Phillips 66 cuts capital spending by 25 percent

Houston-based Phillips 66 will cut its capital spending by 25 percent next year, taking a conservative approach as the energy sector pulls out of the two-year oil bust.

With the nation awash in ample fuel supplies, refiners don’t need to spend money on growing capacity, and low commodity prices are preventing companies like Phillips 66 from launching new pipeline and petrochemical projects, said Rob Desai, an energy analyst with Edward Jones.

Phillips 66 will spend $2.7 billion in capital spending in 2017 — not counting joint ventures — with nearly $1.5 billion going to pipeline and terminal projects, and more than $900 million toward refining improvements.

“The reduction in capital spending from prior years reflects that fewer projects meet our return thresholds in the current business environment,” Phillips 66 Chairman and CEO Greg Garland said in a prepared statement, noting an ongoing emphasis on share buybacks and investor dividend growth.

The reduction comes after Phillips 66 cut its capital spending by 18 percent for 2016.

Phillips 66 just completed its liquefied propane gas export terminal in Freeport that come become fully operational as soon as next week. Phillips 66 started loading cargo in November, the company confirmed.

The timing coincides with the capital spending cut, Desai said. “As these projects are winding down, they haven’t readily replaced them with new ones. That’s partly because of the environment.”

Phillips 66 and some other refining companies are now spending more capital on pipeline and chemical projects than on the refineries because they’ve built out enough fuel production capacity in the last decade or so, Desai said, and they can only export so much. That still gives them a “sweet spot” going forward with refineries producing cash flow and not requiring a lot of investment.

One of the big 2017 projects for Phillips 66 is completing the Bayou Bridge Pipeline from its Beaumont terminal to St. James, La. Only the Louisiana portion of construction remains.

The Bayou Bridge oil pipeline project would tie into the oil pipeline network that includes the controversial Dakota Access Pipeline that’s 90 percent complete, but currently mired in federal delays. Phillips 66 is a 25 percent owner of Energy Transfer Partners’ Dakota Access project, while Energy Transfer also is a part owner of Bayou Bridge.

Phillips 66 also will spend another $1.1 billion next year on joint ventures like Chevron Phillips Chemical and DCP Midstream. Chevron Phillips next year will complete its  U.S. Gulf Coast Petrochemicals Project near Houston to produce much more chemicals and plastics from Baytown and Sweeny.