Berkshire to exchange $1.4 bn in Phillips 66 stock for unit

Houston/ New York: Berkshire Hathaway Inc. 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. The energy company’s closing price in New York yesterday was $74.72. The specific number of shares Berkshire will pay for Phillips Specialty Products Inc. will be determined when the deal is completed, Phillips 66 said.

A US 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, Richard Kuprewicz, president of Accufacts Inc., a Redmond, Washington-based pipeline consulting firm, said in a phone interview. 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.

Buffett is expanding his investments in transporting energy. Berkshire’s railroad Burlington Northern Santa Fe has already benefited from an increase in shipments of crude oil. Buffett’s company also owns pipelines through its MidAmerican Energy Holdings Co. unit.

Finding value

“Divesting the pipeline-services business helps Phillips 66 recognize value for a unit investors may have ignored since the company’s spin-off 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.

Phillips 66 climbed 18 cents to $74.90 at 7:16 p.m. in extended trading in New York yesterday. It has gained 41 percent this year.

Berkshire and Phillips 66 said in a statement that they expect to complete the deal in the first half of 2014 after regulatory reviews. Most of the unit’s employees work in Bryan, Texas, along with some researchers in Oklahoma and sales teams in Belgium and Russia, Dean Acosta, a spokesman for Phillips 66, said in a phone interview.

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.

Berkshire’s stake

At least some of Berkshire’s stake in Phillips 66 was accumulated by Ted Weschler or Todd Combs, Buffett’s backup stock pickers, the billionaire said on Bloomberg Television last year. Berkshire held more than 27 million shares in Houston- based Phillips 66 at the end of September, according to a regulatory filing.

Buffett didn’t respond to an e-mailed request, sent to an assistant, for comment about the deal.

A Burlington Northern train carrying oil erupted into flames yesterday after colliding with another train that had derailed near Casselton, North Dakota. BLOOMBERG