Phillips 66 income rises on increased exports

By Collin Eaton and Ryan Holeywell

HOUSTON – Increased exports of refined petroleum products and improved U.S. crude price differentials drove Phillips 66’s profit up 17 percent in the fourth quarter, the company said Wednesday.

The Houston refining giant’s earnings reached $826 million, or $1.37 per share, in the fourth quarter, as it bolstered its exports of refined products. That’s compared to a net income of $708 million, or $1.11 per share,  in the fourth quarter of 2012.

Phillips 66 exported 197,000 barrels per day during the three-month period ending Dec. 31, up 32 percent from the same period the year before.

Pipelines and chemicals

Phillips 66 is planning to shift its focus from its biggest business, refining, and spend $2.7 billion this year to put more muscle behind its midstream and chemicals businesses.

“In the next five years, we expect midstream and chemicals will represent about two-thirds of our company’s enterprise value,” CEO Greg Garland said in a conference call with investors Wednesday.

The company’s midstream business saw income rise to $121 million in the fourth quarter, a 70 percent climb from the same period the year before.

Rob Desai, an energy analyst with Edward Jones & Co. in St. Louis, said the shift towards midstream is a smart strategy and allows it to tap into a sector where there’s big demand. “If you think about all these sources of oil, they have to get to market somehow,” Desai said.  “You seem them being shipped by rail cars, but pipelines are the ideal way for that to happen.”

Meanwhile, fourth-quarter profit for its chemicals unit rose by $15 million to $261 million as margins improved in its sales of olefins and polyolefins, which are chemicals used in plastics, paints and household appliances.

Refining profit

Phillips 66’s refining segment earned $450 million, a 24 percent increase from the fourth quarter of 2012. The company boosted the amount of tight oil it processed to 257,000 barrels per day, up from 111,000 barrels per day in the same period the year before.

It marked a sharp improvement from the refining business’s net loss of $2 million in the third quarter of 2013. “In general, refining is looking a lot better than it was just three months ago,” Desai said.

Still, the company’s full year, adjusted 2013 earnings were about $3.6 billion, down from $5.3 billion in 2012, which Garland said was largely the result of  “a volatile year in our refining business.” Desai said the midstream investments will help insulate the company from some of that volatility.

Garland emphasized that the refining business is well-positioned to capture the value of rising Canadian and U.S. crude production.

“We believe that our assets are uniquely positioned to benefit from the American energy revolution,” Garland said.

Phillips 66 said the refining unit increased its market share significantly from the three-month period ended Sept. 30 and benefited from a boost in exports from the Gulf Coast.

“We ran well during the fourth quarter, allowing us to capitalize on favorable crude differentials while exporting a record volume of refined products,” Garland said in a written statement.

The company announced that it finished several projects this year that expanded its total export capacity beyond 400,000 barrels per day, up from 285,000 barrels daily in 2012. Company officials say they plan to increase that capacity to 500,000 in the coming years.

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