Berkshire swaps $1.4B in Phillips 66 stock for pipeline unit

Berkshire Hathaway Inc. will swap about $1.4 billion in shares of Phillips 66 for full ownership of the U.S. energy firm’s pipeline-services business as billionaire Warren Buffett expands his bet on oil transportation.

Berkshire will exchange about 19 million shares, Phillips 66 said. The exact number of shares Berkshire will pay for Phillips Specialty Products Inc. will be determined when the deal is completed.

A U.S. drilling boom has expanded crude oil and natural gas production, prompting pipeline operators to boost capacity. Polymer-based additives, the focus of Phillips’ business unit, are used to move products through the pipe more efficiently by reducing drag. They can increase capacity at a time when approvals for new pipelines come slowly.

“Berkshire is betting on this s t uff because there are a lot of liquids pipelines in the United States operating at capacity,” Richard Kuprewicz, president of Accufacts Inc., a Washington state-based pipeline consulting firm, said. “This is a way to get capacity up quickly on pipelines that need a boost without having to spend a lot of money or time on permits.”

Berkshire has already benefited from the expansion of U.S. energy production. Its Burlington Northern Santa Fe railroad has been boosting shipments of crude oil and investing in infrastructure to haul more petroleum to refineries. The company also owns pipelines through MidAmerican Energy Holdings Co.

A Burlington Northern train carrying oil erupted into flames Monday after colliding with another train that had derailed near Casselton, N.D.

Buffett and his deputies also have invested in other energy companies this year. Berkshire said in November it had accumulated 40.1 million shares of ExxonMobil Corp., valued at more than $4 billion. The money managers also added holdings in energy producers National Oilwell Varco Inc. and Calgary’s Suncor Energy.

The companies said in a statement they expect to complete the deal in the first half of 2014 after regulatory reviews.

Part of Berkshire’s holding in Phillips 66 derives from Buffett’s wager on ConocoPhillips when oil and gas prices were near their peak in 2008. As prices plunged later that year, Berkshire took a $1.9 billion charge on the investment, contributing to its worst quarterly loss in at least two decades. Buffett called the bet a “major mistake” in a 2009 letter to shareholders.

This is a way to get capacity up quickly …

RICHARD KUPREWICZ, ACCUFACTS INC. PRESIDENT