Brian Coffman, former CEO of Motiva

Episode Transcript

(00:01)

Bri Scholtz: Welcome to the Streamline 66 Podcast where we bring you the latest in Elliott Investment Management’s effort to unlock value at Phillips 66. Joining me today is Brian Coffman, who brings over four decades of refining expertise. He was CEO of Motiva and held leadership roles at Tesoro, Phillips 66 and ConocoPhillips. Brian, thank you for joining me today.

(00:23)

Brian Coffman: Thank you, it’s a pleasure to be with you, Bri.

(00:26)

Bri Scholtz: I’d like to get started on your background and upbringing. Can you take us through that?

(00:30)

Brian Coffman: Yeah, I was born and raised in Southern California. Spent my entire life there through high school anyway. I was raised by a dad who was a pipefitter and my mom worked for the school district as a cafeteria supervisor. What was instilled in me, and I remember very vividly is the values of hard work and independence, and to this day I still value those tremendously in my life. I met my wife, actually, when I was in high school and we married shortly after she graduated. So we’ve been married for 47 years. We have four children and a bunch of grandchildren. They’re scattered throughout the U.S., so we enjoy visiting children and grandchildren when we get the time to do that.

(01:07)

Bri Scholtz: Before your career in energy, you were in the military. Can you talk about how this informed your leadership style?

(01:14)

Brian Coffman: Yeah, I joined the military right after high school. Actually, I was still 17. Didn’t know what I was going to do with my life. So when I graduated, my dad encouraged me to join the military. Best move I could have made because they quickly teach you how to focus, how to become disciplined, and how to become a team. And I needed all that tremendously after I graduated from high school. And to this day, those are lessons that I learned and I still practice at this point in my life.

(01:41)

Bri Scholtz: What drew you to the energy industry?

(01:44)

Brian Coffman: Well, you know, Conoco was recruiting at the school I graduated from, Utah State University with an MBA. And I was very intrigued by the energy industry because I knew how vital the industry was. It enables all other industries from housing to transportation to medicine to technology to national security. So it has been a true pleasure to be a part of an industry that’s been so vital to this country and so vital in creating the comfort, convenience, and security that we enjoy as Americans.

(02:16)

Bri Scholtz: Can you talk about your early roles at Conoco, some of your responsibilities?

(02:20)

Brian Coffman: When I was hired at Conoco in 1983, I was hired into the management development program, a formal program designed to develop general managers to move throughout the company. It was a rigorous formal program. And in fact, the washout rate was about 50% of each class. After I graduated from that program successfully, I was suddenly an assistant terminal manager at a large truck terminal in Orange, Texas. And then I moved into the pipeline and terminal side of the business. So my early career involved supervision, focus on safety, reliability, and cost containment. And I actually performed reasonably well. 

So they asked me to move into refining at Lake Charles, where I became an area manager at the Lake Charles refinery, which was a very unusual move, actually for a guy with a degree in finance and an MBA, but I had done quite well in operations. So suddenly I was in the refining arena with a bunch of chemical engineers and mechanical engineers, ran an area that was the tank farm and marine docks and inbound outbound pipelines, did that for three years. And then I was asked to move over into process units. So I ran crude units, reformers, hydro treaters for three years at Lake Charles. 

And it was after that that I moved to Venezuela to be the general manager of the Petro Zawada Upgrader down there. Petro Zawada was a joint venture between Conoco and PDVSA at the time. Served down there for three years and then I moved into the Trainer Refinery and from there that’s where my career in refining really took off. In fact, the last half of my, the last 17, 18 years of my career in Conoco were in refining, running refining.

(03:59)

Bri Scholtz: And you ran the Phillips, Bayway, and Humber refineries. Can you take us through those roles and what were your responsibilities there?

(04:07)

Brian Coffman: That is correct. After I left Venezuela, I went to the Trainer Refinery, which Phillips 66 doesn’t own anymore, and worked on improving safety and reliability there. And they had a cost issue as well that we worked on tremendously. From there, I was asked to go to the Bayway Refinery, a very large refinery on the East Coast in Linden, New Jersey, right there on New York Harbor. So it’s a tough refinery from a competitive standpoint. I had PnL responsibility while I was there, 750 employees who worked for me. And then from that role, after several years there, I was asked to move to England and become the general manager of the Humber Refinery, which is again, PnL responsibility and another 750 employees. But the real responsibility at Bayway and at Humber was driving safety, driving reliability, because both of those are what lead to profitability and refining.

