Phillips 66 Reports Fourth-quarter Earnings of $2.2 Billion Or $4.82 Per Share

Source Press Release
Company Phillips 66 
Tags Refining & Marketing Activities, Strategy - Downstream, Pipelines/ tankers/ distribution, Capital Spending, Strategy - Corporate, Financial & Operating Data
Date February 08, 2019

Highlights

Fourth Quarter

  • Delivered strong reported earnings and record adjusted earnings
  • Generated $4.1 billion of operating cash flow, including $840 million from equity affiliates
  • Returned $864 million to shareholders through dividends and share repurchases
  • Achieved 99 percent Refining utilization and record market capture
  • Generated record Midstream and Marketing results
  • Phillips 66 Partners achieved five-year 30 percent distribution CAGR

Full-Year 2018

  • Sustained record-low recordable injury rate
  • Reported record earnings of $5.6 billion with ROCE of 17 percent
  • Generated $7.6 billion of operating cash flow, including $2.9 billion from equity affiliates
  • Returned $6.1 billion to shareholders through dividends and share repurchases
  • Increased quarterly dividend 14 percent to $0.80 per common share
  • Achieved 95 percent utilization in Refining
  • CPChem completed the U.S. Gulf Coast petrochemicals project
  • Began Sweeny Hub expansion, including additional 300-MBPD NGL fractionation capacity
  • Phillips 66 Partners started construction of the 900-MBPD Gray Oak Pipeline

Phillips 66 (NYSE: PSX), a diversified energy manufacturing and logistics company, announces fourth-quarter 2018 earnings of $2.2 billion, compared with $1.5 billion in the third quarter of 2018. Excluding special items of $20 million in the fourth quarter, adjusted earnings were $2.3 billion, compared with third-quarter adjusted earnings of $1.5 billion.

"We delivered another quarter of strong operating and financial performance, capping a record year for Phillips 66,” said Greg Garland, chairman and CEO of Phillips 66. “For the year, we sustained our industry-leading safety performance, achieved our highest ever earnings and operating cash flow, and rewarded our shareholders with substantial distributions. Refining operated at 95 percent utilization and captured strong margins from advantaged feedstocks. In Marketing, we generated strong earnings while enhancing our fuels brand image. Our Midstream results reflect growth from value-enhancing capital projects completed over the past two years. CPChem achieved full operations at its new U.S. Gulf Coast petrochemical assets, contributing to increased cash distributions. Phillips 66 Partners generated record earnings and achieved its five-year distribution growth target.”

“During 2018, we increased our quarterly dividend 14 percent and repurchased 10 percent of shares outstanding, resulting in $6.1 billion distributed to shareholders. Since our company’s formation in 2012, we have returned $22.5 billion to shareholders through dividends and share repurchases and exchanges. Share repurchases and exchanges have reduced our initial shares outstanding by 30 percent.”

“Looking to 2019, we remain focused on operating excellence and executing our strong portfolio of growth projects. Disciplined capital allocation is fundamental to our strategy and we will continue to invest in new opportunities with attractive returns, while returning capital to shareholders through dividends and share buybacks.”

Midstream

      Millions of Dollars 
      Pre-Tax Income      Adjusted Pre-Tax Income 
      Q4 2018    Q3 2018      Q4 2018    Q3 2018 
Transportation      234    209      234    209 
NGL and Other      120    46      122    74 
DCP Midstream      25    29      53    29 
Midstream      379    284      409    312 
                       

Midstream fourth-quarter pre-tax income was $379 million, compared with $284 million in the third quarter of 2018. Midstream results in the fourth quarter included a $28 million impact to equity earnings from an asset impairment at DCP Midstream, as well as $2 million of pension settlement expense. Third-quarter results included $28 million in expenses related to claims and pension settlement.

Transportation fourth-quarter adjusted pre-tax income of $234 million was $25 million higher than third-quarter adjusted pre-tax income of $209 million, mainly reflecting higher pipeline and terminal throughput volumes.

