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Phillips 66 Third Quarter 2021 Results

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   |    Monday,November 01,2021

Phillips 66 reported its Q3 2021 results.

Phillips 66 reported third-quarter 2021 earnings of $402 million, compared with earnings of $296 million in the second quarter of 2021. Excluding special items of $1.0 billion, primarily an impairment of the Alliance Refinery following Hurricane Ida, the company had adjusted earnings of $1.4 billion in the third quarter, compared with second-quarter adjusted earnings of $329 million.

Greg Garland, Chairman and CEO of Phillips 66, said: “In the third quarter, we delivered a significant improvement in earnings and cash generation. Our Midstream, Chemicals, and Marketing and Specialties businesses continued to deliver strong results. In Refining, we saw a notable improvement in realized margins, operated well and navigated hurricane-related challenges.

“So far this year we have reduced debt by $1 billion, further strengthening our balance sheet. We recently increased the dividend, reflecting our confidence in the company’s strategy and cash flow recovery, as well as our commitment to a secure, competitive and growing dividend. We will continue to focus on debt repayment, disciplined capital allocation, and delivering attractive shareholder returns.

“Earlier this week we announced an agreement to buy-in Phillips 66 Partners. The transaction simplifies our structure and asset ownership across our integrated portfolio. We believe both PSX shareholders and PSXP unitholders will benefit from the combination.

“In addition, we recently announced our greenhouse gas emissions intensity reduction targets, demonstrating our commitment to sustainably providing energy today and in the future. Our targets are measurable, achievable and meaningful. We believe achieving the targets will drive value for shareholders and other stakeholders. We are expanding our presence in the battery supply chain through our investment in NOVONIX and announced a collaboration with Plug Power to identify and advance green hydrogen opportunities. We will continue to focus on lower-carbon initiatives that generate strong returns.”

Midstream

 

Millions of Dollars

 

 

 

 

 

 

 

Pre-Tax Income

 

Adjusted Pre-Tax Income

 

Q3 2021

Q2 2021

 

Q3 2021

Q2 2021

Transportation

$

244

224

 

254

224

NGL and Other

354

79

 

357

83

DCP Midstream

31

9

 

31

9

Midstream

$

629

312

 

642

316

Midstream third-quarter 2021 pre-tax income was $629 million, compared with $312 million in the second quarter of 2021. Midstream results in the third quarter included a $10 million impairment and $3 million of pension settlement expense. Second-quarter results included $4 million of pension settlement expense.

Transportation third-quarter adjusted pre-tax income of $254 million was $30 million higher than the second quarter, primarily due to higher equity earnings from the Bakken and Gray Oak pipelines.

NGL and Other adjusted pre-tax income was $357 million in the third quarter, compared with $83 million in the second quarter. The increase was primarily due to a $224 million unrealized investment gain related to NOVONIX, as well as inventory impacts.

The company’s equity investment in DCP Midstream, LLC generated third-quarter adjusted pre-tax income of $31 million, a $22 million increase from the prior quarter. The increase was mainly driven by improved margins and hedging impacts.

Chemicals

 

Millions of Dollars

 

 

 

 

 

 

 

Pre-Tax Income (Loss)

 

Adjusted Pre-Tax Income
(Loss)

 

Q3 2021

Q2 2021

 

Q3 2021

Q2 2021

Olefins and Polyolefins

$

611

562

 

613

593

Specialties, Aromatics and Styrenics

36

79

 

37

82

Other

(16)

(18)

 

(16)

(18)

Chemicals

$

631

623

 

634

657

The Chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals third-quarter 2021 pre-tax income was $631 million, compared with $623 million in the second quarter of 2021. Chemicals results in the third quarter included a $2 million reduction to equity earnings for pension settlement expense and $1 million of maintenance and repair costs related to Hurricane Ida. Second-quarter results included an $18 million reduction to equity earnings for pension settlement expense and $16 million of winter-storm-related maintenance and repair costs.

CPChem’s Olefins and Polyolefins (O&P) business contributed $613 million of adjusted pre-tax income in the third quarter, compared with $593 million in the second quarter. The $20 million increase was primarily due to higher polyethylene sales volumes driven by continued strong demand, partially offset by higher utility costs. Global O&P utilization was 102% for the quarter.

