Refining gain boosts Phillips 66’s profits
Phillip 66’s earnings soared in 2018 as a refining bonanza lifted the Houston energy company's full-year profits to record levels.
The refining and pipeline company said Friday that its full-year profits climbed 8 percent last year, reaching $5.6 billion, up from $5.2 billion in 2017. Revenue rose 9 precent to to $114.2 billion last year from $104.6 billion the previous.
The earnings report, which beat Wall Street expectations, helped boost the company’s stock nearly 2 percent to close at $93.52 a share.
“We delivered another quarter of strong operating and financial performance, capping a record year for Phillips 66,” said Greg Garland, chairman and CEO of Phillips 66. “For the year, we sustained our industry-leading safety performance, achieved our highest ever earnings and operating cash flow, and rewarded our shareholders with substantial distributions.”
Phillips 66 more than doubled its annual refining earnings to $4.5 billion from $2 billion in 2017 as demand kept its refineries operating at or near full capacity all
year .
Garland told investors Friday that Phillips 66 used its vast pipeline and logistics network to bring discounted heavy Canadian crude and lighter Bakken crude to its refineries on the Gulf Coast and Central Corridor (Northern Texas, Oklahoma, Illinois and Montana), boosting its profit margins.
“As the largest US importer of Canadian crude, (Phillips 66) was able to capture (Western Canadian) discounts better than anyone else who has reported thus far, and the rapid decline in crude prices also provided an assist,” said Brad Heffern, analyst with RBC Capital in a note to investors.
Although Philips 66 expects gasoline demand to stay flat this year, Garland said demand for distillate, such as diesel and jet fuel, could grow by 1 percent to 3 percent. Part of that is due to growing demand from the trucking and airline industry. But part of the growth will come from IMO 2020, the maritime industry’s shift to lower sulfur fuel that is expected to boost demand for diesel, marine gasoil and other distillates.
The pipeline side of the business also saw healthy earnings — hitting $1.1 billion in net income for the full year, up from $638 million the previous year. The company has boosted its capital budget by 26 percent, as it plans to continue to make upgrades to its Sweeny refinery and wrap up construction of the Gray Oak Pipeline extending from West Texas to Corpus Christi and the Sweeny/ Freeport markets. It’s also looking at expanding its petrochemical business on the Gulf Coast, which it owns in a joint venture called Chevron Phillips Chemical.
Like other petrochemical companies such as LyondellBasell, Chevron Phillips Chemical’s demand softened in the fourth quarter, dinging Phillips 66 fourth quarter petrochemical earnings by about $110 million compared to the third quarter. But Chevron Phillips is seeing demand pick up again at the start of the year and Garland remained optimistic about the chemicals business.
Overall at Phillips 66’s profits in the fourth quarter were down by about $1 billion from the same time last year, but the drop is mostly due to a one-time benefit from the federal tax overhaul that Phillips 66 reported in fourth quarter of 2017. Phillips 66 reported a fourth quarter profit of $2.2 billion, down from $3.2 billion in the same period a year earlier.