Elliott Investment Management Proposes Major Changes to Phillips 66 Governance and Strategy

Elliott's Urgent Call for Change at Phillips 66

Elliott Investment Management L.P., managing funds totaling over $2.5 billion in Phillips 66, has taken a decisive step by communicating directly with the company's board of directors regarding critical operational improvements. This interaction highlights the persistent challenges that Phillips 66 has faced and emphasizes the necessary actions to mitigate these issues.

In a letter unveiled on February 11, 2025, Elliott expressed its frustration with the lack of meaningful progress since their initial insights shared in late 2023. Investors had once hoped for a turnaround and recognized the potential within Phillips's underappreciated assets. However, the absence of satisfactory advancements has compelled Elliott to advocate for significant changes.

The issues pinpointed by Elliott include the convoluted conglomerate structure of Phillips 66, inadequate operational performance, and a damaged rapport with shareholders. Over the last decade, Phillips's total shareholder returns fell short compared to its competitors, lagging Valero Energy Corp. by 138% and Marathon Petroleum by 188%. These figures starkly contrast with Phillips's trading at a discount relative to the collective value of its assets.

Key Proposals Under the 'Streamline66' Plan

Elliott's detailed plan includes three fundamental initiatives aimed at invigorating Phillips 66:
1. Portfolio Simplification: Elliott advocates for divesting or spinning off the Midstream business, selling interests in CPChem, and liquidating the JET retail operations in Germany and Austria to concentrate on core areas.
2. Refining Performance Review: The company must set crystal-clear and ambitious refining targets to align with best-in-class standards.
3. Enhanced Board Oversight: The introduction of new independent directors is essential to bolster accountability and facilitate comprehensive reviews of the current management team.

The intent behind these suggestions is not just to restore confidence among investors but also to optimize the company's asset valuation and operational efficiency. Historically, similar strategic shifts, such as the restructuring of Marathon Petroleum post-Elliott's intervention in 2019, have generated substantial shareholder returns.

Elliott’s intricate presentation under the 'Streamline66' initiative outlines these necessary alterations, asserting that true value within Phillips requires urgent attention and dedication. The firm underscores the imperative of addressing the inefficient conglomerate structure that obscures asset values, advising that a streamlined approach is crucial to reveal the inherent potential locked within its business segments.

Challenges Ahead

The letter detailed just how critical the situation has become, noting the company's recurring failures to meet performance benchmarks and repeated financial misses, which have continued to erode investor assurance. Phillips's management recently reverted to a combined CEO-Chairman role, further complicating its governance structure. The market's skepticism towards the leadership team’s ability to fulfill promises reinforces the need for substantial operational changes.

Elliott insists that shareholders deserve leaders who can commit to real progress, not just assurances devoid of tangible results. Without immediate, tangible action, Phillips 66 risks further alienation of its investor base.

Call for Accountability

In conclusion, Elliott's message is clear: the time for talk has passed, and decisive action is mandatory. Underperformance has led to a credibility crisis that cannot be ignored. The board and management must recognize the urgency of implementing Elliott’s recommendations to regain investor trust and unlock the true value of Phillips 66's considerable asset portfolio. Only through decisive and tangible actions can Phillips 66 navigate these turbulent times and emerge as a more focused and profitable entity.

In light of these developments, stakeholders will be closely monitoring Phillips 66’s response to Elliott’s proposals and the subsequent direction the company chooses to take in the future.