Phillips 66 Delivers Strong 4Q 2023 Results, Advances Strategic Priorities, Plans $3 Billion in Asset Sales

Source Company Press Release
Company Phillips 66
Tags Corporate: Corporate Results, Overview/Strategy, Country: United States, Downstream: Refining, Financial - Costs & Metrics: Capital Expenditures, M&A: Deal Rumours, Midstream: Pipeline
Date January 31, 2024

Fourth Quarter

  • Fourth-quarter earnings of $1.3 billion or $2.86 per share; adjusted earnings of $1.4 billion or $3.09 per share
  • $2.2 billion of operating cash flow
  • $1.6 billion returned to shareholders through dividends and share repurchases
  • Strong Refining operations at 92% utilization and 107% market capture
  • Record NGL fractionation volumes and LPG export volumes

Full-Year 2023

  • Earnings of $7.0 billion or $15.48 per share; adjusted earnings of $7.2 billion or $15.81 per share
  • $7.0 billion of operating cash flow, $8.8 billion excluding working capital
  • $5.9 billion returned to shareholders through dividends and share repurchases
  • Quarterly dividend increased 8% to $1.05 per common share
  • $1.2 billion in run-rate business transformation savings
  • Strong Refining operations with four consecutive quarters above industry-average crude utilization
  • Advancing Midstream NGL wellhead-to-market strategy; acquired all outstanding DCP Midstream, LP public common units

HOUSTON--(BUSINESS WIRE)-- Phillips 66 (NYSE: PSX), a leading diversified and integrated downstream energy company, announced fourth-quarter earnings of $1.3 billion, compared with earnings of $2.1 billion in the third quarter. Excluding special items of $102 million, the company had adjusted earnings of $1.4 billion in the fourth quarter, compared with third-quarter adjusted earnings of $2.1 billion. In addition, the company provided an update on progress toward its strategic priorities.

“In the fourth quarter, our team’s operating and commercial excellence allowed us to capture value across our diversified and integrated portfolio and deliver strong earnings,” said Mark Lashier, president and CEO of Phillips 66.

“In Refining, we increased market capture and continued to deliver above industry average crude utilization. In Midstream, our NGL wellhead-to-market business continues to exceed our expectations, achieving strong results and record volumes in the quarter.

“As we look forward, we will continue to execute our strategic priorities to deliver significant shareholder value. During 2023, we distributed well over 50% of our operating cash flow to shareholders through dividends and share repurchases. We have distributed $8.3 billion to shareholders since July 2022, on pace to achieve our $13 billion to $15 billion target by year-end 2024.”

“The Board is pleased with the company’s results, which reflect management’s progress on our strategic priorities and our collective commitment to deliver shareholder value today and in the future,” stated Glenn Tilton, Lead Independent Director.

Midstream

  Millions of Dollars 
  Pre-Tax Income    Adjusted Pre-Tax Income 
  Q4 2023  Q3 2023    Q4 2023  Q3 2023 
Transportation  334  386    334  285 
NGL and Other    425  335    423  293 
NOVONIX    (3)  (9)    (3)  (9) 
Midstream  756  712    754  569 

Midstream fourth-quarter 2023 pre-tax income was $756 million, compared with $712 million in the third quarter of 2023. Results in the fourth quarter included a $2 million tax benefit. The third quarter included a gain of $101 million on the sale of an investment and a gain of $46 million from a change in inventory method for an acquired business, partially offset by $4 million of restructuring costs.

Transportation fourth-quarter adjusted pre-tax income was $334 million, compared with adjusted pre-tax income of $285 million in the third quarter. The increase mainly reflects recognition of deferred revenue related to throughput and deficiency agreements.

NGL and Other adjusted pre-tax income was $423 million in the fourth quarter, compared with adjusted pre-tax income of $293 million in the third quarter. The increase was primarily due to higher margins and volumes at the Sweeny Hub, as well as lower operating costs.

In the fourth quarter, the fair value of the company’s investment in NOVONIX, Ltd. decreased by $3 million, compared with a $9 million decrease in the third quarter.

Chemicals

  Millions of Dollars 
  Pre-Tax Income    Adjusted Pre-Tax Income 
  Q4 2023  Q3 2023    Q4 2023  Q3 2023 
Chemicals  106  104    106  104 

The Chemicals segment reflects Phillips 66’s equity investment in Chevron  Phillips Chemical Company LLC (CPChem). Chemicals fourth-quarter 2023 reported and adjusted pre-tax income was $106 million, in line with third quarter 2023 pre-tax income of $104 million.

