Enterprising Investor
7 years ago
Delta Air to sell gasoline and diesel as losses at its refinery climb (12/02/16)
By Chris Prentice and Jarrett Renshaw
Delta Air Lines Inc is preparing to market gasoline from a refinery it owns outside Philadelphia, signaling a shift in strategy toward managing the plant as a commercial refiner rather than a dedicated jet fuel supplier.
Delta became the first airline to own a refinery when it bought the shuttered plant in 2012, hoping to turn the facility into its own jet fuel supplier and capitalize on cheap oil supplies from a boom in U.S. shale output.
Instead of marketing the gasoline and diesel from the 185,000 barrels per day Monroe Energy plant, until now Delta has swapped the billions of dollars of motor fuel for jet fuel under a contract with Phillips 66 that is set to expire next year.
Now, Monroe is ramping up to sell small volumes of blended gasoline and ultimately diesel at a distribution center owned by Sunoco Logistics Partners outside Philadelphia, a source familiar with the plan told Reuters.
The sales will allow Monroe to benefit from motor fuel profit margins, an attempt to turn around a loss-making plant at a difficult time for the refining industry along the U.S. East Coast, added the source.
The region's refiners are fighting to survive, as they rely on foreign waterborne crude for supply. Two plants in the region have been shut in the past decade.
The company plans to increase sales volumes, including of diesel, over the next year after the Phillips 66 swap agreement expires, according to the source, who asked not to be identified because he was not authorized to speak with the press.
A Delta spokesman declined to comment on the plan and a Monroe Energy spokesman said the company does not discuss operations.
"At this point, they may feel they have better economics to sell the gasoline outright," said Robert Mann, a former airline executive and principal at R.W. Mann & Company, Inc.
A commercial refiner would look at profit margins for each fuel, which vary seasonally, and adjust production to maximize the output of the fuel with the best margin. Delta has been maximizing jet fuel output, regardless of variations in margins.
That may have saved Delta money on jet fuel supplies, but cost it potential profit from producing other products.
Mann said if the refiner abandons efforts to maximize jet fuel supply, Delta may reconsider whether owning the plant is worthwhile.
DRAG ON PROFITS
After a few successful years, the refinery has lost money in 2016 amid an industry-wide slump that has hit East Coast refiners the hardest. The refinery lost $83 million in the first nine months of the year compared to $282 million in profits last year.
Monroe Energy slashed employee bonuses to save money earlier this year. But the refiner's manager, Jeff Warmann, told employees then not to worry about mounting losses because the real goal was to pump jet fuel and drive prices down.
Monroe, like other merchant refiners, has also taken a hit from rising costs to meet U.S. annual biofuels requirements. Those require refiners who cannot blend biofuels, as mandated by the government, to buy paper credits from those that can. Those credits, called RINs, have soared in cost in the time Delta has owned the plant.
In the first three quarters of this year, Monroe paid $130 million to purchase RINs, nearly double the $67 million during the same time the year earlier.
Blending ethanol into gasoline will allow Monroe for the first time to generate credits, though it will still meet just a fraction of its total biofuels obligation. Delta has been embroiled in a years-long lawsuit with the Environmental Protection Agency over the scheme, which the airline says are too heavy a burden.
http://www.reuters.com/article/us-usa-refinery-delta-air-idUSKBN13R2F3
Enterprising Investor
8 years ago
Phillips 66 Partners Announces $1.3 Billion Acquisition (10/11/16)
Acquisition Includes 30 Phillips 66 Crude, Products, and NGL Logistics Assets
• Expected to be immediately accretive to unitholders
• Assets support Phillips 66’s Bayway, Billings, Borger and Ponca City refineries
• Phillips 66 to enter into long-term minimum volume commitments
HOUSTON--(BUSINESS WIRE)--Phillips 66 Partners LP (NYSE: PSXP) (the “Partnership”) has reached agreement with Phillips 66 (NYSE: PSX) to acquire 30 crude, refined products and natural gas liquids (NGL) logistics assets for total consideration of $1.3 billion. The Partnership plans to fund the acquisition with a combination of debt and $196 million in new PSXP units issued to Phillips 66, to be allocated proportionally between common units and general partner units allowing the general partner to maintain its 2 percent general partner interest. The transaction is anticipated to close this month, subject to satisfaction of customary closing conditions, and is expected to be immediately accretive to unitholders. Upon closing, the Partnership will be entitled to receive the cash earnings associated with the acquired assets as of Oct. 1, 2016.
The acquisition consideration reflects an approximate 8.7 times multiple based on the forecasted full year 2017 earnings before interest, taxes, depreciation and amortization (EBITDA) attributable to the assets of approximately $150 million. In connection with the acquisition, Phillips 66 will enter into 10-year terminaling and throughput agreements that will include minimum volume commitments covering approximately 85 percent of forecasted volumes.
“As our largest dropdown acquisition to date, this represents a milestone for the Partnership and will provide additional fee-based income and diversity to our already strong midstream portfolio,” said Greg Garland, Phillips 66 Partners chairman and CEO. “We remain committed to maintaining a stable, fee-based, growing business model at Phillips 66 Partners, and are on track to deliver on our commitment to a five-year distribution compound annual growth rate of 30 percent through 2018.”
The transaction includes the following assets:
• A crude pipeline and terminal system that provides crude supply for Phillips 66’s Ponca City Refinery, consisting of 503 miles of pipeline and 1.7 million barrels of storage;
• A refined products and NGL pipeline and terminal system that provides product takeaway transportation services for Phillips 66’s Ponca City Refinery, consisting of 524 miles of pipeline and 1.7 million barrels of storage;
• A crude pipeline and terminal system that provides crude supply for Phillips 66’s Billings Refinery, consisting of a 79 percent undivided interest in a 623-mile pipeline and 570,000 barrels of storage;
• A refined products pipeline and terminal system that provides product takeaway transportation services for Phillips 66’s Billings Refinery, consisting of 342 miles of pipeline and 386,000 barrels of storage;
• A refined products and NGL terminal system that provides storage services for Phillips 66’s Bayway Refinery, consisting of 2.0 million barrels of storage;
• A crude pipeline and terminal system that provides crude supply for the Phillips 66-operated Borger Refinery, consisting of 1,089 miles of pipeline and 400,000 barrels of storage; and
• A refined products pipeline and terminal system that provides product takeaway transportation services for the Phillips 66-operated Borger Refinery, consisting of 93 miles of pipeline, a 33 percent undivided interest in a 102-mile segment and a 54 percent undivided interest in a 19-mile segment of a 121-mile pipeline, a 50 percent interest in a 293-mile pipeline and 700,000 barrels of storage.