(05:00)

Bri Scholtz: And then after Phillips 66, you moved to Tesoro and then later to Motiva. Can you talk about how that added to your refining expertise?

(05:08)

Brian Coffman: It was a tremendous opportunity after serving at Humber to be asked to move to Tesoro, a refiner, a marketer and midstream company in the Western U.S.. I was asked to be the Senior Vice President of Refining. Had a system of 10 refineries to run, optimize across those 10 refineries as opposed to just running one refinery. So it was a big step up, a big challenge, but one that I was excited to take on. One of the things about Tesoro, the refineries, is they were all formerly owned by other companies. So it was a hodgepodge of legacy refineries. And my remit was to focus on improving the safety, the reliability and reducing the cost, making them more cost competitive. And we made a lot of progress in that arena. One of the things that we also did was work on standardizing the processes and creating our own standards and executing well on them. And they were all based on what good looks like in the industry, and we made a lot of real good progress in that arena. 

I worked closely with commercial when I was at Tesoro, so that was a real opportunity to get a big exposure to a big commercial operation in Tesoro. And it was from there that I then moved on to Motiva and became the president and CEO of Motiva. And Motiva had just become a wholly owned company, independent company owned by Saudi Aramco. And one of the things about Motiva was a matter of building a business because while it was a joint venture, the company was run with service level agreements via Shell. So Shell in many ways ran a lot of the functions at Motiva, including supply and trading. The focus there as well was to drive improvement in reliability, drive improvement in safety, and drive improvement in profitability. And we were successful.

(06:57)

Bri Scholtz: I’d like to dive into what you think matters most in running a high performing refining business.

(07:04)

Brian Coffman: Yeah, It’s consistent from refinery to refinery and the focus has to be on safety and reliability. Day in, day out, you can’t ever take your eye off the ball on personal safety, process safety, mechanical integrity and reliability. And following that, you’ve got to be focused on cost. You have to be cost competitive, so you’ve got to have real discipline in your costs in a refinery. The biggest expense in a refinery or biggest expenses in refinery are labor and maintenance. And so your maintenance process has to be based on what good looks like and you have to execute with precision on your maintenance. 

You also have to be focused on turnarounds and doing turnarounds well, planning well, executing well. Same thing with capital projects, because those are two areas where it’s easy to go over budget and over schedule, which can impact your margin capture and your operation reliability of your refineries. 

The other thing that’s vital in refining is that commercial and refining need to fit hand in glove. There needs to be real tight connection between the commercial organization and the refining organization, because it’s so important that the right barrels are procured for a refinery at the best price, and that the the refinery is producing the right products at the right time, and they’re placed in the highest value outlets. And to do all that, it takes very tight discipline between refining and commercial. The collaboration has to be very high in that regard. That’s how you achieve best in class performance. And it seems to me that that’s something that Phillips 66 seems to have taken their eye off the ball on.

(08:34)

Bri Scholtz: Is there reason why Phillips’s refining assets don’t stack up well against its peers?

(08:39)

Brian Coffman: Excellent question. And the answer is I can’t think of any. I know when I was there, Phillips 66 stacked up very well. The assets haven’t changed. The assets haven’t degraded. I’ve heard it said that there’s a belief that maybe the assets are old and tired. And I don’t buy that argument. You know, as long as the refinery is well maintained and well invested in from a sustaining capital standpoint, the refineries should continue to perform. And the Phillips 66 refineries are every bit as good as the Valero, Marathon refineries. I think that the logistics, product placement capabilities of these refineries, the high margin product capabilities of some of these refineries is outstanding. And there’s no reason why these refineries, why this refining system, these assets can’t match up with the competitors, Valero and Marathon.

(09:26)

Bri Scholtz: Let’s talk about the people. So the employees during your time working at these refineries and overseeing them, what was the culture like?

(09:34)

Brian Coffman: There was a lot of pride at Phillips 66. The employees knew that they had strong assets, strong refineries. They had a lot of support from leadership. had very high expectations while I was there and even higher accountability for those who were working in refining at the time. The culture was one of operating discipline around achieving safe, reliable operations day in and day out. We never lost focus on that. There was also a lot of focus on costs. I mean, we were one of the best in terms of our cost per barrel because there was intense focus on ensuring that we were optimizing our costs and spending the money where it needed to be, but never overspending. The same thing went for capital. We were focused on capital and turnarounds and doing them very well. And we were held accountable if we didn’t. So it was a strong culture of accountability based on high expectations. So we were pretty darn reliable. pretty darn safe and all the employees there were very proud to be a part of that.

