Adjusted earnings of $1.4 billion or $3.02 per
share
Highlights
- Generated $1.9 billion in operating cash flow; returned $861
million to shareholders
- Increased quarterly dividend by 12.5% to $0.90 per common
share
- Operated at 97% utilization in Refining
- Delivered record Midstream results
- Executing Red Oak and Liberty pipeline projects
- Sanctioned a fourth NGL fractionator at Sweeny Hub
- Announced elimination of PSXP incentive distribution
rights
- CPChem announced plans to pursue joint development of
petrochemical projects in the U.S. and Qatar
Phillips 66 (NYSE: PSX), a diversified energy manufacturing and
logistics company, announces second-quarter 2019 earnings of $1.4
billion, compared with $204 million in the first quarter of 2019.
Excluding special items of $45 million in the second quarter,
adjusted earnings were $1.4 billion, compared with first-quarter
adjusted earnings of $187 million.
“During the quarter we delivered solid financial results and
demonstrated our commitment to operating excellence through safe
and reliable operations,” said Greg Garland, chairman and CEO of
Phillips 66. “Refining achieved 97% utilization and captured
favorable margins. Midstream delivered record results, and at PSXP
we are simplifying the capital structure with the elimination of
IDRs.”
“We are further expanding our integrated crude oil network with
the additions of the Liberty and Red Oak pipelines, and we are
moving forward with a fourth NGL fractionator at our Sweeny Hub. In
Chemicals, CPChem announced strategic partnerships to develop
ethylene and polyethylene capacity on the U.S. Gulf Coast and in
the Middle East. These projects align with our strategy to grow our
higher-value Midstream and Chemicals businesses.”
“We returned $861 million to shareholders through dividends and
share repurchases this quarter. We are committed to disciplined
capital allocation and target reinvesting 60% of our operating cash
flow back into the business and returning 40% to shareholders.”
Midstream
Millions of Dollars
Pre-Tax Income
Adjusted Pre-Tax
Income
Q2 2019
Q1 2019
Q2 2019
Q1 2019
Transportation
$
245
203
245
203
NGL and Other
143
90
143
90
DCP Midstream
35
23
35
23
Midstream
$
423
316
423
316
Midstream second-quarter pre-tax income was $423 million,
compared with $316 million in the first quarter of 2019.
Transportation second-quarter adjusted pre-tax income of $245
million was $42 million higher than the first quarter, primarily
due to higher pipeline and terminal volumes at both wholly owned
and joint venture operations.
NGL and Other adjusted pre-tax income for the second quarter was
$143 million, a $53 million increase from the first quarter. The
improvement was due to higher margins and volumes at the Sweeny Hub
and improved butane trading results.
The company’s equity investment in DCP Midstream generated
adjusted pre-tax income of $35 million in the second quarter,
compared with $23 million in the first quarter. The increase
primarily reflects favorable hedging impacts.
Chemicals
Millions of Dollars
Pre-Tax Income
Adjusted Pre-Tax
Income
Q2 2019
Q1 2019
Q2 2019
Q1 2019
Olefins and Polyolefins
$
260
219
260
219
Specialties, Aromatics and Styrenics
34
26
34
26
Other
(19
)
(18
)
(19
)
(18
)
Chemicals
$
275
227
275
227
The Chemicals segment reflects Phillips 66’s equity investment
in Chevron Phillips Chemical Company LLC (CPChem). Chemicals’
second-quarter pre-tax income was $275 million, compared with $227
million in the first quarter.
CPChem’s Olefins and Polyolefins (O&P) business contributed
$260 million of adjusted pre-tax income in the second quarter of
2019, compared with $219 million in the first quarter. The $41
million increase mainly reflects higher polyethylene margins,
driven by lower feedstock costs, as well as lower utility costs.
Global O&P utilization was 95% in the second quarter.
CPChem’s Specialties, Aromatics and Styrenics (SA&S)
business contributed $34 million of adjusted pre-tax income in the
second quarter of 2019, an improvement of $8 million from the prior
quarter, reflecting higher first-quarter turnaround activity.
Refining
Millions of Dollars
Pre-Tax Income (Loss)
Adjusted Pre-Tax Income
(Loss)
Q2 2019
Q1 2019
Q2 2019
Q1 2019
Refining
$
983
(198
)
983
(219
)
Refining second-quarter pre-tax income was $983 million,
compared with a pre-tax loss of $198 million in the first quarter
of 2019. Refining results in the first quarter included $21 million
of favorable claim settlements.
