Buffet Bets Big on Flow Improvers


Investment giant Berkshire Hathaway agreed to divest around $1.4 billion of Phillips 66 common stock in exchange for Phillips 66s flow improver segment.

Berkshire Hathaway, the international conglomerate which also owns specialty chemicals manufacturer Lubrizol Corp., announced in a Dec. 30 press release that it will buy the business – known as Phillips Specialty Products Inc. (PSPI) – for approximately 19 million Philips 66 shares. The exact number of shares will be determined at the time of the deal, which is scheduled to close in the first half of 2014.

The investment firm will appoint Lubrizol CEO James Hambrick as the strategic director of the flow improver business. Contacted by Lube Report, both Phillips 66 and Lubrizol declined to comment beyond the information in the press release.

A wholly owned subsidiary of Phillips 66, PSPI develops polymers that increase flow in petroleum transport pipelines. According to PSPIs website, the polymers reduce drag by decreasing turbulence caused by contact between the inside of the pipe wall and the moving oil. The polymers mix with the oil to reduce contact and the resulting turbulence, allowing it to be pumped at lower pressures. PSPIs LiquidPower line is designed for the delivery of crude and refined oil products and non-potable water, and its ExtremePower flow improvers are formulated to maximize flow in heavy duty crude operations.

CEO Warren Buffet lauded the strength of the business in the companys press release. The investor mentioned he has been eyeing the segment for some time. The flow improver business is a high-quality business with consistently strong financial performance, and it will fit well within Berkshire Hathaway.

Pipelines accounted for 70 percent of all the United States petroleum transportation in 2009, according to a February 2012 Association of Oil Pipe Lines (AOPL) report. Pipelines remain the preferred method for transporting petroleum and refined products in the U.S. for good reason: they are the safest, cheapest and most reliable transporter of Americas energy, AOPLs president and CEO Andy Black said in the press release.

Other companies, such as Infineum International Ltd., based in the United Kingdom, have developed similar flow improver product lines, but PSPI claims it invented the first commercial drag reduction agent in the 1990s.

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