Berkshire Hathaway will swap about $1.4 billion in shares of Phillips 66 for full ownership of the energy firm’s pipeline-services business as billionaire Warren Buffett expands his bet on oil transportation.
Berkshire will exchange about 19 million shares, Phillips 66 said in a regulatory filing Monday, when the energy company closed at $74.72 in New York. The exact number of shares Berkshire will pay for Phillips Specialty Products Inc. will be determined when the deal is completed, Phillips 66 said.
A U.S. drilling boom has expanded crude oil and natural gas production, prompting pipeline operators to boost capacity. Polymer-based additives, the focus of Phillips’ business unit, are used to move products through the pipe more efficiently by reducing drag. They can increase capacity at a time when approvals for new pipelines come slowly.
“Berkshire is betting on this stuff because there are a lot of liquids pipelines in the United States operating at capacity,” said Richard Kuprewicz, president of Accufacts Inc., a Redmond, Washington-based pipeline consulting firm. “This is a way to get capacity up quickly on pipelines that need a boost without having to spend a lot of money or time on permits.”
Berkshire has already benefited from the expansion of U.S. energy production. Its Burlington Northern Santa Fe railroad has been boosting shipments of crude oil and investing in infrastructure to haul more petroleum to refineries. The company also owns pipelines through MidAmerican Energy Holdings Co.
Buffett and his deputies also have invested in other energy companies this year. Berkshire said in November that it had accumulated 40.1 million shares of Exxon Mobil Corp., valued at more than $4 billion. The money managers also added holdings in energy producers National Oilwell Varco Inc. and Suncor Energy Inc.
Divesting the pipeline-services business helps Phillips 66 recognize value for a unit investors may have ignored since the company’s spinoff of ConocoPhillips in 2012, Cory Garcia, a Houston-based analyst with Raymond James & Associates Inc., said in a phone interview.
“It’s a nice, accretive transaction,” he said.
James Hambrick, chief executive officer of Berkshire’s Lubrizol unit, will oversee the pipeline-services business once the deal is complete, according to a statement yesterday. Hambrick has been expanding Lubrizol through acquisitions since selling the chemical maker to Buffett in 2011.
Part of Berkshire’s holding in Phillips 66 derives from Buffett’s wager on ConocoPhillips when oil and gas prices were near their peak in 2008. As prices plunged later that year, Berkshire took a $1.9 billion charge on the investment, contributing to its worst quarterly loss in at least two decades. Buffett called the bet a “major mistake” in a 2009 letter to shareholders.
Berkshire Hathaway owns The Buffalo News, and Buffett is the newspaper’s chairman.