Refining adjusted pre-tax income was $983 million in the second
quarter of 2019, compared with an adjusted pre-tax loss of $219
million in the first quarter of 2019. The improvement was largely
due to higher realized margins and volumes. Realized margins for
the quarter increased to $11.37 per barrel from $7.23 per barrel in
the first quarter, primarily driven by higher gasoline crack
spreads. The company's worldwide crude utilization rate was 97%, up
from 84% in the first quarter.
Pre-tax turnaround costs for the second quarter were $67
million, compared with first-quarter costs of $148 million. Clean
product yield was 84% in the second quarter.
Marketing and Specialties
Millions of Dollars
Pre-Tax Income
Adjusted Pre-Tax
Income
Q2 2019
Q1 2019
Q2 2019
Q1 2019
Marketing and Other
$
294
138
294
138
Specialties
59
67
59
67
Marketing and Specialties
$
353
205
353
205
Marketing and Specialties (M&S) second-quarter pre-tax
income was $353 million, compared with $205 million in the first
quarter of 2019.
Adjusted pre-tax income for Marketing and Other was $294 million
in the second quarter of 2019, an increase of $156 million from the
first quarter of 2019. The increase was due to higher domestic and
international marketing margins, reflecting the impact of falling
refined product spot prices within the quarter. Refined product
exports in the second quarter were 187,000 barrels per day
(BPD).
Specialties generated adjusted pre-tax income of $59 million
during the second quarter, down from $67 million in the first
quarter. The decrease was due to lower finished lubricant
margins.
Corporate and Other
Millions of Dollars
Pre-Tax Loss
Adjusted Pre-Tax Loss
Q2 2019
Q1 2019
Q2 2019
Q1 2019
Corporate and Other
$
(205
)
(210
)
(205
)
(210
)
Corporate and Other second-quarter pre-tax costs were $205
million, in line with the prior quarter.
Financial Position, Liquidity and Return of Capital
Phillips 66 generated $1.9 billion in cash from operations
during the second quarter, including $509 million of cash
distributions from equity affiliates. CPChem and WRB Refining
distributed $190 million and $105 million, respectively, to
Phillips 66 in the second quarter. Excluding working capital
impacts, operating cash flow was $1.7 billion.
During the quarter, Phillips 66 funded $406 million of
dividends, $455 million of share repurchases and $631 million of
capital expenditures and investments. The company ended the quarter
with 449 million shares outstanding.
As of June 30, 2019, cash and cash equivalents were $1.8
billion, and consolidated debt was $11.4 billion, including $3.3
billion at Phillips 66 Partners (PSXP). The company’s consolidated
debt-to-capital ratio was 30%, and its net debt-to-capital ratio
improved to 26%. Excluding PSXP, the debt-to-capital ratio was 25%
and the net debt-to-capital ratio was 21%.
Strategic Update
In Midstream, Phillips 66 announced a joint venture to construct
the Liberty Pipeline that will provide crude oil transportation
from the Rockies and Bakken production areas to Cushing, Oklahoma.
Liberty is supported by long-term shipper commitments and initial
service is targeted for the first quarter of 2021. Phillips 66 owns
a 50% interest in Liberty and will construct and operate the
pipeline.
Phillips 66 also announced a joint venture to construct the Red
Oak Pipeline system that will provide crude oil transportation from
Cushing and the Permian Basin to multiple destinations along the
Gulf Coast, including Corpus Christi, Ingleside, Houston and
Beaumont, Texas. Red Oak is supported by long-term shipper
commitments and initial service is targeted for the first quarter
of 2021. Our co-venturer will construct and Phillips 66 will
operate the pipeline. Phillips 66 owns a 50% interest in the
venture.
Phillips 66 continues to expand the Sweeny Hub to meet
increasing natural gas liquid (NGL) production and market demand.
The company is moving forward with plans to build a fourth
fractionator with 150,000 BPD of capacity that is expected to be
completed in the second quarter of 2021. Fracs 2 and 3, each with
capacity of 150,000 BPD, are anticipated to start up in the fourth
quarter of 2020. The new fractionators are supported by long-term
customer commitments. Upon completion of Frac 4, the Sweeny Hub
will have 550,000 BPD of fractionation capacity.
Also at the Sweeny Hub, Phillips 66 Partners is adding 6 million
barrels of storage capacity at Clemens Caverns. Upon completion in
the fourth quarter of 2020, Clemens Caverns will have 15 million
barrels of storage capacity. Phillips 66 Partners is also
constructing the Clemens to Gregory (C2G) Pipeline, a 16 inch
ethane pipeline that will connect Clemens Caverns to petrochemical
facilities in Gregory, Texas, near Corpus Christi. The project is
backed by long-term commitments and is expected to be completed in
2021.