(10:35)

Bri Scholtz: And if you had a message for our listeners that are employees of Phillips 66, what would that be?

(10:40)

Brian Coffman: Well, I think the message is simple, that we see a lot of potential in the Phillips 66 refining company. I mean, there’s just tremendous capability there. And so the message would be, be optimistic, be positive. I think what we’re looking at is restoring the operating excellence that Phillips 66 has been known for historically. Those assets, those refineries have historically run very, very well.

And so the message would be, would like to see that sort of performance be restored at Phillips 66 so that people talk about Phillips 66 as a top performer in refining versus Valero or Marathon.

(11:22)

Bri Scholtz: If you were on the Board of Phillips and you were tasked with improving the operations of these refining assets, what plan would you put in place?

(11:28)

Brian Coffman: Well, I think that plan would begin with meeting with refining leadership and understanding where the gaps are. I would also want to meet with each general manager individually and discuss with them the performance of their individual refinery. And before any of these meetings, I would of course request a lot of information, a lot of data, the Solomon studies going back several years. I would immerse myself into that data and then I would request these meetings with the general managers. But I would also want to ask for meetings with the ops manager and the maintenance manager and the tech manager at each refinery because that’s where a lot of information is as to what’s going on within those refineries. You know, there’s another thing I would do is to ask to meet with commercial to understand what’s going on with product placement and with crude acquisition, a huge part of the profitability of refining.

(12:20)

Bri Scholtz: What do you think about returning to Phillips 66 in a board role?

(12:23)

Brian Coffman: Yeah, great opportunity. I have very fond memories of Phillips 66. You know, that’s where a lot of my growth and development has occurred. Had tremendous mentors while I was there at Phillips 66, a lot of excellent employees. And so I think the world of the Phillips 66 refining employees, and I would love the opportunity to become a part of Phillips 66 again in a board role and refocus the attention that should exist for Phillips 66 Refining. You know, I think the employees are feeling a bit like second-class citizens, like the focus has been turned elsewhere in the recent years, that they’re not getting the support, the resource, the capital allocation that they should be getting to drive the performance that they know they’re capable of and that they want to live up to. I’ve worked side by side with so many of them and they’re still there and I still hear from them. And so the opportunity to restore the operating excellence of years gone by, I think, is something that I would just find tremendous satisfaction from and hopefully the employees would view it the same way, that they’re looking for someone who will reprioritize refining the way it should be within Phillips 66.

(13:37)

Bri Scholtz: So to you, what does great look like for Phillips 66?

(13:41)

Brian Coffman: I think great looks like, you know, absolute safe performance, personal safe performance, process safety performance, incredible environmental stewardship, strong utilization across all units in each refinery, which means reliability across all units. It looks like turnarounds that are done well, planned well and executed well. And it looks like no distractions. mean, eliminate the distractions so refiners can focus on being the best refiners. Right now there’s some lack of clarity and there’s some muddled strategy and, and some lost focus. And so by restoring some clarity, the performance will follow for Phillips 66 refining.

(14:25)

Bri Scholtz: And you’ve worked with Elliott from the beginning of this campaign. You’ve helped us diligence this opportunity. Can you share your views on Elliott’s diligence of Philip 66?

(14:35)

Brian Coffman: Elliott has looked at all of the data. They’ve been very data driven, looking at costs, looking at their margin capture, looking at their leadership structure, looking at their governance and understanding the capability of the assets. It’s been very impressive to watch the work that Elliott has done.

(14:54)

Bri Scholz: And I’d love to hear from you what excites you most about the opportunity to join the Board of Phillips 66.

(15:00)

Brian Coffman: I started at, well, it was Conoco, Conoco Phillips Phillips 66, but I started in 1983. And my first role, showed up at the division office and I was told that we’re short of offices, but we can offer you a table in the copier room to start. And that’s where I spent my first year was at a table in a copier room. But as I progressed through Phillips 66, I felt so blessed at what I was learning and how I was growing and how I was developing. And so now the opportunity to join the Board after starting as an associate analyst in 1983 really excites me because I would like to be a part of unlocking the tremendous value that exists at Phillips 66 and restoring the performance of that refining company to what it has been historically.

(15:45)

Bri Scholtz: Brian, thank you so much for your time today and especially for your willingness to serve on the Board of Phillips.

(15:50)

Brian Coffman: It’s been a pleasure to be here, Bri. Thank you so much.