Market Overview

Phillips 66 Reports Second-Quarter Earnings of $550 Million or $1.06 Per Share

Share:

Adjusted earnings of $569 million or $1.09 per share

Highlights

  • Refining utilization averaged 98 percent following major first-quarter
    turnarounds
  • CPChem achieved 98 percent Olefins and Polyolefins utilization in
    Chemicals
  • Realized strong margins and volumes in Marketing and Specialties
  • Generated $1.9 billion in cash from operations
  • Increased quarterly dividend by 11 percent to 70 cents per common share
  • Returned $741 million to shareholders through dividends and share
    repurchases
  • CPChem reached mechanical completion of its two U.S. Gulf Coast
    polyethylene units

Phillips 66 (NYSE:PSX), an energy manufacturing and logistics company,
announces second-quarter 2017 earnings of $550 million, compared with
$535 million in the first quarter of 2017. Excluding special items,
adjusted earnings were $569 million, compared with first-quarter
adjusted earnings of $294 million.

"We delivered good operating performance, generated strong cash flow and
made significant progress in several growth initiatives during the
quarter," said Greg Garland, chairman and CEO of Phillips 66. "The
Bakken Pipeline and new storage capacity at the Beaumont Terminal were
placed into service, and CPChem reached mechanical completion of two
polyethylene units as part of its U.S. Gulf Coast Petrochemicals
Project. Additionally, the Billings Refinery completed an advantaged
crude project to enhance returns. The completion of these projects
improves our future earnings and cash generation capability."

"In the quarter, we raised our dividend by 11 percent and increased
share repurchases, returning $741 million to shareholders. In our first
five years as a company, we have increased the dividend at a 30 percent
compound annual growth rate and have repurchased or exchanged 131
million shares, representing more than 20 percent of our initial shares
outstanding."

 

Midstream

 
        Millions of Dollars
Earnings     Adjusted Earnings
Q2 2017     Q1 2017 Q2 2017     Q1 2017
Transportation $ 74     78 74     78
NGL 9 17 14 17
DCP Midstream         13       17   13       17
Midstream net income 96 112 101 112
Less: Noncontrolling interests*         37       35   37       35
Midstream earnings         $ 59       77   64       77
*Included in Transportation and NGL businesses.
 

Midstream's second-quarter earnings were $59 million, compared with $77
million in the first quarter of 2017. Midstream earnings in the second
quarter of 2017 included a $5 million charge for pension settlement
expense.

Transportation net income for the second quarter of 2017 was $74
million, down $4 million from first-quarter net income of $78 million.
This decrease was primarily due to seasonally higher maintenance costs,
partially offset by improved volumes.

NGL second-quarter adjusted net income of $14 million was $3 million
lower than first-quarter adjusted net income of $17 million, mainly
reflecting turnaround impacts at equity-owned fractionators and
seasonally lower propane sales. These items were partially offset by
improved results at the Sweeny Hub.

The company's equity investment in DCP Midstream generated net income of
$13 million in the second quarter, compared with $17 million in the
prior quarter. This decrease reflects lower commodity prices as well as
increased operating and maintenance costs, partially offset by a gain on
the sale of a non-core gathering system.

 

Chemicals

 
        Millions of Dollars
Earnings     Adjusted Earnings
Q2 2017     Q1 2017 Q2 2017     Q1 2017
Olefins and Polyolefins (O&P) $ 179     161 179     161
Specialties, Aromatics and Styrenics (SA&S) 21 25 21 45
Other         (4 )     (5 ) (4 )     (5 )
Chemicals         $ 196       181   196       201  
 

The Chemicals segment reflects Phillips 66's equity investment in
Chevron Phillips Chemical Company LLC (CPChem). Chemicals'
second-quarter earnings were $196 million, compared with $181 million in
the first quarter of 2017. Chemicals' earnings in the first quarter of
2017 included a charge of $20 million related to an impairment of a
CPChem joint venture.

CPChem's O&P business contributed $179 million of earnings to Chemicals'
second-quarter results. The $18 million increase from the prior quarter
was primarily due to improved margins and higher volumes. Global O&P
utilization was 98 percent, up from 89 percent in the first quarter.

CPChem's SA&S business contributed $21 million of adjusted earnings in
the second quarter, a decrease of $24 million from the prior quarter.
The decrease primarily reflects lower equity earnings as a result of
lower margins and unplanned downtime, as well as a $10 million gain
recorded in the first quarter on the sale of CPChem's K-Resin®
SBC business.

 

Refining

 

 

        Millions of Dollars
Earnings     Adjusted Earnings
Q2 2017     Q1 2017 Q2 2017     Q1 2017
Refining         $ 224       259   233       (2 )
 

Refining's second-quarter earnings were $224 million, compared with $259
million in the first quarter of 2017. Second-quarter earnings included
pension settlement expense of $22 million, partially offset by an
insurance claim reimbursement of $13 million. Refining's earnings in the
first quarter of 2017 included a $261 million gain resulting from the
consolidation of the MSLP petroleum coking venture following the
resolution of an ownership dispute.