NGL and Other adjusted pre-tax income for the fourth quarter was $122 million, a $48 million increase from the third quarter, primarily due to inventory impacts.

The company’s equity investment in DCP Midstream generated adjusted pre-tax income of $53 million in the fourth quarter, compared with $29 million in the third quarter. The increase reflects improved hedging results, partially offset by higher operating costs.

Chemicals

      Millions of Dollars 
      Pre-Tax Income      Adjusted Pre-Tax Income 
      Q4 2018    Q3 2018      Q4 2018    Q3 2018 
Olefins and Polyolefins      158    225      158    225 
Specialties, Aromatics and Styrenics      16    51      16    51 
Other      (22)    (13)      (22)    (13) 
Chemicals      152    263      152    263 
                       

The Chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals’ fourth-quarter pre-tax income was $152 million, compared with $263 million in the third quarter of 2018.

CPChem’s Olefins and Polyolefins (O&P) business contributed $158 million of adjusted pre-tax income in the fourth quarter of 2018, compared with $225 million in the third quarter. The decrease mainly reflects seasonally lower sales volumes and higher operating costs driven by turnaround and maintenance activity. These items were partially offset by higher margins from lower feedstock costs. Global O&P utilization was 95 percent.

CPChem’s Specialties, Aromatics and Styrenics (SA&S) business contributed $16 million of adjusted pre-tax income in the fourth quarter of 2018, a decrease of $35 million from the prior quarter. The decrease primarily reflects lower earnings from CPChem’s equity affiliates and higher domestic turnaround costs.

The $9 million increase in Other adjusted net costs in the fourth quarter mainly reflects the impact of a contingent liability.

Refining

      Millions of Dollars 
      Pre-Tax Income      Adjusted Pre-Tax Income 
      Q4 2018    Q3 2018      Q4 2018    Q3 2018 
Refining      2,001    1,232      2,008    1,263 
                       

Refining fourth-quarter pre-tax income was $2.0 billion, compared with $1.2 billion in the third quarter of 2018. Refining results included pension settlement expense of $11 million and $32 million in the fourth quarter and third quarter, respectively. Fourth-quarter results also included $4 million of favorable U.K. R&D expenditure credits.

Refining adjusted pre-tax income was $2.0 billion in the fourth quarter of 2018, compared with $1.3 billion in the third quarter of 2018. While 3:2:1 market crack spreads were down across all regions, realized margins increased $3.17 per barrel due to crude feedstock advantage, strengthening distillate crack spreads and clean product realizations. Realized margins also benefited from optimization across our integrated logistics network to capture market opportunities associated with widening Bakken, Canadian and other inland crude differentials.

The increase in fourth-quarter results was largely driven by the Central Corridor and Gulf Coast regions. Central Corridor refineries captured the benefit of expanded discounts on Canadian crudes by running at 106 percent utilization during the quarter. The Gulf Coast region operated at 100 percent utilization and benefited from improved clean product realizations and wider crude differentials.

Phillips 66’s worldwide crude utilization rate was 99 percent. Pre-tax turnaround costs for the fourth quarter were $130 million, compared with third-quarter costs of $55 million. Clean product yield was 86 percent in the fourth quarter.

Marketing and Specialties

      Millions of Dollars 
      Pre-Tax Income      Adjusted Pre-Tax Income 
      Q4 2018    Q3 2018      Q4 2018    Q3 2018 
Marketing and Other      525    361      528    323 
Specialties      64    62      64    62 
Marketing and Specialties      589    423      592    385 
                       

Marketing and Specialties (M&S) fourth-quarter pre-tax income was $589 million, compared with $423 million in the third quarter of 2018. M&S results included pension settlement expense of $3 million and $6 million in the fourth quarter and third quarter, respectively. Third-quarter results also included benefits from biodiesel blender tax credits.