A detailed listing of these assets including names and maps is available on the Phillips 66 Partners website.
The terms of the transaction were approved by the board of directors of the general partner of Phillips 66 Partners, based on the approval and recommendation of its conflicts committee comprised solely of independent directors. The conflicts committee engaged Evercore to act as its financial advisor and Vinson & Elkins, L.L.P. to act as its legal counsel.
About Phillips 66 Partners
Headquartered in Houston, Texas, Phillips 66 Partners is a growth-oriented master limited partnership formed by Phillips 66 to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum product and natural gas liquids pipelines and terminals and other transportation and midstream assets.
http://www.businesswire.com/news/home/20161011005928/en/Phillips-66-Partners-Announces-1.3-Billion-Acquisition
Enterprising Investor
8 years ago
Phillips 66 cuts output at Linden refinery amid weak margins: source (8/30/16)
By Jarrett Renshaw
Phillips 66 has cut production by roughly five percent at its 238,000 barrel-per-day refinery in Linden, New Jersey, amid weak refining margins, according to a source familiar with the plant's operations.
Phillips 66 joins Monroe Energy's 185,000 barrel-per-day refinery in Trainer, Pennsylvania, in making economic run cuts on the East Coast. Monroe Energy, a subsidiary of Delta Air Lines, continues to run the refinery at roughly 150,000 bpd following run cuts that began in July, a source said Tuesday.
Phillips 66 did not immediately return a request for comment.
The U.S. gasoline crack spread, an indicator of how much refiners make from converting a barrel of oil into a barrel of gasoline, remains at its lowest level in the past five years.
The U.S. diesel crack spread also remains at five-year lows.
U.S. and global refining margins have been hurt by historically high gasoline and diesel inventories. Refining executives and analysts across the globe are predicting refiners are going to be forced to scale back production to reduce inventories, balance the market and boost margins.
East Coast refineries see some of the weakest margins due in part to their supply constraints, and experts predict they would be among the first to cut runs.
Philadelphia Energy Solutions, the largest East Coast refinery, is currently running at full capacity, a source told Reuters Tuesday. It was not immediately known whether PBF Energy has made cuts at either of its East Coast refineries, one in Delaware City, Delaware and the other in Paulsboro, New Jersey.
PBF plans on shutting down the 55,000 bpd gasoline-making unit at its Paulsboro refinery in mid-September for up to eight weeks of planned work.
http://www.reuters.com/article/us-refinery-operations-phillips-66-baywa-idUSKCN11523G
Enterprising Investor
8 years ago
Buffett Bets $1 Billion More on Phillips 66 (8/29/16)
Berkshire Hathaway and its subsidiaries have raised its stake in the refiner to 15.2%.
By Ed Lin
Warren Buffett has shown a lot of love in 2016 for a stock that has been playing dead.
So far this year, Berkshire Hathaway (ticker: BRKB ) and its subsidiaries have paid about $1.39 billion for an additional 18 million more Phillips 66 ( PSX ) shares, according to regulatory filings, lifting its stake to 79,486,181 shares, or a 15.2% stake. Berkshire held 61,486,926 Phillips 66 shares at year-end 2015, an 11.8% stake. Percentage stakes are based on the refiner’s outstanding shares as of June 30.
In his much-scrutinized annual shareholder letter, released in February, Buffett touted Berkshire’s big four holdings — American Express ( AXP ), Coca-Cola, International Business Machines (IBM) and Wells Fargo ( WFC ) — as “excellent businesses” run by “talented and shareholder-oriented” managers. He didn’t single out Phillips 66 for commentary, but it was noted in a table that as of Dec. 31, Berkshire had paid $4.357 billion for 55.4 million Phillips 66 shares, or an average of $78.67 each, excluding 6.1 million shares held in subsidiary pension funds. In 2016, Berkshire paid an average of $77.23 each for the 18 million shares purchased.
Unfortunately, Phillips 66’s now 3.24% dividend yield has topped the lackluster share-price appreciation. Phillips 66 closed at $78.62 on Friday. Shares purchased in 2015 have on average lost a nickel each, excluding dividends, while those purchased this year have inched up a lowly 1.8%, excluding dividends.
Buffett, chairman and chief executive of Berkshire, turned heads when he disclosed that his stake in Phillips 66 had exceeded 10% in late August of last year. We were bullish on Phillips 66 at the time .
Phillips 66 shares did in fact rise through the end of 2015, as we noted. But good news hasn’t been gushing in 2016.
A disappointing fourth-quarter report in late January sent Phillips 66 shares sliding to the low $70s from the $80s. As the stock rallied back in the ensuing months to the high $80s, a disappointing first-quarter report in late April was a knockout blow — the stock would mostly trade sub-$80 going forward. In June, the company was one of several refiners who were issued subpoenas by California’s attorney general as part of an investigation into whether the companies artificially raised retail gasoline prices in the state. Investors braced themselves for the second-quarter report in late July, and even though both revenue and profits slid, the latter surprisingly topped expectations.
The latest issue is a standoff between members of the Standing Rock Sioux tribe and police guarding the construction site for a 1,154-mile pipeline that would carry oil from North Dakota. Phillips 66 owns 25% of the pipeline.
This year Buffett bought Phillips 66 shares mostly when the stock dipped throughout January and early February, and also late May and early June. His most recent purchases, totaling about $55 million, were made week. Buffett bought in blocks as small as 100 shares and as large as over a million shares.
http://www.barrons.com/articles/buffet-bets-1-billion-more-on-phillips-66-1472470538
Enterprising Investor
8 years ago
Sempra Energy Unit Agrees To Sell Stake In Rockies Express Pipeline (3/29/16)
SAN DIEGO, March 29, 2016 /PRNewswire/ -- Sempra U.S. Gas & Power, a unit of Sempra Energy (NYSE: SRE), today announced that it has entered into a purchase-and-sale agreement with a subsidiary of Tallgrass Development, LP to sell Sempra U.S. Gas & Power's 25-percent interest in the Rockies Express Pipeline (REX) for approximately $440 million in cash.
