Elliott Sends Letter and Presentation to the Board of Phillips 66
Elliott Investment Management, which holds a $2.5 billion stake in Phillips 66 (PSX), has sent a critical letter to the company's Board highlighting significant underperformance and demanding urgent changes. The letter points out that Phillips' total shareholder returns have lagged behind peers Valero Energy by 138% and Marathon Petroleum by 188% over the past decade.
Elliott's 'Streamline66' plan proposes three key initiatives: Portfolio Simplification (including sale/spinoff of Midstream business, sale of CPChem interests, and European retail operations), Operating Review (commitment to ambitious refining targets), and Enhanced Oversight (addition of new independent directors).
The letter criticizes Phillips' conglomerate structure, poor operating performance (trailing Valero by $4.75 per barrel in Q4), and damaged credibility with investors. Elliott values the Midstream business at potentially over $40 billion and advocates for its separation to unlock shareholder value.
Elliott Investment Management, che detiene una in Phillips 66 (PSX), ha inviato una lettera critica al Consiglio di amministrazione dell'azienda evidenziando un significativo underperformance e richiedendo cambiamenti urgenti. La lettera sottolinea che i ritorni totali per gli azionisti di Phillips sono stati inferiori rispetto ai concorrenti Valero Energy del 138% e Marathon Petroleum del 188% nell'ultimo decennio.
Il piano 'Streamline66' di Elliott propone tre iniziative chiave: Semplificazione del portafoglio (inclusa la vendita/cessione del business Midstream, vendita degli interessi in CPChem e delle operazioni al dettaglio in Europa), Revisione operativa (impegno verso obiettivi di raffinazione ambiziosi) e Supervisione potenziata (aggiunta di nuovi direttori indipendenti).
La lettera critica la struttura conglomerata di Phillips, le scarse performance operative (con un gap di $4,75 per barile rispetto a Valero nel quarto trimestre) e la credibilità danneggiata con gli investitori. Elliott valuta il business Midstream a oltre $40 miliardi e sostiene la sua separazione per sbloccare il valore per gli azionisti.
Elliott Investment Management, que posee una en Phillips 66 (PSX), ha enviado una carta crítica a la Junta Directiva de la empresa destacando un rendimiento significativamente inferior y exigiendo cambios urgentes. La carta señala que los retornos totales para los accionistas de Phillips han quedado rezagados respecto a sus pares Valero Energy en un 138% y Marathon Petroleum en un 188% durante la última década.
El plan 'Streamline66' de Elliott propone tres iniciativas clave: Simplificación del Portafolio (que incluye la venta/spin-off del negocio Midstream, venta de intereses en CPChem y operaciones minoristas en Europa), Revisión Operativa (compromiso con objetivos de refinación ambiciosos), y Mejora de la Supervisión (adición de nuevos directores independientes).
La carta critica la estructura conglomerada de Phillips, su pobre rendimiento operativo (rezagándose frente a Valero en $4.75 por barril en el cuarto trimestre) y su dañada credibilidad con los inversores. Elliott valora el negocio Midstream en más de $40 mil millones y aboga por su separación para desbloquear el valor para los accionistas.
엘리엇 투자 관리는 필립스 66(PSX)에
엘리엇의 'Streamline66' 계획은 세 가지 주요 이니셔티브를 제안합니다: 포트폴리오 간소화 (미드스트림 사업 매각/분사, CPChem 지분 매각, 유럽 소매 사업 매각 포함), 운영 검토 (야심찬 정제 목표를 향한 약속), 그리고 강화된 감독 (새로운 독립 이사 추가).
서신은 필립스의 대기업 구조, 불량한 운영 성과(4분기 동안 발레로보다 배럴당 $4.75 낮음), 그리고 투자자들과의 신뢰 손상을 비판합니다. 엘리엇은 미드스트림 사업 가치를 400억 달러 이상으로 평가하며, 주주 가치를 높이기 위한 분리를 주장하고 있습니다.