CPChem’s Specialties, Aromatics and Styrenics (SA&S) business contributed third-quarter adjusted pre-tax income of $37 million, compared with $82 million in the second quarter. The decrease was driven by lower margins.

Refining

 

Millions of Dollars

 

 

 

 

 

 

 

Pre-Tax (Loss)

 

Adjusted Pre-Tax Income
(Loss)

 

Q3 2021

Q2 2021

 

Q3 2021

Q2 2021

Refining

$

(1,126)

(729)

 

184

(706)

             

Refining had a third-quarter 2021 pre-tax loss of $1.1 billion, compared with a pre-tax loss of $729 million in the second quarter of 2021. Refining results in the third quarter included a $1.3 billion impairment of the Alliance Refinery, as well as $12 million of pension settlement expense and $10 million of hurricane-related costs. Second-quarter results included $20 million of pension settlement expense and $3 million of winter-storm-related costs.

Refining had adjusted pre-tax income of $184 million in the third quarter, compared with an adjusted pre-tax loss of $706 million in the second quarter. The improvement was primarily due to higher realized margins. Third-quarter realized margins were $8.57 per barrel, up from $3.92 per barrel mainly due to higher market crack spreads, lower RIN costs and improved product differentials.

Pre-tax turnaround costs for the third quarter were $81 million, compared with second-quarter costs of $118 million. Crude utilization rate was 86% in the third quarter, down from 88% in the second quarter due to hurricane impacts. Clean product yield was 84% in the third quarter, up 2% from the second quarter.

Marketing and Specialties

 

Millions of Dollars

 

 

 

 

 

 

 

Pre-Tax Income

 

Adjusted Pre-Tax Income

 

Q3 2021

Q2 2021

 

Q3 2021

Q2 2021

Marketing and Other

$

452

389

 

454

392

Specialties

93

87

 

93

87

Marketing and Specialties

$

545

476

 

547

479

Marketing and Specialties (M&S) third-quarter 2021 pre-tax income was $545 million, compared with $476 million in the second quarter of 2021. M&S results included $2 million and $3 million of pension settlement expense in the third quarter and second quarter, respectively.

Adjusted pre-tax income for Marketing and Other was $454 million in the third quarter, an increase of $62 million from the second quarter. The increase was primarily due to higher international margins and volumes driven by the easing of COVID-19 restrictions. Refined product exports in the third quarter were 209,000 barrels per day (BPD).

Specialties generated third-quarter adjusted pre-tax income of $93 million, up from $87 million in the prior quarter, largely due to improved base oil margins.

Corporate and Other

 

Millions of Dollars

 

 

 

 

 

 

 

Pre-Tax Loss

 

Adjusted Pre-Tax Loss

 

Q3 2021

Q2 2021

 

Q3 2021

Q2 2021

Corporate and Other

$

(231)

(246)

 

(230)

(244)

Corporate and Other third-quarter 2021 pre-tax costs were $231 million, compared with pre-tax costs of $246 million in the second quarter of 2021. Pre-tax costs included $1 million and $2 million of pension settlement expense in the third quarter and second quarter, respectively.

In Corporate and Other, the $14 million decrease in adjusted pre-tax loss was driven by lower environmental and employee-related costs, partially offset by higher net interest expense.

Financial Position, Liquidity and Return of Capital

Phillips 66 generated $2.2 billion in cash from operations in the third quarter of 2021, including cash distributions from equity affiliates of $905 million. Excluding working capital impacts, operating cash flow was $1.4 billion.

During the quarter, Phillips 66 funded $552 million of capital expenditures and investments and paid $394 million in dividends. Additionally, Phillips 66 repaid its $500 million term loan due November 2023.

As of Sept. 30, 2021, Phillips 66 had $8.6 billion of liquidity, reflecting $2.9 billion of cash and cash equivalents and approximately $5.7 billion of total committed capacity under revolving credit facilities. Consolidated debt was $14.9 billion at Sept. 30, 2021, including $3.9 billion at Phillips 66 Partners. The company’s consolidated debt-to-capital ratio was 42% and its net debt-to-capital ratio was 37%.