The transaction is subject to customary closing conditions and a right of first refusal. Sempra Energy expects the transaction to close in the second quarter and result in an after-tax loss of approximately $27 million.
Additionally, Sempra U.S. Gas & Power intends to permanently release the remaining uncontracted capacity that it holds on REX that it had been releasing on an interim basis. The effect of the permanent capacity release is expected to result in a charge to earnings of between $100 million and $120 million during the second quarter 2016, representing an acceleration of losses that would otherwise be realized over the contract term, which extends through November 2019. It is expected that the approximately $27 million after-tax loss from the sale, as well as the loss resulting from the permanent release of capacity, will be excluded from Sempra Energy's adjusted 2016 earnings guidance.
"After careful evaluation of our natural gas portfolio, we determined that our minority stake in REX is not consistent with our long-term growth strategy," said Patti Wagner, president and chief executive officer of Sempra U.S. Gas & Power. "While REX is an important part of the country's natural gas pipeline system, we believe that given the changing market conditions, we can more productively redeploy the proceeds from the REX sale into long-term growth opportunities that better meet our strategy and risk profile."
"While Sempra Energy's earnings from REX for March through December 2016 will be reduced by approximately $60 million, forecasted earnings from REX were expected to be immaterial to Sempra Energy beginning in 2020," said Joseph A. Householder, executive vice president and chief financial officer of Sempra Energy. "We expect to redeploy the sale proceeds to mitigate the loss of REX earnings in the near term and increase our long-term earnings profile."
Sempra Energy plans to provide updated adjusted earnings guidance for 2016 by the company's annual financial analyst conference on May 24, 2016.
Rockies Express Pipeline LLC is a Delaware limited liability company engaged in the ownership and operation of the Rockies Express Pipeline, a 1,712-mile natural gas transmission pipeline that extends from Opal, Wyoming, and Meeker, Colorado, to Clarington, Ohio, and is one of the largest natural gas pipelines ever constructed in North America. Rockies Express Pipeline LLC is a joint venture of: a subsidiary of Tallgrass Development, LP (50-percent share); Sempra U.S. Gas & Power (25-percent share); and a subsidiary of Phillips 66 (25-percent share). A wholly owned subsidiary of Tallgrass Development, LP operates the pipeline. Tallgrass Development, LP is a member of the Tallgrass Energy family of companies, which includes Tallgrass Energy Partners, LP (NYSE: TEP) and Tallgrass Energy GP, LP (NYSE: TEGP).
Sempra U.S. Gas & Power, LLC is a leading developer of renewable energy and natural gas projects. For more information, visit www.SempraUSGP.com. Sempra U.S. Gas & Power is a subsidiary of Sempra Energy (NYSE: SRE), a Fortune 500 energy services holding company with 2015 revenues of more than $10 billion. The Sempra Energy companies' 17,000 employees serve more than 32 million consumers worldwide.
http://www.prnewswire.com/news-releases/sempra-energy-unit-agrees-to-sell-stake-in-rockies-express-pipeline-300243178.html
Enterprising Investor
8 years ago
Phillips 66 Reports Fourth-Quarter Earnings of $650 Million or $1.20 Per Share (1/29/16)
Adjusted earnings of $710 million or $1.31 per share
Highlights
Fourth Quarter
• Generated $1.5 billion in cash from operations
• Refining achieved 94 percent utilization and record 85 percent clean product yield
• Sweeny Fractionator One and Clemens Caverns commenced operations
Full-Year 2015
• Earnings of $4.2 billion; operating cash flow of $5.7 billion
• Refining generated $2.6 billion of earnings
• Chemicals delivered $962 million in earnings amid declining commodity prices
• Received $1.5 billion from Phillips 66 Partners debt and equity offerings
• Capital spending of $4.3 billion, excluding $1.5 billion DCP Midstream contribution
• Midstream growth capital of $2.8 billion
• Increased quarterly dividend 12 percent to $0.56 per common share
• Returned $2.7 billion of capital to shareholders through dividends and share repurchases
HOUSTON--(BUSINESS WIRE)--Phillips 66 (NYSE: PSX), an energy manufacturing and logistics company, announces fourth-quarter earnings of $650 million, compared with earnings of $1,578 million in the third quarter of 2015. Adjusted earnings, excluding special items of $60 million, were $710 million.
“We operated well in the quarter, as refining capacity utilization remained high and clean product yield increased," said Greg Garland, Chairman and CEO. "We also reached a significant milestone with the Sweeny Fractionator One and Clemens Caverns coming online. Solid execution in the fourth quarter generated $1.5 billion of cash from operations, and we returned over $700 million to shareholders through dividends and share repurchases."
"Our financial performance in 2015 demonstrates the resiliency of our diversified portfolio in a low commodity price environment. We create value by focusing on operating excellence, enhancing Refining returns, and delivering on our Midstream and Chemicals growth programs. Our balance sheet is strong, and we maintain a disciplined approach to capital allocation. We remain firmly focused on these core priorities in 2016."
Midstream
[tables deleted]
Phillips 66's Midstream fourth-quarter adjusted earnings were $42 million, a decrease of $49 million from the third quarter.
Phillips 66’s Transportation business generated adjusted earnings of $78 million during the fourth quarter, consistent with the third quarter.
NGL adjusted losses were $2 million for the fourth quarter. The $34 million decrease from the prior quarter was largely driven by the timing of adjustments related to the tax extenders bill, signed in December, as well as additional costs associated with the Sweeny Hub.
Phillips 66 Partners (PSXP) contributed $37 million to the Midstream segment's fourth-quarter earnings. PSXP's limited partner distribution increased to $0.458 per unit, a 7 percent increase from the third quarter. Distributions to Phillips 66 from PSXP increased 14 percent in the fourth quarter, compared with the prior quarter, reflecting the impact of incentive distribution rights.
For the fourth quarter of 2015, the company’s equity investment in DCP Midstream, LLC (DCP Midstream) had an adjusted loss of $34 million, compared with an $18 million adjusted loss in the prior quarter. DCP Midstream's lower results were primarily due to lower natural gas and natural gas liquids marketing margins, as well as the impact of lower commodity prices.