Phillips 66 Partners is constructing the 900,000 BPD Gray Oak
Pipeline, which is anticipated to be in service by the end of 2019.
The pipeline will provide crude oil transportation from the Permian
and Eagle Ford to Texas Gulf Coast destinations that include Corpus
Christi, the Sweeny area, including the company's Sweeny Refinery,
as well as access to the Houston market. Phillips 66 Partners has a
42.25% ownership in the pipeline. The Gray Oak Pipeline joint
venture has secured $1.3 billion of project financing.
The Gray Oak Pipeline will connect to multiple terminals in
Corpus Christi, including the South Texas Gateway Terminal
currently being constructed by Buckeye Partners, L.P. The marine
export terminal will have two deepwater docks, with initial storage
capacity of approximately 7 million barrels and up to 800,000 BPD
of throughput capacity. Phillips 66 Partners owns a 25% interest in
the terminal, which is expected to start up by mid-2020.
The company is constructing 2.2 million barrels of additional
crude oil storage at its Beaumont Terminal. Upon completion in the
first quarter of 2020, the terminal will have 16.8 million barrels
of total crude and product storage capacity.
DCP Midstream’s O’Connor 2 plant is in the final commissioning
phase and is expected to be in service in the third quarter of
2019. This adds 200 million cubic feet per day of gas processing
capacity in the Denver-Julesburg (DJ) Basin. In the Permian, DCP
Midstream has a 25% interest in the Gulf Coast Express Pipeline
project to transport approximately 2 billion cubic feet per day of
natural gas to Gulf Coast markets. The project is anticipated to be
completed by the end of the third quarter of 2019.
In Chemicals, CPChem and Qatar Petroleum signed an agreement to
jointly pursue development of a petrochemical facility on the U.S.
Gulf Coast that would add world-scale ethylene and derivative
capacity to meet growing global demand. The U.S. Gulf Coast II
Petrochemical Project is expected to include a 2 million metric
tons per year ethylene cracker and two high-density polyethylene
units, each with capacity of 1 million metric tons per year. CPChem
would own 51% and have responsibility for the construction,
operation and management of the facility. Final investment decision
is expected no later than 2021, with targeted startup in 2024.
CPChem signed an agreement with Qatar Petroleum to pursue the
development, construction and operation of a petrochemicals complex
in Qatar. The facility is expected to have a 1.9 million metric
tons per year ethylene cracker and two high-density polyethylene
derivative units with a combined capacity of 1.7 million metric
tons per year. Pending final investment decision, the project is
expected to start up in late-2025. CPChem will own a 30% share of
the joint venture.
In Refining, Phillips 66 is upgrading the fluid catalytic
cracking unit (FCC) at the Sweeny Refinery to increase production
of higher-value petrochemical products and higher-octane gasoline.
The project is anticipated to be completed in the second quarter of
2020.
Phillips 66 Partners’ 25,000 BPD isomerization unit at the Lake
Charles Refinery was completed in July and is expected to ramp up
to full production in the third quarter. The project increases
production of higher-octane gasoline blend components.
The company has a portfolio of renewable fuel projects under
development that leverage existing infrastructure. Waste fats,
recycled cooking oils and other renewable feedstocks will be used
for diesel production that complies with low-carbon fuel standards.
The Humber Refinery has a project underway to increase its capacity
for co-processing used cooking oil in the production of diesel. The
company has supply and offtake agreements with two third-party
facilities in Nevada, the first of which is expected to begin
production by the end of this year. At the Ferndale Refinery, the
company is partnering in the development of a renewable diesel
plant. Renewable fuel opportunities are also being evaluated at the
San Francisco Refinery. Upon completion, these projects are
expected to bring approximately 650 million gallons of renewable
diesel to the market annually.
In Marketing, the company continues its program to roll out
updated signature image designs for Phillips 66, 76 and Conoco
branded sites in the United States. During the quarter,
approximately 400 sites were re-imaged. Since the program’s
inception in 2015, approximately 3,300 sites have been
re-imaged.
The company will host an analyst and investor day in New York on
Nov. 6, 2019. Additional details will be provided at a later
date.
Investor Webcast
Later today, members of Phillips 66 executive management will
host a webcast at noon EDT to discuss the company’s second-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.