Global olefins and polyolefins utilization was 94% for the quarter.

Refining

  Millions of Dollars 
  Pre-Tax Income    Adjusted Pre-Tax Income 
  Q4 2023  Q3 2023    Q4 2023  Q3 2023 
Refining  814  1,710    797  1,740 

Refining fourth-quarter 2023 reported pre-tax income was $814 million, compared with pre-tax income of $1.7 billion in the third quarter of 2023. Results in the fourth quarter included a $17 million tax benefit. Results in the third quarter included a $30 million legal accrual.

Adjusted pre-tax income for Refining was $797 million in the fourth quarter, compared with adjusted pre-tax income of $1.7 billion in the third quarter. The decrease was primarily due to lower realized margins, which decreased from $18.96 per barrel in the third quarter to $14.41 per barrel in the fourth quarter. Realized margins declined primarily due to lower market crack spreads, partially offset by inventory hedge impacts, higher Gulf Coast clean product realizations and strong commercial results. The composite RIN adjusted market crack spread decreased 53% from $28.64 per barrel in the third quarter to $13.41 per barrel in the fourth quarter.

Refining pre-tax turnaround expense for the fourth quarter was $100 million, including $14 million related to the Rodeo renewables facility. Crude utilization rate was 92% and clean product yield was 87%. Market capture increased from 66% to 107%.

Marketing and Specialties

  Millions of Dollars 
  Pre-Tax Income    Adjusted Pre-Tax Income 
  Q4 2023  Q3 2023    Q4 2023  Q3 2023 
Marketing and Specialties  432  633    432  633 

Marketing and Specialties fourth-quarter 2023 reported and adjusted pre-tax income was $432 million, compared with $633 million in the third quarter of 2023, mainly due to seasonally lower domestic wholesale fuel margins.

Corporate and Other

  Millions of Dollars 
  Pre-Tax Loss    Adjusted Pre-Tax Loss 
  Q4 2023  Q3 2023    Q4 2023  Q3 2023 
Corporate and Other  (347)  (346)    (297)  (295) 

Corporate and Other fourth-quarter 2023 pre-tax costs were $347 million, compared with pre-tax costs of $346 million in the third quarter of 2023. Results in the fourth and third quarter included restructuring costs of $50 million and $51 million, respectively.

Adjusted pre-tax costs were $297 million in the fourth quarter, in line with adjusted third-quarter pre-tax costs of $295 million.

Financial Position, Liquidity and Return of Capital

Phillips 66 generated $2.2 billion in cash from operations in the fourth quarter of 2023.

During the fourth quarter, Phillips 66 funded $634 million of capital expenditures and investments, $1.2 billion of share repurchases and $457 million in dividends. The company ended the quarter with 430 million shares outstanding.

As of Dec. 31, 2023, the company had $3.3 billion of cash and cash equivalents and $6.4 billion of committed capacity available under credit facilities. The company’s consolidated debt-to-capital ratio was 38% and its net debt-to-capital ratio was 34%.

Strategic Priorities and Business Update

Phillips 66 is executing its strategic priorities to increase mid-cycle adjusted EBITDA by $4 billion to $14 billion by 2025 and grow shareholder distributions.

The company achieved $1.2 billion in run-rate cost and sustaining capital savings as of Dec. 31, 2023, through business transformation. The company is targeting $1.4 billion run-rate savings by the end of 2024.

In Refining, the company continues to improve asset reliability and market capture through high-return, low-capital projects. The company is implementing 10 to 15 projects annually to increase market capture by 5% by 2025. In 2023, completed projects added over 1% to market capture based on mid-cycle pricing.

Phillips 66 is capturing value from its Midstream NGL wellhead-to-market strategy. Through the end of 2023, the company’s increased ownership of DCP Midstream has provided an incremental $1.25 billion toward its 2025 mid-cycle adjusted EBITDA target, including approximately $250 million of synergies. The company remains focused on capturing over $400 million of run-rate commercial and operating synergies by 2025.

In Chemicals, CPChem completed construction and began operations of a 1 billion pounds per year propylene splitter at its Cedar Bayou facility in the fourth quarter. CPChem is building world-scale petrochemical facilities with joint-venture partner QatarEnergy on the U.S. Gulf Coast and in Ras Laffan, Qatar. Both projects are expected to start up in 2026.