During the fourth quarter, DCP Midstream recognized asset impairments primarily as a result of the continuing low commodity price environment. The impairments negatively impacted earnings from Phillips 66’s equity investment in DCP Midstream by $104 million after-tax, and were excluded from adjusted earnings.
Chemicals
The Chemicals segment reflects Phillips 66's equity investment in Chevron Phillips Chemical Company LLC (CPChem). Fourth-quarter Chemicals adjusted earnings were $182 million, compared with adjusted earnings of $272 million in the third quarter.
During the fourth quarter, CPChem's Olefins and Polyolefins business contributed $181 million to Phillips 66's Chemicals earnings. This was a decrease of $80 million compared with the prior quarter largely due to reduced margins, as well as decreased equity earnings. Turnaround and maintenance activity in the fourth quarter increased operating costs and decreased global utilization for O&P to 92 percent compared with 94 percent in the third quarter.
CPChem's Specialties, Aromatics and Styrenics business contributed $9 million of adjusted earnings in the fourth quarter, a decrease of $8 million from the prior quarter primarily due to lower earnings at CPChem's SA&S equity affiliates as a result of planned turnarounds and lower margins.
Chemicals earnings for the fourth quarter were positively impacted by a $34 million tax adjustment. This item was excluded from adjusted earnings.
Refining
Refining adjusted earnings were $376 million in the fourth quarter, compared with $1,052 million in the third quarter.
The decrease in earnings was largely driven by lower realized margins due to a 35 percent decline in global market cracks compared to the third quarter. Fourth-quarter gasoline market cracks dropped to $12.72 per barrel, compared with $21.44 per barrel during the third quarter, while distillate cracks declined from $15.67 per barrel to $12.86 per barrel for the same period.
Market capture increased to 74 percent, compared with 72 percent in the prior quarter. Phillips 66's refining utilization and worldwide clean product yield were 94 percent and 85 percent, respectively, in the fourth quarter. Turnaround costs for the fourth quarter were $130 million pre-tax, primarily relating to the Western/Pacific Region.
Refining's earnings in the fourth quarter were impacted by certain tax impacts, including a $91 million benefit resulting from a change in German tax law. Additionally, the WRB joint venture recognized a lower-of-cost-or-market inventory adjustment resulting from declining commodity prices, which negatively impacted earnings from Phillips 66’s equity investment in WRB Refining LP by $33 million after-tax. These items were excluded from adjusted earnings.
Marketing and Specialties
Marketing and Specialties (M&S) fourth-quarter adjusted earnings were $227 million, compared with $344 million in the third quarter.
Adjusted earnings for Marketing and Other were $198 million, a decrease of $93 million from the prior quarter. The decrease in earnings was largely due to lower realized margins driven by less favorable market conditions relative to the third quarter. Refined product exports in the fourth quarter were 127,000 barrels per day (BPD), compared with 118,000 BPD in the prior quarter.
Phillips 66’s Specialties businesses generated adjusted earnings of $29 million during the fourth quarter. The $24 million decrease from the prior quarter was mainly due to reduced base oil margins, as well as lower finished lubricants margins and volumes.
Corporate and Other
Corporate and Other adjusted costs were $117 million after-tax in the fourth quarter, an increase of $5 million compared with the prior quarter.
Financial Position, Liquidity and Return of Capital
During the fourth quarter, Phillips 66 generated $1.5 billion of cash from operations. Operating cash flow excluding working capital changes was $1.8 billion. Capital expenditures and investments totaled $2.5 billion, supporting execution of the company's Midstream growth strategy, as well as the DCP Midstream recapitalization. The recapitalization, which included the company's $1.5 billion contribution to DCP Midstream, provides DCP Midstream with a stronger balance sheet and increased financial flexibility through the commodity cycle.
Phillips 66 returned $704 million to shareholders during the quarter, consisting of $298 million in dividends and the repurchase of 4.7 million shares of common stock for $406 million. For the year, the company repurchased 19.3 million shares of common stock for $1.5 billion, paid $1.2 billion in dividends, and increased the quarterly dividend by 12 percent. Since July 2012, the company has repurchased 92.5 million shares for $6.4 billion. Phillips 66 ended the quarter with 529 million shares outstanding.
As of Dec. 31, 2015, cash and cash equivalents were $3.1 billion and debt was $8.9 billion, including $1.1 billion at Phillips 66 Partners. The company's consolidated debt-to-capital ratio was 27 percent. Excluding Phillips 66 Partners, the debt-to-capital ratio was 25 percent. Additionally, Phillips 66 reported a 2015 return on capital employed (ROCE) of 14 percent.
Strategic Update
The company continues to execute on its plan to grow the Midstream and Chemicals businesses, while maintaining commitments to shareholder distributions, financial flexibility and a strong balance sheet. Midstream growth is fueled in part by robust operating cash flows generated by the company’s Refining and M&S operations. In addition, PSXP provides a cost-efficient vehicle to fund that growth and invest in fee-based infrastructure, as demonstrated by the $1.5 billion raised by PSXP in debt and equity offerings in the first quarter of 2015.
The company continued development of the Sweeny Hub with the 100,000 BPD Sweeny Fractionator One and Clemens Caverns projects, which came online in the fourth quarter. Construction of the 150,000 BPD Freeport LPG Export Terminal is on schedule 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 percent interest in these joint ventures with Energy Transfer Partners and Sunoco Logistics Partners. Commercial operations are expected to begin in the fourth quarter of 2016.
In the fourth quarter of 2015, Phillips 66 Partners acquired Phillips 66's interest in the Bayou Bridge Pipeline joint venture. The joint venture was created to develop a pipeline from the Phillips 66 and Sunoco Logistics terminals in Nederland, Texas, to St. James, Louisiana. Construction is underway on the first segment of the pipeline, which will deliver crude oil from Nederland to Lake Charles, Louisiana. Commercial operations on this segment are expected to begin by the end of first-quarter 2016.
In Chemicals, overall progress on CPChem's world-scale U.S. Gulf Coast Petrochemicals Project is now approaching 70 percent completion, with startup expected in mid-2017. This project consists of an ethane cracker and related polyethylene facilities that will increase CPChem's U.S. ethylene and polyethylene capacity by more than 40 percent.
