Phillips 66 reports first quarter earnings of US$385 million

Phillips 66 has announced first quarter earnings of US$385 million, compared with US$650 million in the fourth quarter of 2015. Adjusted earnings were US$360 million, a decrease of US$350 million from the last quarter.

"Weaker margins impacted our financial results in the first quarter," said Greg Garland, Chairman and CEO of Phillips 66. "Our businesses ran well, and we remain focused on operating excellence with industry leading safety performance. During the quarter, we successfully completed planned turnarounds and accelerated some maintenance activities in the low margin environment. We are committed to maintaining our strong balance sheet and a disciplined approach to capital allocation. During the quarter we reinvested US$750 million in the business and distributed US$687 million to shareholders.”

Midstream

Phillips 66's Midstream first-quarter adjusted earnings were US$40 million, a decrease of US$2 million from the fourth quarter of 2015.

Adjusted earnings from Phillips 66’s Transportation business were US$72 million during the first quarter, a decrease of US$6 million from the fourth quarter. Results were impacted by lower earnings from the Rockies Express and Explorer pipeline joint ventures and higher property taxes.

Phillips 66's NGL business generated a loss of US$11 million in the first quarter. The US$9 million decrease from the prior quarter's adjusted results was largely related to seasonal storage activity, partially offset by lower taxes in the first quarter. Additionally, fractionation processing volumes were limited by heavier incoming NGL composition and turnaround activity.

Phillips 66 Partners (PSXP) contributed US$32 million to the Midstream segment's first-quarter earnings. Distributions per limited partner unit increased by 5% from the fourth quarter to US$0.481 per unit. Distributions to Phillips 66 from PSXP were up 7% in the first quarter, compared with the prior quarter, reflecting the positive impact of incentive distribution rights.

For the first quarter, the company’s equity investment in DCP Midstream, LLC (DCP Midstream) had an adjusted loss of US$21 million, compared with a US$34 million adjusted loss in the prior quarter, as low commodity prices continued to impact DCP Midstream's results. Compared with the prior quarter, results benefited from improved reliability, higher earnings from DCP Midstream's increased interests in the Sand Hills and Southern Hills pipelines and favourable contract restructuring efforts.

Chemicals

The Chemicals segment reflects Phillips 66's equity investment in Chevron Phillips Chemical Company LLC (CPChem). First quarter Chemicals adjusted earnings were US$156 million, compared with US$182 million in the fourth quarter of 2015.

During the first quarter, CPChem's Olefins and Polyolefins business contributed US$145 million to Phillips 66's Chemicals earnings. This was a decrease of US$36 million compared with the prior quarter, primarily due to a decline in cash chain margins, largely driven by lower polyethylene sales prices. Global utilisation for O&P was 93%, up from 92% in the fourth quarter, reflecting good demand.

CPChem's Specialties, Aromatics and Styrenics business contributed US$16 million of adjusted earnings in the first quarter, an increase of US$7 million from the prior quarter. The increase was primarily from improved earnings at CPChem's SA&S equity affiliates due to higher volumes.

Refining

Refining adjusted earnings were US$86 million in the first quarter, compared with US$376 million in the fourth quarter of 2015.

The decrease in earnings was largely driven by lower worldwide gasoline and distillate margins. Market crack spreads were US$10.64 per barrel, down 17% from the prior quarter, and the distillate market crack spread was the lowest since 2010. The Central Corridor and West Coast regions were most impacted by weaker margins, with 24 and 26% decreases in market crack spreads, respectively. Phillips 66's worldwide clean product yield was 82% in the first quarter, compared with 85% in the fourth quarter, primarily due to planned and accelerated maintenance on secondary units. Market capture was 67% in the first quarter, down from 74% in the fourth quarter. Turnaround costs for the first quarter were US$115 million.

Phillips 66’s worldwide refining crude utilisation was 94%, consistent with the prior quarter. Utilisation in the first quarter was impacted by run cuts at certain refineries due to market conditions.

Strategic update

Development of the Sweeny Hub is nearing completion with construction of the LPG Export Terminal approximately 80% complete. The project is on time and on budget with startup expected in the second half of 2016.

The company is participating in joint ventures to develop the approximately 470 000 bpd Dakota Access Pipeline (DAPL) and Energy Transfer Crude Oil Pipeline (ETCOP) system. Phillips 66 has a 25% interest in these joint ventures with Energy Transfer Partners and Sunoco Logistics Partners. Mechanical completion is expected in the fourth quarter of 2016.

Phillips 66 is continuing to invest in its Beaumont Terminal, the largest terminal in the company's portfolio. The terminal has 3.2 million bbls of new storage capacity under construction. In addition, a variety of other projects aimed at increasing storage and throughput capabilities at the terminal have been initiated.

On 1 March 2016, Phillips 66 contributed a 25% controlling interest in the Sweeny fractionator and associated Clemens Caverns NGL storage facility to its master limited partnership, Phillips 66 Partners, for total consideration of US$236 million. Transaction consideration consisted of US$24 million in newly issued PSXP units and a US$212 million note payable to Phillips 66. In addition, Phillips 66 Partners reached a milestone with the recent startup of the first segment of the Bayou Bridge Pipeline. This initial leg delivers crude oil from the Phillips 66 Beaumont Terminal in Nederland, Texas, to the Phillips 66 Partners Clifton Ridge Terminal in Lake Charles, Louisiana.

In Chemicals, overall progress on CPChem's world scale US Gulf Coast Petrochemicals Project is approximately 75% complete, with startup expected in mid-2017. This project consists of an ethane cracker and related polyethylene facilities that will increase CPChem's global ethylene and polyethylene capacity by approximately one third.

Adapted from press release by Rosalie Starling

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