Their latest presentation is the best 1 yet. It demolishes every point that Go Go and The Board try to make!
8 replies (most recent on top)
P66 is a glorified Funny Farm, a fugazi. McKinsey was the obvious choice, Kev needed fresh advice on how to continue the game of “hide the ball”. Double down on Midstream they said, we’ll own all sides of the equation. Push out anyone with a memory or anyone that may be quick enough to call BS. No one will ever know, we’ll just churn around in circles and charge ourselves a fee….we’ll market it as capturing the whole value chain! Speaking of, what do Lease Crude and Sentinel Trucking do these days?
@v1+1jtnz10hs can you elaborate further on the situation in Commercial? Isn’t that supposed to be one of the better run groups?
The answer is in the middle.
I don’t at all buy all of what Elliott’s position is - and call some of it well on the line of being BS (particularly relative to Midstream and Chems actual market valuation (efficient markets or not) as the prior poster alludes to) - but the fact of the matter is that PSX continues to refuse to answer or rebut many of their other good points - because the fact of the matter is that they have underperformed, (synthetic proxy peer median notwithstanding-which is a laugh to begin with - creating your own category to measure yourself against) and will continue to with this leadership team.
They haven’t at all proven that they deserve another 7 years (as the prior poster states). They ignored refining and its optimization for over a decade relative to focus and investment, and are trying to say now “we promise we’ll do better…..we promise”. Kicked good VP level folks out of the company in that function who are now optimizing other (better) and more commercial refiners.
They’ve ignored Commercial Trading & it’s related support functions, moving good people out and putting the wrong people in the wrong positions, some functions in weird places…….then making outside hires (particularly a very recent senior hire) that make absolutely no sense relative to what they say they wish to achieve - they simply don’t have the right skill set/experience. There are senior folks available at any of the top tier trading houses with former hard asset, refining, crude & NGL trading experience who know how to optimize it; the problem is likely that they don’t want to pay these folks the $5-$8mil per year - the market level they would demand to do it (ie ELT level compensation). To say nothing of the commercial freedom they’d have to allow them in order to capture the hard dollar benefits.
So they bring people in hurriedly on the cheap that can tell a good story and check a few boxes (I’m guessing the Elliott criticism has something to do with this as well) who very likely haven’t done any of what they say they want to achieve in the future - in the past.
A big part of the problem is as others have said - look, most shareholders are sheep, right? This ELT has counted on and leveraged that to create massive compensation for themselves and their cronies/colleagues they grew up in Phillips’ predecessor companies with, along with a few key outsiders (at least for a while). While telling shareholders “we’ve done well vs the S&P and the “synthetic peer proxy”……..whatever the he-l relevance that has.
Look - if some PSX shareholders are happy being led down the primrose path…..fine. I have no illusions about Elliott’s key motivation at the end of the day. Nor should anyone else. But if nothing else-if they force a real introspection into what PSX is doing to truly maximize shareholder value and not just to maximize their own ELT compensation at shareholder expense (which they have gotten very good at) - any real chance at a shakeup should be welcomed by all shareholders. No matter the result.
In response to the question of IF there is value unlock, the share price being closer to $100 than $200 is indicative of it, certainly.
If you’re hypothesizing why hasn’t the stock moved higher on more Elliott involvement news (assuming efficient market hypothesis is true), the answer is that shareholders EITHER aren’t placing a high probability on Elliott’s ability to win over four board seats on May 21 OR don’t think their plan would work even if they won the seats.
Regardless if you drink all of Elliott’s Koolaid, one must at least concede that management has made poor capital allocation decisions, operated commercial and refining sub-optimally, and is more interested in preserving their own paychecks and milking the golden cow for more than they are in stewarding shareholders’ capital to the best of their ability.
The question as to whether the sum of the parts integrated is greater than the parts independently is one that had been asked since 2018. ML’s and the ELT’s answer seems to be, give us another 7 years (so we can keep milking this thing a while longer while being compensated handsomely for mediocre performance). Elliott’s answer is, time is up; clearly your strategy to realize full value has failed. We want our money.
It is laughable to say Elliott’s argument is irrefutable. Look throughout the presentation and see what dates are used for timelines and graphs. Why are they all different? Is it because you can choose different dates and get different messages? 100%! Are they changing sources for information to pick one that tells their story. 100% are they putting sentences in quotes to make it look more official than then just having conversations amongst themselves and their like minded friends? 100%
Like most stories, the truth tends to lie somewhere in the middle. Elliott has not interest in long term value of PSX, they just want to make a quick buck and dump their ownership.
Problem is that there isn't a value unlock story. Otherwise the stock would be much closer to $200. Market is telling Elliott that they are wrong. Pretty straightforward.
Agreed. It’s excellent and virtually impossible to refute. Besides the obvious points on refining performance (and most recent margin improvements being market driven) and the seeming indifference to absolutely maximizing shareholder return by any means necessary - short and long term - they also nailed it on the true value of marketing/refining/chems integration (ie this can and is often fully replicated as part of transactions via commercial agreements - BP, Shell, Chevron, Marathon and ExxonMobil have all done this in recent years). And the recent attempts to “talk down” the multiple are (and should be) shocking to all.
Also repeating the point on how they (PSX) have completely gamed how they report results (particularly TSR) on a non-regulated vs regulated (SEC) basis is telling.
They (Elliott) have done their homework and spoken to the right people on the transaction & trading/commercial parts of the market relative to structured agreements often embedded in asset sales (and sometimes after them) in order to preserve integration value. It’s not rocket science. Happens all the time. Shell & BP in particular are experts in doing it as part of M&A.
It’s really clear that PSX simply isn’t going to answer Elliott’s most pointed questions - particularly relative to relative refining performance versus the best (MPC & VLO) and relative to dilutive M&A. They are sticking with moving the goalposts and saying “we’re unique - and a community of one integrated midstream & chems player” who is a refiner just to help with integration value. The “synthetic peer proxy” metric just makes me shake my head, as many always have.
Refining isn’t a “nice to have for integration” or a hobby. It’s necessary and critical to the communities it exists within - as well as being very dangerous; it’s deep chemical conversion. You have to run refineries very hard and on the edge to be competitive - and doing that requires investment in complexity, reliability and logistics for clean product optionality - which has been lacking for way too long, particularly at the coastal refineries at PSX.
Because the returns weren’t there from the ELT’s / Board’s perspective. There has always been something more se-y to invest in (or at least areas that have that appearance). But you have to upgrade if you are staying in the conversion space just to remain viable - no matter whether Refining will represent less of the entity or not - going forward.
Elliott’s point is a simple one. If you can’t capture the extrinsic multiple for your shareholders that your structure suggests that you should via integration - and you’ve had a long time to do so (both true in PSX’s case) - then forget about the “whole”, divide it into the sum of the parts, and allow your shareholders to realize the value from that sum of the parts themselves. That way every part can be optimised and maximised, do what it does well, and have that multiple be recognised by the market.
If you are going to be a refiner, then at least TRY to be VLO and MPC as a best in class refiner, particularly if you have 1.7MMBD processing capability less Wilmington (which yes is still considered large) . Make the investment to do so.
Or exit and let someone else do it. 1.7MMBD conversion capability is too large to be strictly an “integration tool”. And everyone knows it.
Work Elimination Program has decided that the ELT and Gogo are walked out the door this Friday