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 www.phillips66.com/investors and click on "Events & Presentations." For detailed supplemental information, go to www.phillips66.com/supplemental.
About Phillips 66
Phillips 66 is a diversified energy manufacturing and logistics company. With a portfolio of Midstream, Chemicals, Refining, and Marketing and Specialties businesses, the company processes, transports, stores and markets fuels and products globally. Phillips 66 Partners, the company's master limited partnership, is an integral asset in the portfolio. Headquartered in Houston, the company has 14,000 employees committed to safety and operating excellence. Phillips 66 had $49 billion of assets as of Dec. 31, 2015. For more information, visit www.phillips66.com or follow us on Twitter @Phillips66Co.
http://www.businesswire.com/news/home/20160129005224/en/Phillips-66-Reports-Fourth-Quarter-Earnings-650-Million
Enterprising Investor
8 years ago
Buffett expands oil bet, buys more Phillips 66 (1/14/16)
By Jonathan Stempel
Warren Buffett is expanding his bet on the oil industry, slowly adding to his already large stake in oil refiner Phillips 66 (PSX.N) even as crude oil prices have sunk to a 12-year low.
From Jan. 4 to Jan. 11, Berkshire Hathaway Inc (BRKa.N), which Buffett has run since 1965, paid about $390 million for an additional 5.1 million shares of Phillips 66, according to filings with the U.S. Securities and Exchange Commission.
The purchases boosted Berkshire's investment in Phillips 66 to 65.68 million shares, or about 12.3 percent of those outstanding, worth $5.21 billion as of Thursday's market close.
Phillips 66 shares closed up $4.03, or 5.4 percent, at $79.28 on the New York Stock Exchange.
Berkshire began quietly rebuilding its stake in Houston-based Phillips 66 early last year, after having in February 2014 swapped $1.35 billion of shares for a chemicals business that it folded into its Lubrizol unit.
Crude oil prices have slumped by nearly three-quarters since June 2014 as traders and investors worried about flagging global growth and a surfeit of demand.
The Brent crude benchmark LCOc1 rose 69 cents on Thursday to $31 a barrel, after earlier falling to a 12-year low of $29.73.
Phillips 66 shares have held up better than many others in the oil sector, closing on Thursday just 16 percent below their record high set on Nov. 4.
Its shares began trading in 2012 after a spinoff by ConocoPhillips (COP.N), which Berkshire also owned. Two years later, Berkshire shed its remaining Conoco stake, as well as a large investment in Exxon Mobil Corp (XOM.N).
Berkshire also owns close to 90 businesses such as the Geico auto insurer, the BNSF railroad and See's Candies. It also owns dozens of stocks including American Express Co (AXP.N), Coca-Cola Co (KO.N), IBM Corp (IBM.N) and Wells Fargo & Co (WFC.N).
http://www.reuters.com/article/us-berkshire-hatha-phillips-idUSKCN0US2V920160114
Enterprising Investor
8 years ago
Phillips 66 Announces Startup of Sweeny Fractionator One (12/08/15)
HOUSTON--(BUSINESS WIRE)--Phillips 66 (NYSE: PSX) has begun operations at its new 100,000 barrels-per-day (BPD) natural gas liquids (NGL) fractionator located at the company's Sweeny Complex in Old Ocean, Texas. Sweeny Fractionator One supplies purity ethane and liquefied petroleum gases (LPG) to the petrochemical industry and heating markets. It is supported by 250 miles of new pipelines and a multimillion barrel storage cavern complex.
“The startup of Sweeny Fractionator One is a significant milestone in the growth of our Midstream business,” said Bob Herman, executive vice president, Midstream for Phillips 66. “We plan to add more capacity in the future to supply our customers LPGs based on affordable North American natural gas liquids.”
The LPGs produced at Sweeny Fractionator One are being delivered via pipeline to local petrochemical customers as well as to the market hub at Mont Belvieu, Texas. Phillips 66 will have the capability to place the LPG into global markets upon completion of its 150,000 BPD Freeport LPG Export Terminal in the second half of 2016.
Phillips 66 has a long history in the midstream business segment, including NGL transportation, storage and fractionation. The company owns fractionation capacity at multiple fractionators in Mont Belvieu and Conway, Kansas.
Sweeny Fractionator One and the Freeport LPG Export Terminal represent a combined capital investment of more than $3 billion. The new assets are creating more than 70 full-time jobs in addition to 5,500 construction jobs.
About Phillips 66
Phillips 66 is a diversified energy manufacturing and logistics company. With a portfolio of Midstream, Chemicals, Refining, and Marketing and Specialties businesses, the company processes, transports, stores and markets fuels and products globally. Phillips 66 Partners, the company's master limited partnership, is an integral asset in the portfolio. Headquartered in Houston, the company has 14,000 employees committed to safety and operating excellence. Phillips 66 had $49 billion of assets as of Sept. 30, 2015. For more information, visit http://www.phillips66.com or follow us on Twitter @Phillips66Co.
http://www.businesswire.com/news/home/20151208005264/en/Phillips-66-Announces-Startup-Sweeny-Fractionator
Enterprising Investor
8 years ago
The Next Energy Company on Warren Buffett's Radar (11/21/15)
Berkshire Hathaway Inc. is now the largest shareholder of Phillips 66, with an 11.5% stake. What's the next energy company on Warren Buffett's radar?
On Monday, Berkshire Hathaway filed its quarterly report of stock holdings for the third quarter. The most prominent new addition was Phillips 66 (NYSE:PSX), and Warren Buffett did not do things halfway: Berkshire is now Phillips' largest shareholder, with a 11.5% stake worth $4.7 billion at the end of the quarter. Phillips 66 is one of only two energy sector holdings, along with Suncor Energy Inc. Surely the drubbing the energy sector has suffered has created opportunities to for a patient, value-driven investor.
With that in mind, we asked three of our analysts to try to identify the next energy stock on Berkshire CEO Warren Buffett's radar:
Adam Galas (Western Gas Equity Partners): An energy company that I think would be right up Buffett's alley is Western Gas Equity Partners (NYSE:WGP).
