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Buffett Buys Pipeline Improver Business from Phillips 66

Berkshire Hathaway Inc. Monday agreed to pay Phillips 66 an estimated $1.4 billion with stock it already owns in the operator to acquire a pipeline flow improver business.

Phillips Specialty Products Inc. (PSPI), based in Houston, specializes in drag reduction in oil pipelines. Specialized polymers are manufactured to to increase operational flexibility and throughput capacity. Its LiquidPower Flow Improvers are used primarily for crude, refined products and non-potable water pipeline operations.

"I have long been impressed by the strength of the Phillips 66 business portfolio," said Berkshire CEO Warren Buffett. "The flow improver business is a high-quality business with consistently strong financial performance, and it will fit well within Berkshire Hathaway. I plan to have James L. Hambrick, CEO of The Lubrizol Corp., oversee its strategic direction."

Lubrizol, owned by Berkshire, is a technology-driven global company that combines complex specialty chemicals to optimize products while reducing their environmental impact.

PSPI developed its pioneering technology in the 1970s and now works with customers in more than 35 countries on six continents, treating more than 12 million barrels of hydrocarbon liquids a day. The specific number of Berkshire shares to be exchanged would be determined by the producer's share price when the transaction closes, which is expected by June.

"Berkshire Hathaway made a strong offer for our high-performing flow improver business," Phillips 66 CEO Greg Garland said. "This transaction optimizes our portfolio and focuses growth on our midstream and chemicals businesses."

ConocoPhillips spun off Phillips 66, its refining/chemicals business, in 2012 to become an pure-play independent; it was at the time one of the biggest breakups in the U.S. energy industry (see Daily GPI, April 17, 2012). At that time Berkshire held about 20 million shares in ConocoPhillips. It still holds about 3.5 million in ConocoPhillips, as well as a big stake in Phillips 66 that is estimated to be worth at least $1.6 billion.

Phillips 66 is one of the top refineries in the country, marketing gasoline at 7,000-plus stations. However, it also has been concentrating more effort and money into making fuels and chemicals.

Berkshire in November scooped up about 40 million shares worth about $3.7 billion in ExxonMobil Corp. (see Daily GPI, Nov. 15, 2013). It also has about 8.9 million shares in National Oilwell Varco. In addition, Berkshire owns BNSF Railway Co., which is moving crude oil across North America and testing natural gas-fueled locomotive engines (see Daily GPI, March 8, 2013).(On Monday a BNSF train carrying grain derailed in North Dakota, hitting a crude oil train on an adjacent track that led to an explosion and evacuation of the area.)

Berkshire also owns MidAmerican Energy Holdings Co., which includes interstate pipelines Kern River Gas Transmission and Northern Natural Gas, and PacifiCorp, which operates utilities serving approximately 1.8 million customers in six western states. Last May the company agreed to buy utility NV Energy Inc. for $5.6 billion (see Daily GPI, May 31, 2013).

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