Elliott Investment Management, qui détient une participation de 2,5 milliards de dollars dans Phillips 66 (PSX), a envoyé une lettre critique au Conseil d'administration de l'entreprise soulignant une sous-performance significative et demandant des changements urgents. La lettre indique que les rendements totaux pour les actionnaires de Phillips ont été inférieurs à ceux de Valero Energy de 138 % et de Marathon Petroleum de 188 % au cours de la dernière décennie.
Le plan 'Streamline66' d'Elliott propose trois initiatives clés : Simplification du portefeuille (y compris la vente/la scission de l'activité Midstream, la vente des intérêts de CPChem et des opérations de détail en Europe), Revue des opérations (engagement envers des objectifs de raffinage ambitieux) et Supervision renforcée (ajout de nouveaux directeurs indépendants).
La lettre critique la structure conglomérale de Phillips, ses mauvaises performances opérationnelles (atteignant un écart de 4,75 $ par baril par rapport à Valero au quatrième trimestre) et sa crédibilité endommagée auprès des investisseurs. Elliott valorise l'activité Midstream à plus de 40 milliards de dollars et plaide pour sa séparation afin de libérer de la valeur pour les actionnaires.
Elliott Investment Management, das eine Beteiligung von 2,5 Milliarden Dollar an Phillips 66 (PSX) hält, hat einen kritischen Brief an den Verwaltungsrat des Unternehmens gesendet, in dem sie auf eine erheblich schlechte Leistung hinweist und dringend Veränderungen fordert. Der Brief hebt hervor, dass die Gesamtrenditen für die Aktionäre von Phillips in den letzten zehn Jahren hinter den Mitbewerbern Valero Energy um 138% und Marathon Petroleum um 188% zurückgeblieben sind.
Der Plan 'Streamline66' von Elliott schlägt drei zentrale Initiativen vor: Portfoliosanierung (einschließlich Verkauf/Abspaltung des Midstream-Geschäfts, Verkauf von CPChem-Anteilen und Einzelhandelsbetrieben in Europa), Betriebsprüfung (Verpflichtung zu ehrgeizigen Raffineriezielen) und Verbesserte Aufsicht (Hinzuweisung neuer unabhängiger Direktoren).
Der Brief kritisiert die Konglomeratsstruktur von Phillips, die schlechte operative Leistung (im vierten Quartal um 4,75 $ pro Barrel hinter Valero zurückgeblieben) und den beschädigten Ruf bei den Investoren. Elliott bewertet das Midstream-Geschäft auf über 40 Milliarden Dollar und plädiert für dessen Trennung, um den Wert für die Aktionäre freizusetzen.
- Large $2.5 billion investment from major institutional investor Elliott
- Valuable midstream business potentially worth over $40 billion
- Clear path to value creation through asset sales and spinoffs
- Significant operational improvement potential in refining business
- 138% underperformance vs Valero and 188% vs Marathon over past decade
- $4.75 per barrel EBITDA shortfall compared to Valero in Q4
- Failed to meet key operational targets
- Damaged credibility with investors due to missed financial targets
- Inefficient conglomerate structure obscuring asset values
Insights
Elliott's activist campaign against Phillips 66 represents a watershed moment for the energy sector, drawing striking parallels to their successful 2019 Marathon Petroleum intervention. The proposed 'Streamline66' plan addresses three critical deficiencies:
- Portfolio Restructuring: The suggested separation of the Midstream business (estimated value
$40+ billion ) could unlock significant shareholder value, as pure-play entities typically command higher valuations. The proposed divestiture of CPChem and European retail operations would further streamline operations and potentially generate substantial capital for shareholder returns. - Operational Enhancement: The concerning
$4.75 per barrel EBITDA gap versus Valero in Q4 2024 indicates deep-rooted operational inefficiencies. Elliott's push for best-in-class performance metrics aligns with industry standards and could drive significant margin expansion. - Governance Reform: The criticism of management's credibility, highlighted by failed 'AdvantEdge66' initiatives and questionable capital allocation decisions, suggests potential leadership changes could catalyze transformation.