This MLP owns the general partner, incentive distribution rights, and 35% of the limited units of Western Gas Partners (NYSE:WES), a fast growing midstream MLP that's sponsored by Anadarko Petroleum Corp. (NYSE:APC).
Western Gas Equity has a business model that I think Buffett would really appreciate. It derives all of its revenue from Western Gas Partners and then pays it out to investors. Because its owns the general partners' rights, its distributions from Western Gas Partners grow incredibly quickly. In the third quarter of 2015, for example, Western Gas Partners' cash distributions to Western Gas Equity grew almost 32% year over year.
Those cash flows are also extremely stable, with 98% of Western Gas Partners' adjusted gross margins protected by long-term, fixed-fee contracts. In other words, though Western Gas Equity's unit price has taken a 30% beating this year due to the oil crash, the growing cash flow stream that would attract Buffett's interest hasn't been affected at all.
Better yet, because Anadarko Petroleum owns 84% of Western Gas Equity as well as 8.3% of Western Gas Partners, it has a large incentive to monetize its midstream assets by dropping down or selling them to Western Gas Partners. Such drop downs increase Western Gas Partners' asset base and cash flows, which are then magnified by Western Gas Equity's general partner rights, and thus flow back to Anadarko in a highly tax efficient manner.
Anadarko Petroleum currently has five pipelines and processing plants that it's looking to drop down to Western Gas Partners. This potentially provides immediate and guaranteed growth opportunities for Western Gas Equity and itself, as the majority owner.
With a market cap of $9.4 billion, a large stake in Western Gas Equity Partners is well within Berkshire's ability to buy. With a cash rich, commodity price-immune business model, I think Berkshire might certainly consider taking a large stake in this particular MLP.
Jason Hall (Chart Industries):One company that would make an excellent "tuck-in" acquisition for one of Berkshire's subsidiaries is Chart Industries, (NASDAQ:GTLS). This once high-flying stock has fallen far from grace, down 85% since its all-time high in late 2013, and down more than half in the past year.
And while Chart's stock is way down, the business is in relatively good shape, and significantly undervalued. In short, Chart's stock was bid up to extreme valuations in the market's exuberance for everything natural gas a couple of years ago due to the company's strong presence in natural gas processing and storage equipment manufacturing.
Yes, Chart's sales have fallen this year, but not even 10%, though net income is down 34% over the past four quarters. However, the company has already taken steps to get its cost structure inline, and it's looking like its core business has stabilized.
While Chart may never turn out to be the megagrowth company investors were envisioning two short years ago, it's still a solid business with steady cash flows, and it's gotten downright cheap:
We are talking about a high-quality business trading for multiples its stock hasn't been at since very near the Great Recession. It's maybe too tiny to be on Buffett's radar, but it might be just right for yours.
Alex Dumortier (General Electric): It's true that General Electric (NYSE:GE) is not, strictly speaking, an energy company, but energy is a big part of the conglomerate's activity: in aggregate, the Power & Water, Oil & Gas, and Energy Management segments accounted for 45% of revenues in 2014.
From Warren Buffett's vantage point, GE has (at least) two critical qualities, one of which is related to the business and the other to the stock:
First, as General Electric continues to reduce the footprint of its financing unit, GE Capital, it is increasingly the sum of its core industrial businesses, which are replete with genuine competitive advantages. That "economic moat" is built on the company's scale, its research and development capability, and the switching costs of its customers.
Second: the universe of stocks in which Mr. Buffett can build a position that will "move the needle" at Berkshire is shrinking. With a market capitalization in excess of $300 billion, General Electric meets the entry requirement.
In early September, Buffett told CNBC that he likes to try to buy 15% to 20% of the volume in a stock he is accumulating. Fifteen percent of the total value of all General Electric traded last week is $2.9 billion, according to data from Bloomberg. A few more weeks of buying at the same rate and, pretty soon you're talking about real money.
But wait -- Berkshire Hathaway already owns shares of General Electric worth $267 million at the end of the third quarter. That's true, but Buffett never made an active decision to purchase those shares.
Instead, Berkshire was "gifted" the shares without having to put up a dime when it exercised warrants that were attached to a $3 billion preferred share investment in General Electric in 2008. Besides, a position that size is not a "needle-mover".
Incidentally, if you want to read a comprehensive "Buy" case for General Electric from a value investor, activist group Trian Partners put together an 81-page presentation in support of its $2.5 billion investment in GE. They make a compelling case.
http://www.fool.com/investing/general/2015/11/21/the-next-energy-company-on-warren-buffetts-radar.aspx
Enterprising Investor
8 years ago
Phillips 66 Reports Third-Quarter Earnings of $1.6 Billion or $2.90 Per Share (10/30/15)
Adjusted earnings of $1.6 billion or $3.02 per share
Highlights
• Refining generated more than $1 billion of earnings; 96 percent utilization
• Delivered strong Marketing and Specialties earnings
• Agreed to recapitalize DCP Midstream
• Approved 2016 capital budgets of $3.9 billion, including Phillips 66 Partners
• Increased share repurchase program by $2 billion
HOUSTON--(BUSINESS WIRE)--Phillips 66 (NYSE: PSX), an energy manufacturing and logistics company, announces third-quarter earnings of $1,578 million, compared with earnings of $1,012 million in the second quarter of 2015. Adjusted earnings were $1,647 million, an increase of $645 million from the last quarter.
“Our best quarterly earnings this year were driven by stronger results from Refining and Marketing. Higher refining capacity utilization and product margins increased financial results for these businesses,” said Greg Garland, Chairman and CEO. “In addition, we announced our 2016 capital budget and a $2 billion increase to the company’s share repurchase program, which reflects our commitment to disciplined capital allocation.”
[tables deleted]
Midstream
Phillips 66's Midstream third-quarter adjusted earnings were $91 million, an increase of $43 million from the second quarter.
Phillips 66’s Transportation business generated earnings of $77 million during the third quarter, an increase of $12 million from the second quarter. Improved earnings were due to lower operating costs and increased equity earnings primarily driven by higher volumes.
Adjusted earnings from the NGL business were $32 million for the third quarter. The $24 million increase from the prior quarter was largely related to higher realized margins, as well as inventory gains.