Refining's adjusted earnings were $233 million in the second quarter.
The $235 million improvement from the prior quarter was largely driven
by higher volumes and lower costs due to reduced turnaround activity.
Realized margins for the quarter were $8.44 per barrel, compared with
$8.55 per barrel in the first quarter. Phillips 66's worldwide crude
utilization rate was 98 percent, up from 84 percent in the prior
quarter. Pre-tax turnaround costs for the second quarter were $154
million, compared with first-quarter costs of $299 million. Clean
product yield was 85 percent in the second quarter, unchanged from the
first quarter.

 

Marketing and Specialties

 
        Millions of Dollars
Earnings     Adjusted Earnings
Q2 2017     Q1 2017 Q2 2017     Q1 2017
Marketing and Other $ 181     124 185     124
Specialties         33       17   33       17
Marketing and Specialties         $ 214       141   218       141
 

Marketing and Specialties (M&S) second-quarter earnings were $214
million, compared with $141 million in the first quarter of 2017. M&S's
second-quarter earnings included a charge of $4 million for pension
settlement expense.

Adjusted earnings for Marketing and Other were $185 million in the
second quarter, an increase of $61 million. The increase was largely due
to higher realized margins and volumes, reflecting seasonal demand.
Refined product exports in the second quarter were 179,000 barrels per
day (BPD), up from 144,000 BPD in the prior quarter.

Phillips 66's Specialties businesses generated earnings of $33 million
during the second quarter. The $16 million increase from the prior
quarter was mainly due to higher equity earnings from the Excel
Paralubes joint venture, driven by improved base oil margins.

 

Corporate and Other

 
        Millions of Dollars
Earnings     Adjusted Earnings
Q2 2017     Q1 2017 Q2 2017     Q1 2017
Corporate and Other         $ (143 )     (123 ) (142 )     (123 )
 

Corporate and Other's second-quarter net costs were higher than the
prior quarter, mainly due to certain tax adjustments.

Financial Position, Liquidity and Return of Capital

Phillips 66 generated $1.9 billion in cash from operations during the
second quarter, including $422 million of cash distributions from equity
affiliates. Excluding working capital impacts, operating cash flow was
$1.2 billion.

During the quarter, Phillips 66 funded $458 million of capital
expenditures and investments, and distributed $360 million in dividends
and $381 million in share repurchases. The company ended the quarter
with 512 million shares outstanding.

As of June 30, 2017, cash and cash equivalents were $2.2 billion, and
consolidated debt was $10.0 billion, including $2.3 billion at Phillips
66 Partners (PSXP). The company's consolidated debt-to-capital ratio and
net-debt-to-capital ratio were 30 percent and 25 percent, respectively.
Excluding PSXP, the debt-to-capital ratio was 26 percent and
net-debt-to-capital ratio was 20 percent.

Strategic Update

Phillips 66 reached significant investment milestones during the second
quarter as major capital projects were completed in Midstream, Chemicals
and Refining.

In Midstream, Phillips 66 has a 25 percent interest in joint ventures
that own the 520,000 BPD Dakota Access Pipeline and Energy Transfer
Crude Oil Pipeline, collectively referred to as the Bakken Pipeline.
Commercial operations started during the second quarter.

At the company's Beaumont Terminal, 1.2 million barrels of product
storage was placed in service during the quarter. An additional 2.2
million barrels of crude storage is planned to be in service in the
second half of 2018. Expansion of the terminal's export facilities, from
a current capacity of 400,000 BPD to 600,000 BPD, is scheduled to be
completed in the first quarter of 2018.

Phillips 66 Partners is advancing its organic growth program. Progress
continues on the Bayou Bridge Pipeline segment from Lake Charles to St.
James, Louisiana, with commercial operations expected to begin in the
first quarter of 2018.

DCP Midstream is expanding the Sand Hills NGL Pipeline capacity from
280,000 BPD to 365,000 BPD, with an expected in-service date in the
fourth quarter of 2017. In addition, DCP announced plans to further
expand the line to approximately 450,000 BPD. Sand Hills is owned
two-thirds by DCP and one-third by Phillips 66 Partners. DCP is also
expanding its footprint in the DJ Basin with construction of the
Mewbourn 3 gas processing plant, which is expected to start up in the
fourth quarter of 2018.

CPChem completed a major milestone of its U.S. Gulf Coast Petrochemicals
Project as the two 1.1-billion-pound-per-year polyethylene derivative
units reached mechanical completion in June. The ethane cracker is
expected to be mechanically complete in the fourth quarter of 2017. This
project will increase CPChem's global ethylene and polyethylene capacity
by approximately one-third.