Merger Agreement with Phillips 66 Partners

On Oct. 27, 2021, the company announced it has entered into an agreement to acquire all of the publicly held common units representing limited partner interest in Phillips 66 Partners not already owned by Phillips 66 and its affiliates. The agreement provides for 0.50 shares of Phillips 66 common stock to be issued for each Phillips 66 Partners common unit. Phillips 66 Partners’ preferred units will be converted into common units at a premium to the original issuance price prior to exchange for Phillips 66 common stock. The value of the transaction, which is expected to close in the first quarter of 2022, is $3.4 billion based on Oct. 26, 2021, market closing prices of both companies. Upon closing, the Partnership will be a wholly owned subsidiary of Phillips 66 and will no longer be a publicly traded partnership.

Strategic Update

In Midstream, Phillips 66 Partners recently completed construction of the C2G Pipeline, a 16 inch ethane pipeline that connects its Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near Corpus Christi, Texas. The pipeline is expected to begin commercial operations in the fourth quarter of 2021 and is backed by long-term commitments.

At the Sweeny Hub, Phillips 66 resumed construction of Frac 4 in July. The 150,000-BPD fractionator is expected to be completed in the fourth quarter of 2022 and will increase Sweeny Hub fractionation capacity to 550,000 BPD. The fractionators are supported by long-term commitments.

In Chemicals, CPChem and Qatar Energy are jointly pursuing development of petrochemical facilities on the U.S. Gulf Coast and in Ras Laffan, Qatar. CPChem expects to make a final investment decision for its U.S. Gulf Coast project in 2022.

CPChem is expanding its alpha olefins business with a second world-scale unit to produce 1-hexene, a critical component in high-performance polyethylene. The 266,000 metric tons per year unit will be located in Old Ocean, Texas, near its Sweeny facility. The project will utilize CPChem’s proprietary technology and is expected to start up in 2023.

In August, CPChem received 24 safety awards from the Texas Chemical Council for excellence in safety performance across eight of its sites. The awards reaffirm CPChem’s longstanding commitment to operating excellence.

Phillips 66 is advancing its plans at the San Francisco Refinery in Rodeo, California, to meet the growing demand for renewable fuels. The hydrotreater feedstock flexibility project reached full rates of 8,000 BPD (120 million gallons per year) of renewable diesel in July. Separately, subject to permitting and approvals, the Rodeo Renewed refinery conversion project is expected to be finished in early 2024. Upon completion, the facility will initially have over 50,000 BPD (800 million gallons per year) of renewable fuel production capacity. The conversion will reduce emissions from the facility and produce lower-carbon transportation fuels.

The Alliance Refinery sustained significant impacts from Hurricane Ida and is expected to remain shut down through the fourth quarter of 2021. The company continues to assess future strategic options for the refinery.

In Marketing, Phillips 66 is converting 600 branded retail sites in California to sell renewable diesel produced by the Rodeo facility. In Switzerland, the Phillips 66 COOP retail joint venture is adding hydrogen fueling stations. Phillips 66 is exploring additional opportunities with hydrogen and electric vehicle charging to support European low-carbon goals and growing demand for sustainable fuels.

In September 2021, Phillips 66 announced a set of company-wide greenhouse gas emissions reduction targets that are impactful, attainable and measurable. By 2030, the company expects to reduce GHG emissions intensity by 30% for Scope 1 and 2 emissions from its operations and by 15% for Scope 3 emissions from its energy products, below 2019 levels.

The targets build on the company’s lower-carbon strategy and leverage its Emerging Energy business platform, through which Phillips 66 continues to advance its efforts in renewable fuels, batteries, carbon capture and hydrogen. Recent announcements include:

  • Expanding its presence in the battery supply chain. In September 2021, Phillips 66 acquired a 16% stake in NOVONIX Ltd., an ASX-listed company with operations in the United States and Canada that develops technology and supplies materials for lithium-ion batteries. The investment by Phillips 66 supports an expansion of 30,000 metric tons per year of additional synthetic graphite production capacity at NOVONIX’s Chattanooga, Tennessee plant, bringing the plant’s total capacity to 40,000 metric tons per year. The expansion is expected to be completed in 2025.
  • Collaborating on the development of low-carbon hydrogen opportunities. In October 2021, Phillips 66 signed a memorandum of understanding with Plug Power Inc., a leading provider of global green hydrogen solutions. The companies will focus on scaling low-carbon hydrogen throughout the industrial and mobility sectors, while advancing the development of hydrogen-related infrastructure. They will also explore ways to deploy Plug Power’s technology and equipment within Phillips 66’s operations.

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