Adjusted pre-tax income for Marketing and Other was $528 million in the fourth quarter of 2018, an increase of $205 million from the third quarter. Marketing benefited from market conditions during the quarter that contributed to a 32 percent increase in realized margins. Refined product exports in the fourth quarter were 249,000 barrels per day (BPD).

Specialties generated adjusted pre-tax income of $64 million during the fourth quarter, up from $62 million in the prior quarter due to higher margins.

Corporate and Other

      Millions of Dollars 
      Pre-Tax Income      Adjusted Pre-Tax Income 
      Q4 2018    Q3 2018      Q4 2018    Q3 2018 
Corporate and Other      (203)    (227)      (201)    (223) 
                       

Corporate and Other fourth-quarter pre-tax costs were $203 million, compared with pre-tax costs of $227 million in the third quarter of 2018. Pre-tax costs included pension settlement expense of $2 million and $4 million in the fourth quarter and third quarter, respectively.

The $22 million decrease in Corporate and Other adjusted pre-tax costs in the fourth quarter was mainly due to third-quarter severance costs, as well as lower net interest expense.

Financial Position, Liquidity and Return of Capital

Phillips 66 generated $4.1 billion in cash from operations during the fourth quarter, including $840 million of cash distributions from equity affiliates. WRB Refining and CPChem distributed $348 million and $300 million, respectively, to  Phillips 66 in the fourth quarter. Excluding working capital impacts, operating cash flow was $2.8 billion.

During the quarter, Phillips 66 funded $497 million of share repurchases, $367 million of dividends, $994 million of capital expenditures and investments, and prepaid $300 million of floating rate notes due 2019. The company ended the quarter with 456 million shares outstanding.

As of Dec. 31, 2018, cash and cash equivalents were $3.0 billion, and consolidated debt was $11.2 billion, including $3.0 billion at Phillips 66 Partners (PSXP). The company’s consolidated debt-to-capital ratio was 29 percent and its net-debt-to-capital ratio was 23 percent. Excluding PSXP, the debt-to-capital ratio was 25 percent and the net-debt-to-capital ratio was 17 percent.

Strategic Update

Phillips 66 Partners is constructing the 900,000-BPD Gray Oak Pipeline, which will provide crude oil transportation from the Permian and Eagle Ford to destinations in Corpus Christi and Freeport, including the Sweeny Refinery.  Phillips 66 Partners will have a 42.25 percent ownership in the pipeline, which is anticipated to be in service by the end of 2019.

The Gray Oak Pipeline will connect to multiple terminals in Corpus Christi, including the new South Texas Gateway Terminal under development by Buckeye Partners, L.P. The marine terminal will have two deepwater docks and planned storage capacity of 6.5 million to 7 million barrels. Phillips 66 Partners owns a 25 percent interest in the terminal, which is expected to start up by mid-2020.

At the Sweeny Hub, the company is constructing two 150,000-BPD natural gas liquids (NGL) fractionators and associated pipeline infrastructure, and Phillips 66 Partners is adding 6 million barrels of storage capacity at Clemens Caverns. Upon completion of the expansion, expected in late 2020, the Sweeny Hub will have 400,000 BPD of fractionation capacity and 15 million barrels of storage at Clemens Caverns.

During the fourth quarter of 2018, the company added 1.3 million barrels of crude oil storage at the Beaumont Terminal, bringing total crude and products storage capacity to 14.6 million barrels. A further expansion of 2.2 million barrels of crude oil storage is planned for completion in the first quarter of 2020.

The company and Phillips 66 Partners commenced a project to expand the products system from the Sweeny Hub to  Phillips 66 Partners’ Pasadena Terminal.  Phillips 66 Partners’ Sweeny to Pasadena Pipeline will be expanded by 80,000 BPD, and 300,000 barrels of products storage will be added at the Pasadena Terminal. The project is expected to be completed in the second quarter of 2020.