The market implications are substantial - similar restructurings in the energy sector have historically led to
The governance issues at Phillips 66 represent a textbook case of board oversight failure in three critical areas:
- Leadership Structure: The regression to a combined CEO-Chairman model contradicts modern corporate governance best practices, particularly concerning for a company facing operational challenges.
- Board Composition: The lack of refining operational expertise at the board level has likely contributed to the company's persistent underperformance. The abandoned commitment to add a second director with relevant experience suggests resistance to necessary change.
- Executive Accountability: The disconnect between executive compensation and company performance, coupled with repeated missed targets, indicates a fundamental breakdown in oversight mechanisms.
The proposed governance reforms align with successful turnaround precedents in the energy sector. Statistical analysis shows that companies implementing similar governance changes typically achieve
Highlights Need to Streamline Portfolio, Improve Operating Performance and Enhance Oversight
Discloses a More Than
Full Letter and Presentation Available at Streamline66.com
In its letter, Elliott noted that when it first publicly shared its views on the opportunities and challenges at Phillips in late 2023, investors were hopeful the Company would finally take the necessary actions to improve its operations and realize the significant potential of its underappreciated assets. Unfortunately, this progress has failed to materialize, and it has become evident that urgent changes are needed.
Specifically, Elliott noted Phillips' conglomerate structure, poor operating performance and damaged credibility with shareholders as factors driving the Company's underperformance. The letter highlighted that over the past decade, Phillips' total shareholder returns have lagged peers Valero Energy Corp. by
As part of the "Streamline66" plan outlined in its letter and attached presentation, Elliott identified three initiatives that are needed now:
- Portfolio Simplification – A streamlined Phillips would include the sale or spinoff of the Midstream business, the sale of the Company's interests in CPChem and the sale of the JET retail operations in
Germany andAustria . - Operating Review – Phillips must commit to ambitious refining targets that reflect best-in-class performance.
- Enhanced Oversight – New independent directors are needed to bolster accountability and oversee a comprehensive review of the executive leadership team.
The letter and presentation can be downloaded at Streamline66.com.
The full text of the letter follows:
February 11, 2025
The Board of Directors
Phillips 66
2331 CityWest Boulevard
Dear Members of the Board:
We are writing to you on behalf of funds managed by Elliott Investment Management L.P. (together with such funds, "Elliott" or "we"). We have an investment of more than
As you know, this is not the first time we have publicly shared our views on Phillips' opportunities and challenges. In November of 2023, we published a letter to the Board noting the Company's ambitious targets in the areas of operational improvement, portfolio-streamlining and improved capital return to shareholders. To repair Phillips' damaged credibility with investors and ensure the right oversight and accountability, we called for collaboration on the addition of two new directors with refining-operation experience. And if Phillips failed to show material progress, we suggested an alternative path similar to the one taken by Marathon Petroleum ("Marathon") following our engagement there in 2019. In that situation, board and management enhancements led to operational improvement, portfolio-rationalization and significant long-term share-price outperformance. Since our engagement, Marathon's total shareholder return has outperformed Valero Energy Corp. ("Valero") by
The 2023 publication of these views put a spotlight on the significant opportunity present at Phillips and initially sparked market optimism for a long-overdue turnaround at the Company. Unfortunately for investors, patience has been punished.
As detailed in the enclosed presentation, available at Streamline66.com, Phillips has failed to make meaningful progress on its targets. It abandoned serious collaboration on Board and corporate governance improvements by failing to honor its commitment to add a second director and reverting to a combined CEO-Chairman role. And despite possessing valuable assets and a clear, achievable path to realizing their full potential, Phillips' total shareholder return has continued to disappoint, lagging well behind peers. Over the past decade, Phillips has underperformed Valero by
This experience has been frustrating but has clarified the scale of the problem and reinforced the urgent need for the Company to pursue an alternative path, namely (i) an overhaul of the Company's conglomerate structure, (ii) demonstrable improvements in its operating performance and (iii) a refresh of the Board and executive team.
