared,” according to the activist investor.
Phillips 66’s refining operating expenses per barrel have increased the gap with the same metric at Valero, undermining confidence among Phillips 66 investors that the company has the ability to run its refining operations efficiently, Elliott said.
“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,” the investor wrote.
Phillips 66 missed analyst expectations for the third-quarter earnings, despite stronger refining margins compared to the second quarter.
To compare, for the same quarter, Valero Energy, the second-largest U.S. refiner by capacity, booked higher-than-expected profits amid continued strong product demand in the United States.
By Charles Kennedy for Oilprice.com
Charles is a writer for Oilprice.com