In Refining, the company increased its heavy crude processing capability
at the Billings Refinery to 100 percent with the startup of a new vacuum
distillation unit. At both the Bayway and Wood River refineries, the
company is modernizing fluid catalytic cracking units to increase clean
product yield. Both projects are expected to be complete in the first
half of 2018. Phillips 66 is also implementing yield improvement efforts
at several other refineries, including Ponca City, where a diesel
recovery project is expected to be complete in the third quarter of 2017.

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
2017     2016
Q2     Q1    

Jun
YTD

Q2    

Jun
YTD

Midstream $ 59     77     136 39     104
Chemicals 196 181 377 190 346
Refining 224 259 483 149 235
Marketing and Specialties 214 141 355 229 434
Corporate and Other         (143 )     (123 )     (266 ) (111 )     (238 )
Phillips 66         $ 550       535       1,085   496       881  
 

Adjusted Earnings

 
Millions of Dollars
2017 2016
Q2     Q1    

Jun
YTD

Q2    

Jun
YTD

Midstream $ 64 77 141 39 79
Chemicals 196 201 397 190 346
Refining 233 (2 ) 231 152 238
Marketing and Specialties 218 141 359 229 434
Corporate and Other         (142 )     (123 )     (265 ) (111 )     (238 )
Phillips 66         $ 569       294       863   499       859  
 

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 an integral asset in the portfolio.
Headquartered in Houston, the company has 14,600 employees committed to
safety and operating excellence. Phillips 66 had $52 billion of assets
as of June 30, 2017. 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; 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 net 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 don't
reflect the core operating results of our businesses in the current
period. 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. References to adjusted earnings refer to
earnings excluding special items, as detailed in the tables to this
release.

 
        Millions of Dollars
Except as Indicated
2017     2016
Q2     Q1    

Jun
YTD

Q2    

Jun
YTD

Reconciliation of Earnings to Adjusted Earnings            
Consolidated Earnings $ 550 535 1,085 496 881
Pre-tax adjustments:
Pending claims and settlements (24 ) (24 ) (45 )
Pension settlement expense 55 55
Impairments by equity affiliates 33 33 6
Recognition of deferred logistics commitments 30 30
Gain on consolidation of business (423 ) (423 )
Tax impact of adjustments* (12 ) 149 137 (11 ) 3
Other tax impacts                       (16 )     (16 )
Adjusted earnings         $ 569       294       863   499       859  
Earnings per share of common stock (dollars) $ 1.06 1.02 2.07 0.93 1.65
Adjusted earnings per share of common stock (dollars)         $ 1.09       0.56       1.65   0.94       1.61  
Midstream Earnings $ 59 77 136 39 104
Pre-tax adjustments:
Pending claims and settlements (45 )
Impairments by equity affiliates 6
Pension settlement expense 8 8
Tax impact of adjustments*         (3 )           (3 )       14  
Adjusted earnings         $ 64       77       141   39       79  
Chemicals Earnings $ 196 181 377 190 346
Pre-tax adjustments:
Impairments by equity affiliates 33 33
Tax impact of adjustments*               (13 )     (13 )        
Adjusted earnings         $ 196       201       397   190       346  
Refining Earnings $ 224 259 483 149 235
Pre-tax adjustments:
Pending claims and settlements (21 ) (21 )
Gain on consolidation of business (423 ) (423 )
Recognition of deferred logistics commitments 30 30
Pension settlement expense 35 35
Tax impact of adjustments* (5 ) 162 157 (11 ) (11 )
Other tax impacts                       (16 )     (16 )
Adjusted earnings         $ 233       (2 )     231   152       238  
Marketing and Specialties Earnings $ 214 141 355 229 434
Pre-tax adjustments:
Pension settlement expense 7 7
Tax impact of adjustments*         (3 )           (3 )        
Adjusted earnings         $ 218       141       359   229       434  
Corporate and Other Earnings (loss) $ (143 ) (123 ) (266 ) (111 ) (238 )
Pre-tax adjustments:
Pending claims and settlements (3 ) (3 )
Pension settlement expense 5 5
Tax impact of adjustments*         (1 )           (1 )        
Adjusted earnings (loss)         $ (142 )     (123 )     (265 ) (111 )     (238 )

*We generally tax effect taxable U.S.-based special items using a
combined federal and state statutory income tax rate of approximately 38
percent. 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
Q2 2017
Debt-to-Capital Ratio        

Phillips 66

Consolidated

    PSXP*    

Phillips 66

Excluding

PSXP

Total Debt $ 9,965 2,252 7,713
Total Equity         23,806       1,410       22,396  
Debt-to-Capital Ratio 30 % 26 %
 
Total Cash         $ 2,161       1       2,160  
Net-Debt-to-Capital Ratio         25 %           20 %
*PSXP's third-party debt and Phillips 66's noncontrolling
interests attributable to PSXP.
 

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