Phillips 66 Partners (PSXP) contributed $31 million to the Midstream segment's third-quarter earnings. Distributions per limited partner unit increased by 7 percent from the second quarter to $0.428 per unit. Distributions to Phillips 66 from PSXP were up 13 percent in the third quarter, compared with the prior quarter, reflecting the impact of incentive distribution rights.
For the third quarter of 2015, the company’s equity investment in DCP Midstream, LLC (DCP Midstream) had an adjusted loss of $18 million, compared with a $25 million adjusted loss in the prior quarter. DCP Midstream's improved results were primarily due to higher natural gas and natural gas liquids marketing margins, as well as the second-quarter loss on the sale of its interest in the Benedum gas processing plant, partially offset by lower commodity prices.
Chemicals
The Chemicals segment reflects Phillips 66's equity investment in Chevron Phillips Chemical Company LLC (CPChem). Third-quarter Chemicals adjusted earnings were $272 million, compared with earnings of $295 million in the second quarter.
During the third quarter, CPChem's Olefins and Polyolefins business contributed $261 million to Phillips 66's Chemicals earnings. This was a decrease of $6 million compared with the prior quarter, as higher sales volumes and lower operating costs primarily due to lower turnaround activity were more than offset by insurance recoveries recognized in the prior quarter and lower ethylene margins. Global utilization for O&P was 94 percent, up from 91 percent in the second quarter.
CPChem's Specialties, Aromatics and Styrenics business contributed $17 million of adjusted earnings in the third quarter, a decrease of $21 million from the prior quarter. The decrease was primarily due to lower earnings at CPChem's SA&S equity affiliates, as well as lower volumes.
Refining
Refining adjusted earnings were $1,052 million in the third quarter, compared with $604 million in the second quarter.
The increase in earnings was largely driven by improved realized gasoline and secondary product margins, as well as higher volumes. Global realized margins improved $2.26 per barrel, while market capture increased to 72 percent, compared with 62 percent in the prior quarter.
Phillips 66’s worldwide refining crude utilization increased to 96 percent, compared to 90 percent in the second quarter. The improvement was primarily due to the completion of a major turnaround at the Humber Refinery in the U.K. early in the third quarter, as well as higher utilization in the Gulf Coast. Turnaround costs for the third quarter were $69 million. Phillips 66's worldwide clean product yield was 84 percent in the third quarter.
Marketing and Specialties
Marketing and Specialties (M&S) third-quarter adjusted earnings were $344 million, compared with $182 million in the second quarter.
Adjusted earnings for Marketing and Other were $291 million, an increase of $157 million from the prior quarter. The increase in earnings was largely due to improved realized global margins driven by favorable market conditions, as well as continued high volumes. Refined product exports in the third quarter were 118,000 barrels per day (BPD), compared with 143,000 BPD in the prior quarter. The decrease in exports was primarily due to advantaged domestic markets.
Phillips 66’s Specialties businesses generated earnings of $53 million during the third quarter. The $5 million increase from the prior quarter was mainly due to improved lubricants margins.
Corporate and Other
Corporate and Other adjusted costs were $112 million after-tax in the third quarter, an improvement of $15 million compared to the prior quarter.
Financial Position, Liquidity and Return of Capital
During the third quarter, Phillips 66 generated $1.4 billion of cash from operations. Operating cash flow excluding working capital changes was $1.5 billion. Capital expenditures and investments totaled $1.0 billion, primarily supporting execution of the company's Midstream growth strategy.
Phillips 66 returned $673 million to shareholders during the quarter, consisting of $300 million in dividends and the repurchase of 4.7 million shares of common stock for $373 million. Since July 2012, the company has repurchased 88 million shares for $6 billion and increased its quarterly dividend by 180 percent to $0.56 per share. Phillips 66 ended the quarter with 533 million shares outstanding. Phillips 66 recently announced a $2 billion increase to its share repurchase program, resulting in approximately $3 billion of remaining capacity under its current authorization.
As of Sept. 30, 2015, cash and cash equivalents were $4.8 billion and debt was $9.0 billion, including $1.1 billion in Phillips 66 Partners. The company's consolidated debt-to-capital ratio was 27 percent. Excluding Phillips 66 Partners, the debt-to-capital ratio was 25 percent. Additionally, Phillips 66 reported a year-to-date annualized return on capital employed (ROCE) of 16 percent and a year-to-date annualized adjusted ROCE of 15 percent.
Strategic Update
Phillips 66 continues to execute its strategy to grow its higher-valued Midstream and Chemicals businesses and enhance Refining returns, while returning capital to shareholders in the form of dividends and share repurchases.
Phillips 66's 2015 capital budget is primarily focused on major Midstream growth projects. Through the end of the third quarter, total capital expenditures for 2015 were $3.3 billion.
Approximately two-thirds of the 2016 capital budget is allocated to growth capital, mostly related to Midstream projects, as well as Refining projects to improve product yields and lower feedstock costs. The remainder is sustaining capital, primarily to be invested in Refining reliability, safety and environmental projects. The 2016 capital spending for joint ventures DCP Midstream, CPChem, and WRB Refining is expected to be self-funded.
Phillips 66 has executed an agreement with Spectra Energy Corp and DCP Midstream under which Phillips 66 will contribute $1.5 billion in cash and Spectra Energy will contribute its one-third ownership interests in the Sand Hills and Southern Hills pipelines to DCP Midstream. These equity contributions will provide DCP Midstream with a stronger balance sheet and increased financial flexibility, while positioning it to grow through future commodity cycles. The transaction is expected to close later today.
Development of the $3 billion Sweeny Hub is ongoing with the startup of the 100,000 BPD Sweeny Fractionator One expected by year end. Additionally, the 150,000 BPD Freeport LPG Export Terminal startup is 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 percent interest in these joint ventures with Energy Transfer Partners and Sunoco Logistics Partners. Commercial operations are expected to begin in the fourth quarter of 2016.
Bayou Bridge Pipeline, LLC is a joint venture developing a pipeline from the Phillips 66 and Sunoco Logistics terminals in Nederland, Texas, to St. James, Louisiana. Construction is underway on the first segment of the pipeline, which will deliver crude oil from Nederland, Texas, to Lake Charles, Louisiana. Commercial operations for this segment are expected to begin in the first quarter of 2016. The joint venture has commenced an expansion open season for service from Lake Charles to St. James to determine the pipeline diameter of this segment, which is scheduled to commence service in the second half of 2017. Phillips 66 Partners has agreed to acquire Phillips 66's 40 percent interest in Bayou Bridge in the fourth quarter of 2015.