Earnings
Millions of Dollars
2019
2018
Q2
Q1
Jun YTD
Q2
Jun YTD
Midstream
$
423
316
739
238
518
Chemicals
275
227
502
324
610
Refining
983
(198
)
785
1,190
1,302
Marketing and Specialties
353
205
558
310
545
Corporate and Other
(205
)
(210
)
(415
)
(227
)
(423
)
Pre-Tax Income
1,829
340
2,169
1,835
2,552
Less: Income tax expense
325
70
395
431
563
Less: Noncontrolling interests
80
66
146
65
126
Phillips 66
$
1,424
204
1,628
1,339
1,863
Adjusted
Earnings
Millions of Dollars
2019
2018
Q2
Q1
Jun YTD
Q2
Jun YTD
Midstream
$
423
316
739
238
518
Chemicals
275
227
502
324
610
Refining
983
(219
)
764
1,191
1,301
Marketing and Specialties
353
205
558
254
476
Corporate and Other
(205
)
(210
)
(415
)
(227
)
(439
)
Pre-Tax Income
1,829
319
2,148
1,780
2,466
Less: Income tax expense
370
66
436
393
513
Less: Noncontrolling interests
80
66
146
65
119
Phillips 66
$
1,379
187
1,566
1,322
1,834
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
integral to the portfolio. Headquartered in Houston, the company
has 14,400 employees committed to safety and operating excellence.
Phillips 66 had $58 billion of assets as of June 30, 2019. For more
information, visit www.phillips66.com or follow us on Twitter
@Phillips66Co.
CAUTIONARY STATEMENT FOR THE
PURPOSES OF THE “SAFE HARBOR” PROVISIONS
OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This news release contains certain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to
be covered by the safe harbors created thereby. Words and phrases
such as “is anticipated,” “is estimated,” “is expected,” “is
planned,” “is scheduled,” “is targeted,” “believes,” “continues,”
“intends,” “will,” “would,” “objectives,” “goals,” “projects,”
“efforts,” “strategies” and similar expressions are used to
identify such forward-looking statements. However, the absence of
these words does not mean that a statement is not forward-looking.
Forward-looking statements relating to Phillips 66’s operations
(including joint venture operations) are based on management’s
expectations, estimates and projections about the company, its
interests and the energy industry in general on the date this news
release was prepared. These statements are not guarantees of future
performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed
or forecast in such forward-looking statements. Factors that could
cause actual results or events to differ materially from those
described in the forward-looking statements include fluctuations in
NGL, crude oil, and natural gas prices, and petrochemical and
refining margins; unexpected changes in costs for constructing,
modifying or operating our facilities; unexpected difficulties in
manufacturing, refining or transporting our products; lack of, or
disruptions in, adequate and reliable transportation for our NGL,
crude oil, natural gas, and refined products; potential liability
from litigation or for remedial actions, including removal and
reclamation obligations under environmental regulations; limited
access to capital or significantly higher cost of capital related
to illiquidity or uncertainty in the domestic or international
financial markets; the impact of adverse market conditions or other
similar risks to those identified herein affecting PSXP, as well as
the ability of PSXP to successfully execute its growth plans; and
other economic, business, competitive and/or regulatory factors
affecting Phillips 66’s businesses generally as set forth in our
filings with the Securities and Exchange Commission. Phillips 66 is
under no obligation (and expressly disclaims any such obligation)
to update or alter its forward-looking statements, whether as a
result of new information, future events or otherwise.
Use of Non-GAAP Financial
Information—This news release includes the terms adjusted
earnings, adjusted earnings per share, and adjusted pre-tax income.
These are non-GAAP financial measures that are included to help
facilitate comparisons of company operating performance across
periods and with peer companies, by excluding items that do not
reflect the core operating results of our businesses in the current
period. This release includes realized refining margin, a non-GAAP
financial measure that demonstrates how well we performed relative
to benchmark industry margins. This release also includes a
debt-to-capital ratio excluding PSXP. This non-GAAP measure is
provided to differentiate the capital structure of Phillips 66
compared with that of Phillips 66 Partners.
References in the release to earnings
refer to net income attributable to Phillips 66.
