Houston-based Phillips 66 on Friday posted fourth-quarter profits down 43 percent from a year ago as the company’s refining margins tightened courtesy of cheap gasoline prices.
Phillips 66 reported $650 million in net income in the fourth quarter of 2015 or $1.20 per share, well down from $1.15 billion, or $2.05 a share, in the final three months of 2014. The company’s profits still show that refining and chemicals companies like Phillips 66 are performing much better during the oil crash than the production and services companies, many of which are reporting large losses.
For all of 2015, Phillips 66 announced $4.23 billion in net income, just 11 percent less than the $4.72 billion in 2014. Phillips 66 was buoyed by earning $1.58 billion in the third quarter of 2015.
Despite refining margins tightening in the fourth quarter as the gap between oil and fuel prices declined somewhat, Phillips still reported that $410 million of its $650 million in net income came from its refining business. Refineries use crude oil as the feedstock to make gasoline and other petroleum products. The wider the difference between oil and fuel prices, called the crack spread, the more refineries profit.
In a conference call, Phillips 66 Chairman and CEO Greg Garland called the last three months a “solid quarter … despite the difficult environment experienced throughout the energy sector.”
Refining performed relatively well in the quarter, Garland said, although “market cracks were down significantly” from the summer and fall as gasoline prices dropped sharply.
In a note from Raymond James analysts Justin Jenkins and Tom Murphy, they contended that refining profits offset other weaknesses within Phillips 66, allowing the earnings to slightly beat expectations.
“Relative to our model, the beat was driven by stronger than expected refining results, which offset lower than expected results in the other segments,” the wrote, noting some weakness in midstream and chemicals businesses.
Apart from refining, Phillips 66 suffered its biggest swing with a $77 million loss for the quarter in its pipeline and transportation business, down from a $96 million profit in late 2014. The biggest reason was a big loss of $159 million in its struggling DCP Midstream joint venture, which Phillips 66 attributed partly to lower natural gas margins.
However, Garland praised the DCP leadership for bringing costs down and restructuring contracts. DCP’s capital spending will dip about 50 percent in 2016 from last year, including about $233 million from Phillips 66 supporting DCP in 2016.
“I think DCP is going to be fine for this environment we’re in in 2016,” Garland said.
Garland praised the December startup of the company’s 100,000 barrels-per-day fractionator near Houston that was delayed two months because of a mechanical problem. The Sweeny Fractionator One is southwest of Houston at Phillips 66’s complex in Old Ocean.
A fractionator takes natural gas liquids and separates them out into individual component products like ethane, butane and propane. The products are sold to the petrochemical sector and heating markets. The project is supported by 250 miles of new pipelines and a multimillion-barrel storage cavern complex.
Phillips 66 will have the ability to export the liquefied petroleum gases produced at the fractionator once Phillips 66’s Freeport LPG Export Terminal is completed south of Houston in the second half of 2016.
“It’s on track, on budget with an expected startup in the fourth quarter,” Garland said.
Phillips 66 also is building the Bayou Bridge pipeline to move crude oil from Texas to Louisiana markets. Oil is projected to start flowing on the pipeline from Nederland, Texas to Lake Charles, Louisiana by the end of March, the company said.