We remain committed, engaged investors in Phillips due to our conviction in the significant opportunity for value creation represented by the quality of the Company's assets. These underappreciated assets benefit from significant scale and strong competitive positioning across the Company's businesses. In addition to its core refining business, Phillips has a highly valuable midstream business focused on the NGL value chain and a world-class chemicals joint venture.
However, Phillips today trades at a substantial discount to a sum-of-its-parts valuation, and investors have plainly lost confidence in the Company's ability to unlock this value under its current structure.
We believe the factors driving this underperformance are clear:
- Conglomerate Structure: Phillips' inefficient structure obscures the true value of its assets. Within a single conglomerate, the Company's disparate businesses lack a natural shareholder base and a coherent equity story. Phillips delivers weaker capital returns than leading refiners and slower growth than midstream peers, resulting in the worst of both worlds for investors. This structure hinders management's ability to focus on the unique needs of each business, weakening its ability to drive operational excellence.
- Poor Operating Performance: Phillips has repeatedly failed to meet key targets. The Company's 2024 refining EBITDA per barrel has trailed best-in-class peer Valero by
$3.75 $4.75 - Damaged Credibility: Persistent financial misses and the pursuit of acquisitions instead of portfolio simplification have eroded investor confidence in management. The market still does not appear to take this leadership team's 2025 and new 2027 mid-cycle EBITDA targets seriously. Worse, the management team's continuous claims of a successful turnaround without corresponding tangible financial results have further eroded its credibility. Long-term shareholders recall the 2019 Analyst Day "AdvantEdge66," where management's claims fell far short of Phillips' actual operating performance. Even the Company's recent
$3 billion
As detailed in our "Streamline66" presentation, we believe Phillips can resolve these issues through decisive action. Another year of empty rhetoric and broken promises is unacceptable. We believe that Phillips must pursue the following initiatives without delay:
- Streamline Portfolio – Phillips' world-class midstream business should be sold or spun off, as we believe it could command a premium valuation in excess of
$40 billion Germany andAustria . Divesting non-core assets, such as CPChem and select European retail operations, would allow Phillips to increase capital returns to its shareholders and sharpen its focus on operational excellence within its core business. - Operating Review – A more focused Phillips can better prioritize refining profitability. The Company should commit to ambitious refining targets that reflect best-in-class performance. We reaffirm our November 2023 call for Phillips to close the EBITDA-per-barrel gap with its peers, a gap that has actually widened since our initial engagement with the Company.
- Enhanced Oversight – Meeting operational targets requires a comprehensive review of the Company's management team. In addition, fresh perspectives on the Board would strengthen this leadership evaluation. Phillips should add new independent directors to bolster accountability and improve oversight of management initiatives.
Taken together, this plan offers a pathway for restored investor credibility and a realization of the full value of the Company's attractive asset base, which is currently obscured by its conglomerate structure. More than a decade ago, after spinning out its refining and midstream assets, Conoco became a purpose-built upstream business that has flourished. The mix of assets that became Phillips in 2012 has since lacked cohesion, limiting the potential of its disparate businesses. A transformation of Phillips is long overdue.
The past year has provided strong evidence that change is needed. In our November 2023 letter, we wrote, "At present, we believe [CEO Mark] Lashier and the rest of the management team deserve investor support so long as they demonstrate meaningful progress against [their financial] targets." Since then, Phillips has failed to do so. As such, investor support has evaporated. The Board and management team must now recognize the severity of their credibility crisis and seize the opportunity to address it by pursuing the initiatives outlined above.
Sincerely,
John Pike
Partner
Mike Tomkins
Senior Portfolio Manager
About Elliott
Elliott Investment Management L.P. (together with its affiliates, "Elliott") manages approximately
1 Bloomberg, from 9/24/2019 (the day prior to Elliott's public presentation) to 2/7/2025
2 Bloomberg, as of 2/7/2025
3 Company filings, Q4 2024 earnings, see analysis in enclosed presentation
4 See analysis in enclosed presentation
Contact:
Casey Friedman
Elliott Investment Management L.P.
(212) 478-1780
cFriedman@elliottmgmt.com
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SOURCE Elliott Investment Management L.P.
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