Phillips 66 announces gains for refining, chemicals businesses

Continuing a run of good news from refining companies, Phillips 66 said Wednesday its fourth-quarter adjusted earnings surged to $1.3 billion Wednesday, thanks largely to the increased use of cheaper crude oil from shale plays in the United States.

Chairman and CEO Greg Garland told analysts during a conference call that the company no longer uses any imported oil at its Gulf Coast refineries, relying instead on lower-cost domestic oil.

It also increased exports to 140,000 barrels a day for the quarter — up to 180,000 barrels a day in December — allowing it to keep refineries running at closer to capacity.

Earnings were also up at the company’s chemical business, although lower prices for natural gas liquids hampered earnings at its midstream unit.

“We’re off to a good start,” said Garland, who has headed Phillips 66 since it was formed last May in a split from ConocoPhillips, resulting in a company that includes 15 refineries, as well as half-interest in Chevron Phillips Chemical and DCP Midstream, a natural gas gathering and processing company.

The company’s share price has almost doubled since it debuted on the New York Stock Exchange last spring and was up more than 2 percent by mid-afternoon Wednesday.

Phillips reported a net profit of $708 million for the quarter that ended Dec. 31, down from $201 billion for the same quarter in 2011.

But the Houston-based company reported adjusted earnings for the quarter of $1.3 billion, up from adjusted earnings of $379 million for the fourth quarter of 2011.

Adjusted earnings were $2.06 a share, easily beating the average analyst estimates of $1.68 a share.

Rival refiner Valero Energy Corp. Tuesday reported its highest earnings per share since 2005, as it and other U.S. refining companies take advantage of cheaper U.S. crude oil from shale formations.

Jeff Dietert, a managing director for Simmons & Company International, said the company’s performance along the Gulf Coast was especially strong.

“They were able to take advantage of some lower-priced crudes during the quarter,” he said.

And Phillips has announced plans to expand its use of U.S. crude, entering into a five-year agreement with Global Partners to ship crude by rail from the Bakken to refineries on the east and west coasts, and chartering two ships to deliver Eagle Ford crude to refineries along the Gulf.

It also is moving ahead with two pipeline projects through DCP Midstream.

Garland noted that the company also paid down debt by $1 billion and returned more than $400 million to shareholders through dividends and share repurchases. He said the company expects to pay down another $1 billion in debt.

The company’s refining sector reported adjusted earnings of $916 million for the quarter, compared with $27 million for the fourth quarter of 2011.

But Garland said the company doesn’t plan to change its focus to concentrate more on refining, saying the chemicals and midstream businesses ultimately will be more profitable.

“We do get challenged by people (who ask), are we under-investing in refining,” he said. “I don’t think so. We don’t see a change required in our strategy at this time.”

Dietert said that’s a sound decision.

“I think Garland is focused on investing capital in higher-return projects, including refining and other areas, but they view chemical and midstream as higher return investments over a cycle,” he said.

The midstream segment reported adjusted earnings of $62 million, down from $113 million for Oct.-December 2011. The company said the decrease was due to lower natural gas liquids prices but was partially offset by lower depreciation expense and improved production mix.

Adjusted earnings at the Chevron Phillips Chemicals division were up sharply, to $246 million, from $148 million for the quarter in 2011.

In a note to investors, Hassan I. Ahmed, a partner and head of research for Alembic Global Advisors, suggested that the results indicate expectations for other chemical companies “may be too undemanding.”