In 2018, inflation fears have sent oil stocks tumbling. The oil refiner, Phillips 66 decided to buy back a slice of its own sock per Warren Buffett’s advice. Phillips bought 35 million of its shares from Berkshire Hathaway for $93.73 apiece or about $3.3 billion, with the repurchasing price being less than the stock rising to $106 at the end of January. Buffett claims it wasn’t the slump that pushed him into selling but rather motivated by a desire to not have regulatory requirements hanging over Berkshire’s head. Berkshire is still one of Phillip’s larger shareholders with plans to maintain the stock over time.
Berkshire will hold 45.7 million shares of Phillips 66 or 9.8% of the total shares outstanding. Berkshire has done well investing in Phillips 66 because in 2016 Phillips had 55.4 million shares of stock that they had bought for $78.67 shares a piece, just as they had bought 18 million shares that year for $77.23 per share which meant that Buffett would have booked a 20% gain. Phillips 66 is a top 10 holding for Berkshire and will remain this way for the foreseeable future. Last year was hard for the energy sector but Phillips 66 came out on the other side, generating $3.6 billion in cash flow, up from just $3 billion in 2016.
Phillips 66 has projects going on such as the Bakken Pipeline, needing to add more storage capacity at the Beaumont Terminal, trying to finish a $6 billion a chemicals expansion along the Gulf Coast, with a joint venture partner in Chevron. Phillips will be generating more cash flow this year and higher in the years to come. The partners plan on building a new unit at Lake Charles Refinery, where it will boost a product of gasoline containing higher octane. Buffet sold his stake with Phillips because he felt his position was too large.