In Chemicals, overall progress on CPChem's world-scale U.S. Gulf Coast Petrochemicals Project is approximately 60 percent complete, with startup expected in mid-2017. This $6 billion project consists of an ethane cracker and related polyethylene facilities that will increase CPChem's U.S. olefins and polyolefins capacity by approximately one-third.
Later today, members of Phillips 66 executive management will host a webcast at noon EDT to discuss the company’s third-quarter performance and provide an update on strategic initiatives. To access the webcast and view related presentation materials, go to www.phillips66.com/investors and click on "Events & Presentations." For detailed supplemental information, go to www.phillips66.com/supplemental.
About Phillips 66
Phillips 66 is a diversified energy manufacturing and logistics company. With a portfolio of Midstream, Chemicals, Refining, and Marketing and Specialties businesses, the company processes, transports, stores and markets fuels and products globally. Phillips 66 Partners, the company's master limited partnership, is an integral asset in the portfolio. Headquartered in Houston, the company has 14,000 employees committed to safety and operating excellence. Phillips 66 had $49 billion of assets as of Sept. 30, 2015. For more information, visit www.phillips66.com or follow us on Twitter @Phillips66Co.
http://www.businesswire.com/news/home/20151030005160/en/Phillips-66-Reports-Third-Quarter-Earnings-1.6-Billion
Enterprising Investor
9 years ago
Phillips 66, Spectra Energy Announce Plan to Strengthen DCP Midstream (9/08/15)
HOUSTON, Sept. 8, 2015 /PRNewswire/ -- Phillips 66 (NYSE: PSX) and Spectra Energy (NYSE: SE), 50/50 joint venture owners in DCP Midstream, LLC, have entered into a nonbinding letter of intent for contributing assets to strengthen DCP Midstream. This transaction is expected to provide DCP Midstream with a stronger balance sheet and increased financial flexibility, and positions DCP to grow through commodity price cycles.
Spectra Energy has agreed to contribute its ownership interest in both the Sand Hills and Southern Hills NGL pipelines. Phillips 66 has agreed to contribute $1.5 billion in cash, which is expected to be used to pay down a portion of the DCP Midstream revolving credit facility. The transaction, anticipated to close in the fourth quarter of this year, is subject to the parties entering into a definitive agreement and customary consents, including approval by Spectra Energy Partners' board of directors and regulatory approvals.
The proposed transaction complements efforts at DCP Midstream to reduce operating costs, sell certain non-core assets, and convert certain contracts from commodity price sensitive to fee-based.
"DCP Midstream is a valuable portion of our NGL value chain and part of our plans to grow," said Greg Garland, chairman and CEO of Phillips 66. "This infusion of cash and operating assets by the joint venture owners will enhance the credit profile of DCP Midstream, provide stability to the existing business and allow pursuit of growth opportunities."
"The contribution of the one-third interests in Sand Hills and Southern Hills will diversify DCP Midstream by enhancing the balance of fee-based assets while building on the re-contracting work already underway," said Greg Ebel, chairman and CEO of Spectra Energy. "In addition, the infusion of cash to pay down debt will result in DCP Midstream bank credit metrics that will be much stronger, allowing DCP to continue providing excellent service to customers and retain its number one position in gas processing and NGL production. This deal also retains the upside for owners as commodities improve."
Following this transaction, Phillips 66 and Spectra Energy will remain 50/50 joint venture owners of DCP Midstream. Headquartered in Denver, DCP Midstream, LLC has strategically located assets in liquids-rich developments and is the largest natural gas processor and the largest natural gas liquids producer in the U.S. In addition, DCP Midstream, LLC has a midstream master limited partnership, DCP Midstream Partners, LP (NYSE: DPM). The partnership is engaged in all stages of the midstream business.
About Phillips 66
Phillips 66 is a diversified energy manufacturing and logistics company. With a portfolio of Midstream, Chemicals, Refining, and Marketing and Specialties businesses, the company processes, transports, stores and markets fuels and products globally. Phillips 66 Partners, the company's master limited partnership, is an integral asset in the portfolio. Headquartered in Houston, the company has 14,000 employees committed to safety and operating excellence. Phillips 66 had $50 billion of assets as of June 30, 2015. For more information, visit www.phillips66.com or follow us on Twitter @Phillips66Co.
About Spectra Energy
Spectra Energy Corp (NYSE: SE), a FORTUNE 500 company, is one of North America's leading pipeline and midstream companies. Based in Houston, Texas, the company's operations in the United States and Canada include more than 22,000 miles of natural gas, natural gas liquids, and crude oil pipelines; approximately 300 billion cubic feet (Bcf) of natural gas storage; 4.8 million barrels of crude oil storage; as well as natural gas gathering, processing, and local distribution operations. Spectra Energy is the general partner of Spectra Energy Partners (NYSE: SEP), one of the largest pipeline master limited partnerships in the United States and owner of the natural gas, natural gas liquids, and crude oil assets in Spectra Energy's U.S. portfolio. Spectra Energy also has a 50 percent ownership in DCP Midstream, the largest producer of natural gas liquids and the largest natural gas processor in the United States. Spectra Energy has served North American customers and communities for more than a century. For more information, visit www.spectraenergy.com and www.spectraenergypartners.com.
About DCP Midstream, LLC
DCP Midstream, LLC leads the midstream segment as the largest natural gas processor, the largest natural gas liquids producer and one of the largest marketers in the U.S. DCP Midstream operates in 17 states across major producing regions. The company is a 50-50 joint venture between Phillips 66 and Spectra Energy. It owns the general partner of DCP Midstream Partners, LP (NYSE: DPM), a master limited partnership, and provides operational and administrative support to the partnership. DCP Midstream is the largest oil and gas company and the largest private company in Denver, the city of its headquarters. For more information, visit the DCP Midstream website at www.dcpmidstream.com.
http://www.prnewswire.com/news-releases/phillips-66-spectra-energy-announce-plan-to-strengthen-dcp-midstream-300139257.html
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