Phillips 66 is converting its San Francisco Refinery in Rodeo, California, into one of the world’s largest renewable fuels facilities. Construction continues on the Rodeo Renewed refinery conversion project that is expected to begin operations in the first quarter of 2024. The conversion will reduce emissions from the facility and produce lower carbon intensity transportation fuels. Upon completion, the facility will have over 50,000 BPD (800 million gallons per year) of renewable fuel production capacity.

Since July 2022 the company has distributed $8.3 billion through share repurchases and dividends and is on pace to achieve the $13 billion to $15 billion target by year-end 2024.

Phillips 66 also plans to monetize assets that no longer fit its long-term strategy. These asset dispositions are expected to generate over $3 billion in proceeds that will support the company’s strategic priorities, including returns to shareholders. Timing of these dispositions will be subject to satisfactory market conditions and any necessary regulatory approvals. Total proceeds from asset dispositions in 2023 were $392 million.

Investor Webcast

Members of Phillips 66 executive management will host a webcast at noon ET to provide an update on the company’s strategic initiatives and discuss the company’s fourth-quarter performance. To access the webcast and view related presentation materials, go to phillips66.com/investors and click on “Events & Presentations.” For detailed supplemental information, go to phillips66.com/supplemental.

Earnings             
  Millions of Dollars 
  2023    2022 
  Q4  Q3  Year    Q4  Year 
Midstream  756  712  2,774    656  4,734 
Chemicals    106  104  600    52  856 
Refining    814  1,710  5,266    1,640  7,816 
Marketing and Specialties    432  633  2,135    539  2,402 
Corporate and Other    (347)  (346)  (1,306)    (340)  (1,169) 
Pre-Tax Income    1,761  2,813  9,469    2,547  14,639 
Less: Income tax expense    476  670  2,230    535  3,248 
Less: Noncontrolling interests    25  46  224    128  367 
Phillips 66  1,260  2,097  7,015    1,884  11,024 
             
Adjusted Earnings             
  Millions of Dollars 
  2023    2022 
  Q4  Q3  Year    Q4  Year 
Midstream  754  569  2,627    674  1,752 
Chemicals    106  104  600    52  856 
Refining    797  1,740  5,293    1,626  7,891 
Marketing and Specialties    432  633  2,135    539  2,402 
Corporate and Other    (297)  (295)  (1,076)    (280)  (1,010) 
Pre-Tax Income    1,792  2,751  9,579    2,611  11,891 
Less: Income tax expense    405  660  2,173    574  2,613 
Less: Noncontrolling interests    25  21  243    138  377 
Phillips 66  1,362  2,070  7,163    1,899  8,901 
             
Millions of Dollars 
  Except as Indicated 
  2023    2022 
  Q4  Q3  Year    Q4  Year 
Reconciliation of Consolidated Earnings to Adjusted Earnings             
Consolidated Earnings  1,260  2,097  7,015    1,884  11,024 
Pre-tax adjustments:             
Certain tax impacts    (19)  —  (19)    —  — 
Hurricane-related costs    —  —  —    (14)  (21) 
Net gain on asset disposition    —  (101)  (123)    —  — 
Alliance shutdown-related costs1    —  —  —    —  26 
Regulatory compliance costs    —  —  —    —  70 
Legal accrual    —  30  30    —  — 
Business transformation restructuring costs2    50  51  177    60  159 
Loss on early redemption of DCP debt    —  —  53    —  — 
Merger transaction costs    —  —  —    —  13 
Gain on consolidation    —  —  —    —  (3,013) 
Change in inventory method for acquired business    —  (46)  (46)    —  — 
DCP integration restructuring costs3    —  38    18  18 
Tax impact of adjustments4    (12)  10  (26)    (14)  635 
Other tax impacts    83  —  83    (25)  — 
Noncontrolling interests    —  25  (19)    (10)  (10) 
Adjusted earnings  1,362  2,070  7,163    1,899  8,901 
Earnings per share of common stock (dollars)  2.86  4.69  15.48    3.97  23.27 
Adjusted earnings per share of common stock (dollars)5  3.09  4.63  15.81    4.00  18.79 
             
