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Philips 66 Offers 2013 Capital Plan, Will Do IPO of Some Transportation Assets

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Phillips 66 (NYSE: PSX) will host its inaugural Analyst Meeting today in New York to update investors and analysts on plans to enhance returns, deliver profitable growth and increase distributions to shareholders. Company executives will discuss Phillips 66's strategy to capitalize on the North American oil and gas production revolution through its formation of a master limited partnership (MLP), $3.7 billion total capital program, and increased use of advantaged feedstocks. With a geographically-advantaged portfolio of refining and marketing (R&M), midstream and chemicals assets, Phillips 66 is uniquely positioned to benefit from these developing market opportunities.

In support of growth and value creation, Phillips 66 intends to contribute a portion of its transportation assets to form an MLP. The company is evaluating assets for contribution to the MLP, which may include certain product and crude pipelines and terminals, rail cars and other rail infrastructure, as well as natural gas liquids (NGL) assets. A registration statement for an initial public offering (IPO) is expected to be filed with the Securities and Exchange Commission in the second quarter of 2013. Subject to market conditions and final approval by Phillips 66's board of directors, the company anticipates selling a minority interest in the MLP in an IPO in the second half of 2013. Phillips 66 expects the offering to raise approximately $300 million to $400 million of gross cash proceeds.

Phillips 66's 2013 planned capital program is $3.7 billion. This includes Phillips 66's portion of planned capital spending by DCP Midstream, Chevron Phillips Chemical Company (CPChem) and WRB Refining totaling $1.8 billion, which is not expected to require cash outlays by Phillips 66. The other $1.9 billion represents Phillips 66's consolidated investments in R&M, Midstream and Corporate and Other. The 2013 capital program represents a 6 percent increase over expected 2012 capital spend of $3.5 billion.

DCP Midstream plans to invest $2.2 billion primarily for new logistics infrastructure and NGL production during 2013. Similarly, CPChem plans $1.1 billion of investment including several growth projects planned or under construction, such as its U.S. Gulf Coast petrochemicals complex and 1-hexene plant.

Phillips 66 is executing plans to improve capital efficiency in its R&M segment. The company has identified sources of additional advantaged crudes and is taking steps to move these lower cost feedstocks to its refineries. Currently, eight of the company's domestic refineries are processing shale crudes. Additionally, as part of this ongoing initiative, Phillips 66 recently signed time charter agreements for two medium-range Jones Act marine vessels that will supply the Alliance and Bayway refineries, and potentially the company's other Gulf Coast refineries, with Eagle Ford crude beginning in early 2013. Over the next several years, the company expects to replace 500,000 BPD of higher cost feedstocks with new or increasingly advantaged crudes.

Margins are also expected to improve as the company increases its ability to serve the growing international refined products markets where opportunities exist. Phillips 66 has several projects planned or in execution to increase export capability from its Gulf Coast and West Coast refineries by 100,000 BPD by 2014.

Other initiatives to improve margins include increasing clean product yields in refining, as well as controlling costs. Across the company, Phillips 66 is targeting cost reductions and value capture in excess of $200 million before-tax by the end of 2013.

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