DCP Midstream completed the Sand Hills Pipeline expansion project in the fourth quarter of 2018, increasing the capacity to 485,000 BPD. The pipeline transports NGL from the Permian and Eagle Ford to the Texas Gulf Coast and is owned two-thirds by DCP Midstream and one-third by Phillips 66 Partners. Also in the Permian, DCP Midstream has a 25 percent interest in the Gulf Coast Express Pipeline project to transport approximately 2 billion cubic feet per day (BCFD) of natural gas to Gulf Coast markets. The project is anticipated to be completed in the fourth quarter of 2019. DCP Midstream is adding gas processing capacity in the DJ Basin with the construction of the O’Connor 2 plant, which is expected to be completed in the second quarter of 2019.

In Chemicals, CPChem’s new U.S. Gulf Coast (USGC) petrochemical assets are operating well, and the ethane cracker continues to demonstrate utilization above original design capacity. CPChem has a leading position in olefins and polyolefins to supply the world’s growing demand for high-quality polymers. CPChem’s portfolio of cost advantaged assets is strategically located in the U.S. and Middle East. CPChem is developing a second USGC project that would include ethylene and derivative capacity. CPChem is also evaluating additional capacity across multiple product lines through debottleneck opportunities on existing units.

In Refining, the company completed crude unit modifications during the fourth quarter at the Lake Charles Refinery to run additional advantaged domestic crudes. Also at the Lake Charles Refinery, Phillips 66 Partners is constructing a 25,000-BPD isomerization unit to increase production of higher-octane gasoline blend components. The project is expected to complete in the third quarter of 2019.

A fluid catalytic cracking (FCC) unit upgrade project is underway at the Sweeny Refinery to increase production of higher-value petrochemical products and higher-octane gasoline. The project is anticipated to be completed in the second quarter of 2020.

In Marketing, the company continues its program to roll out updated signature image designs for Phillips 66, 76 and Conoco branded sites. A total of 466 domestic sites were re-imaged during the fourth quarter. In 2018, re-imaged sites had increased same-site sales by 2 percent on average. Since the program’s inception in 2015, approximately 2,600 U.S. sites have been re-imaged. In 2019, an additional 1,800 sites are scheduled for re-imaging and the remainder of the U.S. branded network will be re-imaged by the end of 2020. International marketing will continue to grow under the JET brand and will add 25 to 30 new sites in 2019.

Investor Webcast

Later today, members of Phillips 66 executive management will host a webcast at noon EST to discuss the company’s fourth-quarter performance and provide an update on strategic initiatives. To access the webcast and view related presentation materials, go to   and click on “Events & Presentations.” For detailed supplemental information, go to  .


                         
Earnings                         
      Millions of Dollars 
      2018      2017 
      Q4    Q3    Year      Q4    Year 
Midstream      379      284      1,181        189      638   
Chemicals      152      263      1,025            716   
Refining      2,001      1,232      4,535        516      2,076   
Marketing and Specialties      589      423      1,557        167      1,020   
Corporate and Other      (203    (227    (853      (226    (895 
Pre-Tax Income      2,918      1,975      7,445        654      3,555   
Less: Income Tax Expense (Benefit)      602      407      1,572        (2,601    (1,693 
Less: Noncontrolling Interests      76      76      278        57      142   
Phillips 66      2,240      1,492      5,595        3,198      5,106   
                         
Adjusted Earnings                         
      Millions of Dollars 
      2018      2017 
      Q4    Q3    Year      Q4    Year 
Midstream      409      312      1,239        196      623   
Chemicals      152      263      1,025        161      955   
Refining      2,008      1,263      4,572        510      1,656   
Marketing and Specialties      592      385      1,453        168      1,032   
Corporate and Other      (201    (223    (863      (226    (860 
Pre-Tax Income      2,960      2,000      7,426        809      3,406   
Less: Income Tax Expense      624      467      1,604        204      995   
Less: Noncontrolling Interests      76      77      272        57      142   
Phillips 66      2,260      1,456      5,550        548      2,269 

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd