Elliott Sues Phillips 66 for 'Gamesmanship' ahead of Board Election

Elliott Investment Management LP complained Tuesday before Delaware’s Court of Chancery accusing Phillips 66 of “gamesmanship” in the run-up to the refiner’s yearly meeting of shareholders.

“Despite Elliott privately requesting confirmation, Phillips has still not disclosed how many seats will be up for election or who its nominees will be, requiring Elliott to file a complaint in order to preserve its shareholder rights”, Elliott said in a statement. “The Company’s current gamesmanship around its directors follows the Company’s previous failure to honor its representations made to Elliott - dating back to February 2024 - that it would appoint a mutually agreed-upon director with energy experience.

“In its complaint, Elliott states that if the Company ends its defensive maneuvers and confirms that at least four director seats will be up for election at the 2025 Annual Meeting, Elliott intends to withdraw the complaint and no longer proceed with the litigation”.

The statement added, “This preference for gamesmanship and disregard for stockholder rights demonstrated by Phillips reinforces why change is urgently needed on the Board in order for the Company to achieve its full value-creation potential”.

Phillips 66 has yet to reply to a comment request emailed by Rigzone.

Earlier this month Elliott said it has nominated seven candidates with the “best-in-class experience in refining and midstream operations”, including an Elliott partner, for election to Phillips 66’s board. Elliott wants them to stay on the board until 2028.

The investor, which has a declared investment of over $2.5 billion in Phillips 66, has been pushing for portfolio simplification, an operational review and stronger oversight, citing “persistent underperformance”.

“The director nominees announced today will bring the right experience and objective perspectives to the Board as it executes the best path forward for the Company, including by bolstering accountability and improving oversight of management initiatives”, Elliott said March 4.

The nominees are Brian Coffman, ex-chief executive of Motiva Enterprises and former senior vice president (SVP) for refining at Andeavor; Sigmund Cornelius, former SVP and chief financial officer of ConocoPhillips; Michael Heim, co-founder and former president and chief operating officer of Targa Resources; Alan Hirshberg, former executive VP for production, drilling and projects at ConocoPhillips; Gillian Hobson, former capital markets partner at Vinson & Elkins; Stacy Nieuwoudt, former energy and industrials analyst at Citadel; and John Pike, partner at Elliott.

Elliott at the time also announced a non-binding proposal for Phillips 66 to institute annual director elections.

“Over five of the last nine years, the Company has put forward multiple proposals to declassify the Board - all of which received strong stockholder support (including 99 percent of the shares voted in 2023) but failed to achieve the 80 percent supermajority threshold of shares outstanding to allow for a Charter amendment”, Elliott said.

Two of Phillips 66’s 14 seating directors, 13 of whom are independent according to the company, have decided not to stand for re-election, according to a disclosure with the Securities and Exchange Commission (SEC) February 12.

In a letter to shareholders March 5, Phillips 66 defended its board, highlighted its progress toward operational targets and said it is committed to transparency and accountability.

“Nevertheless, we remain fully committed to constructive engagement and finding a path forward with Elliott that will benefit all shareholders”, Phillips 66 said.

“The Board continuously and aggressively evaluates the portfolio and other alternatives with a view to maximizing long-term shareholder value - and is willing to take decisive action to achieve this goal”, it added.

For the fourth quarter of 2024 Phillips 66 saw refining losses deepen to $775 million from $108 million for the prior quarter. For the fourth quarter of the prior year, Phillips 66’s refining business logged $814 million in net profit.

Realized refining margins averaged $6.08 a barrel in the October-December 2024 period, down from $8.31 for the prior quarter and $14.41 for the corresponding quarter in 2023.

Phillips 66 posted $8 million in net income for the fourth quarter of 2024, a dramatic fall from $1.26 billion for the same three-month period in 2023.

Phillips 66 kept its crude capacity utilization stable at 94 percent between the third and fourth quarters of 2024.

Refining turnaround expenses dropped sequentially from $137 million to $123 million.

When adjusted for extraordinary or nonrecurring items, the refining segment lands at a $759 million net loss for the fourth quarter of 2024, compared to a $67 million net loss for the third quarter of 2024.

Before interest, tax, amortization and depreciation deductions, the refining segment had an adjusted net loss of $298 million, compared to an adjusted net profit of $188 million for the preceding quarter.

“Refining adjusted pre-tax loss increased [quarter-on-quarter] primarily due to a decline in realized margins largely driven by lower market crack spreads and accelerated depreciation associated with the planned ceasing of operations at the Los Angeles Refinery, partially offset by a higher clean product yield”, Phillips 66 said in its quarterly report published January 31, 2025.

Phillips 66 announced October 16, 2024, it would cease production at its Los Angeles refinery by the end of 2025, with chief executive Mark Lashier citing uncertainty from “market dynamics”.

To contact the author, email jov.onsat@rigzone.com