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Phillips 66 Eyes $1-Billion Pipeline Stake Divestment

Phillips 66 is considering the sale of its 25% stake in a gas pipeline that runs between Wyoming and Ohio, which could fetch over $1 billion.

Citing unnamed sources in the know, Reuters said the refiner was currently discussing the divestment with advisers and that potential suitors for the stake included private equity firms and infrastructure investment funds.

The stake, per the Reuters sources, has a book value of $451 million but it carries some $500 million in debt that the buyer would have to take on.

Phillips 66 said earlier this year it planned to divest $3 billion worth of assets as part of an effort to reduce costs and boost returns.

"We don't have (a) sense of urgency... It's really going to be a function of whether someone puts a greater value on these assets than we do," chief executive Mark Lashier said in January.

2023 was not the best year for the U.S. refiner, which saw its profits plunge by 46% in the second quarter of the year, with adjusted earnings of just $1.8 billion—compared to $3.3 billion in Q2 2022. Its Q3 adjusted earnings were higher at $2.1 billion but still failed to live up to analyst expectations.

It got worse as the year moved on, with activist investor Elliott Management disclosing it had amassed a $1-billion stake in the company and immediately going on the offense to improve its financial performance. The asset divestment plan was announced soon after.

According to Elliott, Phillips 66’s performance has declined in recent years “as it has shifted its focus away from its Refining segment.”

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“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 a letter it sent to the refiner’s board of directors after it disclosed its stake.

By Charles Kennedy for Oilprice.com

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