Millions of Dollars
Except as Indicated
2019
2018
Q2
Q1
Jun YTD
Q2
Jun YTD
Reconciliation of Consolidated Earnings
to Adjusted Earnings
Consolidated Earnings
$
1,424
204
1,628
1,339
1,863
Pre-tax adjustments:
Pending claims and settlements
—
(21
)
(21
)
—
—
Certain tax impacts
—
—
—
(55
)
(70
)
Tax impact of adjustments*
—
4
4
14
17
U.S. tax reform
—
—
—
24
17
Other tax impacts
(45
)
—
(45
)
—
—
Noncontrolling interests
—
—
—
—
7
Adjusted earnings
$
1,379
187
1,566
1,322
1,834
Earnings per share of common stock
(dollars)
$
3.12
0.44
3.55
2.84
3.87
Adjusted earnings per share of common
stock (dollars)†
$
3.02
0.40
3.42
2.80
3.81
Reconciliation of Segment Pre-Tax
Income (Loss) to Adjusted Pre-Tax Income (Loss)
Midstream Pre-Tax Income
$
423
316
739
238
518
Pre-tax adjustments:
None
—
—
—
—
—
Adjusted pre-tax income
$
423
316
739
238
518
Chemicals Pre-Tax Income
$
275
227
502
324
610
Pre-tax adjustments:
None
—
—
—
—
—
Adjusted pre-tax income
$
275
227
502
324
610
Refining Pre-Tax Income (Loss)
$
983
(198
)
785
1,190
1,302
Pre-tax adjustments:
Pending claims and settlements
—
(21
)
(21
)
—
—
Certain tax impacts
—
—
—
1
(1
)
Adjusted pre-tax income (loss)
$
983
(219
)
764
1,191
1,301
Marketing and Specialties Pre-Tax
Income
$
353
205
558
310
545
Pre-tax adjustments:
Certain tax impacts
—
—
—
(56
)
(69
)
Adjusted pre-tax income
$
353
205
558
254
476
Corporate and Other Pre-Tax
Loss
$
(205
)
(210
)
(415
)
(227
)
(423
)
Pre-tax adjustments:
U.S. tax reform
—
—
—
—
(16
)
Adjusted pre-tax loss
$
(205
)
(210
)
(415
)
(227
)
(439
)
*We generally tax effect taxable U.S.-based special items using a
combined federal and state statutory income tax rate of
approximately 25%. Taxable special items attributable to foreign
locations likewise use a local statutory income tax rate.
Nontaxable events reflect zero income tax. These events include,
but are not limited to, most goodwill impairments, transactions
legislatively exempt from income tax, transactions related to
entities for which we have made an assertion that the undistributed
earnings are permanently reinvested, or transactions occurring in
jurisdictions with a valuation allowance.
†Weighted-average diluted shares
outstanding and income allocated to participating securities, if
applicable, in the adjusted earnings per share calculation are the
same as those used in the GAAP diluted earnings per share
calculation.
Millions of Dollars
Except as Indicated
Q2 2019
Q1 2019
Realized Refining Margins
Income (loss) before income taxes
$
983
(198
)
Plus:
Taxes other than income taxes
58
75
Depreciation, amortization and
impairments
214
212
Selling, general and administrative
expenses
33
11
Operating expenses
906
1,011
Equity in earnings of affiliates
(128
)
(81
)
Other segment expense, net
4
7
Proportional share of refining gross
margins contributed by equity affiliates
317
284
Special items:
Pending claims and settlements
—
(21
)
Realized refining margins
$
2,387
1,300
Total processed inputs (thousands of
barrels)
187,299
161,712
Adjusted total processed inputs (thousands
of barrels)*
209,987
179,715
Income (loss) before income taxes
(dollars per barrel)**
$
5.25
(1.22
)
Realized refining margins (dollars per
barrel)***
$
11.37
7.23
*Adjusted total processed inputs include
our proportional share of processed inputs of an equity
affiliate.
**Income (loss) before income taxes
divided by total processed inputs.
***Realized refining margins per barrel,
as presented, are calculated using the underlying realized refining
margin amounts, in dollars, divided by adjusted total processed
inputs, in barrels. As such, recalculated per barrel amounts using
the rounded margins and barrels presented may differ from the
presented per barrel amounts due to rounding.
Millions of Dollars
Except as Indicated
June 30, 2019
Debt-to-Capital Ratio
Phillips 66
Consolidated
PSXP*
Phillips 66
Excluding PSXP
Total Debt
$
11,439
3,324
8,115
Total Equity
27,306
2,521
24,785
Debt-to-Capital Ratio
30
%
25
%
Total Cash
$
1,819
130
1,689
Net Debt-to-Capital Ratio
26
%
21
%
*PSXP’s third-party debt and Phillips 66’s
noncontrolling interests attributable to PSXP.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190726005091/en/
Jeff Dietert (investors) 832-765-2297 jeff.dietert@p66.com Brent
Shaw (investors) 832-765-2297 brent.d.shaw@p66.com Dennis Nuss
(media) 832-765-1850 dennis.h.nuss@p66.com
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