Reconciliation of Segment Pre-Tax Income (Loss) to Adjusted Pre-Tax Income (Loss)             
Midstream Pre-Tax Income  756  712  2,774    656  4,734 
Pre-tax adjustments:             
Certain tax impacts    (2)  —  (2)    —  — 
Net gain on asset disposition    —  (101)  (137)    —  — 
Merger transaction costs    —  —  —    —  13 
Gain on consolidation    —  —  —    —  (3,013) 
Change in inventory method for acquired business    —  (46)  (46)    —  — 
DCP integration restructuring costs3    —  38    18  18 
Adjusted pre-tax income  754  569  2,627    674  1,752 
Chemicals Pre-Tax Income  106  104  600    52  856 
Pre-tax adjustments:             
None    —  —  —    —  — 
Adjusted pre-tax income  106  104  600    52  856 
Refining Pre-Tax Income  814  1,710  5,266    1,640  7,816 
Pre-tax adjustments:             
Certain tax impacts    (17)  —  (17)    —  — 
Hurricane-related costs    —  —  —    (14)  (21) 
Net loss on asset disposition    —  —  14    —  — 
Alliance shutdown-related costs1    —  —  —    —  26 
Regulatory compliance costs    —  —  —    —  70 
Legal accrual    —  30  30    —  — 
Adjusted pre-tax income  797  1,740  5,293    1,626  7,891 
Marketing and Specialties Pre-Tax Income  432  633  2,135    539  2,402 
Pre-tax adjustments:             
None    —  —  —    —  — 
Adjusted pre-tax income  432  633  2,135    539  2,402 
Corporate and Other Pre-Tax Loss  (347)  (346)  (1,306)    (340)  (1,169) 
Pre-tax adjustments:             
Business transformation restructuring costs2    50  51  177    60  159 
Loss on early redemption of DCP debt    —  —  53    —  — 
Adjusted pre-tax loss  (297)  (295)  (1,076)    (280)  (1,010) 
             
1 Costs related to the shutdown of the Alliance Refinery totaled $26 million pre-tax in the second quarter of 2022. Shutdown-related costs recorded in the Refining segment include pre-tax charges for the disposal of materials and supplies of $20 million, and asset retirements of $6 million recorded in depreciation and amortization expense.
2 Restructuring costs, related to Phillips 66’s multi-year business transformation efforts, are primarily due to consulting fees and severance costs. Additionally, fourth-quarter 2022 included a held-for-sale asset impairment of $45 million.
3 Restructuring costs, related to the integration of DCP Midstream, primarily reflect severance costs and consulting fees. A portion of these costs are attributable to noncontrolling interests.
4 We generally tax effect taxable U.S.-based special items using a combined federal and state statutory income tax rate of approximately 24%. Taxable special items attributable to foreign locations likewise use a local statutory income tax rate. Nontaxable events reflect zero income tax. These events include, but are not limited to, most goodwill impairments, transactions legislatively exempt from income tax, transactions related to entities for which we have made an assertion that the undistributed earnings are permanently reinvested, or transactions occurring in jurisdictions with a valuation allowance.
5 Q4 2023, Q3 2023 and full year 2022 are based on adjusted weighted-average diluted shares of 440,582 thousand, 447,255 thousand, and 473,728 respectively. Other periods are based on the same weighted-average diluted shares outstanding as that used in the GAAP diluted earnings per share calculation. Income allocated to participating securities, if applicable, in the adjusted earnings per share calculation is the same as that used in the GAAP diluted earnings per share calculation. 
   
   
  Millions of Dollars 
  Except as Indicated 
  December 31, 2023 
Debt-to-Capital Ratio   
Total Debt  19,359 
Total Equity    31,650 
Debt-to-Capital Ratio    38 % 
Total Cash    3,323 
Net Debt-to-Capital Ratio    34 % 
 
  Millions of Dollars 
  Except as Indicated 
  2023 
  Q4  Q3 
Reconciliation of Refining Income Before Income Taxes to Realized Refining Margins     
Income before income taxes  814  1,710 
Plus:     
Taxes other than income taxes    87  93 
Depreciation, amortization and impairments    227  211 
Selling, general and administrative expenses    48  39 
Operating expenses    1,086  1,142 
Equity in (earnings) loss of affiliates    85  (208) 
Other segment (income) expense, net    (10) 
Proportional share of refining gross margins contributed by equity affiliates    167  416 
Special items:     
Certain tax impacts    (15)  — 
Realized refining margins  2,504  3,393 
Total processed inputs (thousands of barrels)    156,720  156,300 
Adjusted total processed inputs (thousands of barrels)*    173,786  178,929 
Income before income taxes (dollars per barrel)**  5.19  10.94 
Realized refining margins (dollars per barrel)***  14.41  18.96 
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.   
** Income before income taxes divided by total processed inputs.   
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.  
Source: EvaluateEnergy® ©2024 EvaluateEnergy Ltd